WSJ Raises Questions About CharterCARE’s Parent Co. Finances, Battle Heats Up in RI

WSJ Raises Questions About CharterCARE’s Parent Co. Finances, Battle Heats Up in RI

In 2017, GoLocal unveiled the collapse of the pension fund of St. Joseph Hospital and since then, there have been three-plus years of litigation to recover assets from a host of business entities including the parent company of CharterCARE, Prospect Medical Holdings, and the Diocese of Providence. 

Now, a financing structure by Prospect and the private equity firm Leonard Green which has a majority stake in the hospital group is drawing the attention of regulators and the media.

Presently, Prospect is seeking a hospital conversion approval in Rhode Island. 

GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLAST

The Rhode Island Office of the Attorney General and the Rhode Island Department of Health have received the initial applications for a hospital conversion filed by a plethora of corporate entities tied to the change in control — a change that could mean millions in payouts for Prospect executives and its pension funds — the intertwined entities include — Chamber Inc.; Ivy Holdings Inc.; Ivy Intermediate Holdings, Inc.; Prospect Medical Holdings, Inc.; Prospect East Holdings, Inc.; Prospect East Hospital Advisory Services, LLC; Prospect CharterCARE, LLC; Prospect CharterCARE SJHSRI, LLC; Prospect CharterCARE RWMC, LLC.

RI Hospital Conversions in Focus

In Rhode IsIand, hospital conversions must be approved by the RIDOH and the Attorney General. Both offices approved the plan and the financing structure that lead to the failure of the St. Joseph pension fund -- now underfunded by an estimated $100 million and in receivership.

ST. JOSEPH IS NOT THE ONLY HOSPITAL PENSION FUND WITH ISSUES - READ ABOUT CARE NEW ENGLAND'S UNDERFUNDED PENSION FUND HERE

A Wall Street Journal report is raising questions about the controversial debt-financed dividend payout structure being used by Prospect and Leonard Green.

The Wall Street Journal is reporting that “Over the last decade, Prospect paid its shareholders, the biggest of which is Leonard Green, more than $500 million in dividends from these hospitals, while loading Prospect’s balance sheet with new debt, according to a debt prospectus and Moody’s.”

“After the company sought to buy two hospitals in Rhode Island in 2013, state officials requested that Prospect confirm it had no plans to pay further dividends to its shareholders after a $100 million dividend it had paid in 2012. Prospect responded that it didn’t, according to correspondence between the state and the company viewed by the Journal,” reported WSJ.

A few years after receiving clearance to buy the hospitals, Prospect agreed to pay an over $400 million debt-funded dividend to shareholders including Leonard Green.

As GoLocal unveiled in 2017, Rhode Island officials reviewed the sale of the CharterCare hospitals to Prospect — and regulators allowed Prospect to make a one-time payment to the ill-fated St. Joseph pension fund and then orphan the fund leading to its collapse.

“The private-equity firm [Leonard Green] is looking to now sell Prospect to members of the hospital’s management, a deal that has so far failed to win approval from Rhode Island, pending a review of Prospect’s activities by the state. The review has been examining the dividends paid to Leonard Green and other financial information, according to a public disclosure,” reports the WSJ.

“Prospect Medical’s finances are solid and we remain committed to CharterCARE Health Partners and to healthcare in Rhode Island,” said the company in an email to GoLocal on Monday night.

 

Union Raising Questions

In a statement Monday, United Nurses and Allied Professionals (UNAP), the healthcare union who represented workers at St. Jospeph’s Hospital and did not oppose the orphaning of the pension system, charged that top Prospect officials have profited in the financing structure and have taken tens of millions out of the company.

“Prospect CEO Sam Lee and his partner David Topper control approximately 40 percent of that interest and are currently asking the Rhode Island Department of Health and Department of Attorney General to approve effective change in control and hospital conversion applications that would grant Lee and Topper exclusive ownership of Prospect Medical Holdings and the 85% interest in Fatima Hospital and Roger Williams Medical Center,” said UNAP.

“Lee personally took in $128 million off Prospect's most recent dividend payout, while Topper cashed in for $94 million,” said UNAP.

In a memo to attorney Max Wistow, special counsel to court-appointed receiver Stephen Del Sesto, a RI-based CPA Donald Wisehart questions the financial stability of Prospect.

"I believe bankruptcy is imminent unless there is a significant infusion of capital and a return of all dividends previously paid out," Wisehart writes in the October 19th memo to Wistow. 

"The Wisehart memo clearly outlines the extent to which Lee and Topper have financially gorged themselves without care or concern for the long-term sustainability of Fatima Hospital," said Lynn Blais, RN, incoming president of UNAP.

"I've worked at this community hospital for the majority of my professional life and it sickens me to watch these 21st Century Robber Barons fill their pockets at the expense of patient care and frontline healthcare workers," Blais said. 

"We call on Rhode Island's regulators to reject the application to give Lee and Topper unfettered control of Fatima Hospital and Roger Williams. We also call on Prospect to immediately return the nearly half a billion in dividend payments to the health system it has callously leveraged and jeopardized."