As the private-equity-firm owners look to sell, the future of two safety-net hospitals in R.I. is at stake

In 2021, a 70-page report released by the state attorney general’s office painted a horrifying picture of the financial situation at Our Lady of Fatima Hospital in North Providence and Roger Williams Medical Center in Providence, both of which have been owned by Prospect since 2014.

Since then, the financial situation has gotten worse. As of late 2023, the two hospitals owed more than $24 million to vendors. At least 19 surgeries had to be canceled in October when equipment and supplies were unavailable, according to a state compliance order released in November.

The scrutiny over the hospitals’ operations comes as Prospect has been trying to sell several of the 17 hospitals it owns in five states. The Centurion Foundation, an Atlanta-based private nonprofit, is attempting to buy the two in Rhode Island. Together, the Roger Williams and Fatima hospitals employ about 2,800 people and care for thousands of patients each year.

Roger Williams and Fatima hospitals are run by Prospect’s Rhode Island-based subsidiary, CharterCARE Health Partners. Centurion president Ben Mingle told the Globe that, if the sale goes through, the foundation plans to hire for an estimated 200 positions in Rhode Island. CharterCARE will return to nonprofit status and will be managed locally, he said, and no money will flow out of state..

What Centurion is trying to do, he said, is to make sure hospitals and health care centers survive and are self-sustaining by lowering their real estate costs. In its previous transactions, for example, Centurion has renegotiated rents and, in some cases, returned entities to nonprofit status, which allows them to avoid paying property taxes and to raise funds on their own.

“We look to stabilize health care locally and nationally, and we see private equity and what it’s doing to the acute care hospital space and we see how disruptive it is, and how misaligned it is,” Mingle said. “That’s what got us to this transaction, and what got us into health care.”

But Chris Callaci, general counsel for United Nurses and Allied Professionals, which represents about 1,000 workers at both hospitals, said the hospitals cannot sustain themselves on their own. He called Centurion’s business model “simply not credible or viable” — which CharterCARE executives strongly deny. He noted the foundation plans to finance the deal through a combination of $133 million in taxable and tax-exempt bonds.

“According to Centurion, these community hospitals and healthcare facilities are supposed to survive by finding cost-savings and new revenue, which they haven’t been able to do for decades now,” the union said in a statement.

Callaci called Centurion an “unknown entity,” and said it has never operated or owned a hospital before. .

Centurion, founded in 1996 by Gregory Grove, claims to have completed more than 20 transactions over the last three decades, financing 31 facilities nationwide. According to documents obtained by the Globe, that includes deals with Texas-based Ascension Seton, Alabama-based Infirmary Health System, and Washington-based MultiCare.

Executives confirm Centurion has not owned or operated any of its health care facilities, although in some cases it did retain ownership of their real estate. In Rhode Island, Mingle said Centurion would not have operational control over the hospitals and does not plan to provide financial support for them.

UNAP leaders also told the Globe that Centurion officials have refused to formally commit to a labor agreement that would offer protections against any hospital closures, reduction of services, or layoffs.

After months of delays, in December the Rhode Island Department of Health and the state attorney general’s office deemed Centurion’s application complete. State regulators have until June 11 to approve or deny the proposal, or to approve it with added conditions.

If the deal goes through, CharterCARE executives said, the company would return to nonprofit status, and the two hospitals would become stronger in a struggling industry.

Jeffrey H. Liebman, chief executive of CharterCARE, told the Globe a deal with Centurion “is the best solution in many ways.” He plans on staying on as the CEO for another five years if the deal is approved and pushed back against questions about potential cuts in services or staff. He noted that for-profit health businesses can’t receive certain federal dollars, including FEMA funding, but being owned by Centurion would allow CharterCARE to be eligible for that assistance.

“The plan is, by changing our tax status and realigning some of the way we do management systems, we’re going to be positioned not only for these services, but as a platform for growth,” said Liebman.

Reestablishing research capabilities, improving patient care, and expanding its network of primary care providers and specialists could all be in the cards, he said.

“We’re going to go back to the larger institutional things we were able to do years ago . . . more than 10 years ago,” Liebman said.

Health care providers and patients have submitted written comments that are overwhelmingly in favor of the deal. Some called Prospect “evil” and detailed problems they said were caused by the private equity company.

Under Prospect’s ownership, Fatima Hospital and Roger Williams Medical Center accumulated net operating losses of $88.1 million from 2015 to 2020, according to a report prepared by Pershing Yoakley & Associates PC, an independent consultant. Prospect’s liabilities exceeded its assets by more than $1 billion as of September 2020. Using its hospitals as collateral, Prospect borrowed $1 billion in 2018, some of which was used to pay a nearly $500 million dividend.

In 2021, Prospect sold hospital buildings and land it owned in Connecticut, Pennsylvania, and California to Alabama-based Medical Properties Trust for $1.4 billion. It then leased back the buildings and land from MPT, CBS News reported. It’s a pattern that Steward followed in Eastern Massachusetts, where it reportedly owes MPT at least $50 million in unpaid rent.

In 2023, Rhode Island Attorney General Peter F. Neronha sued Prospect for failing to comply with his conditions to protect the hospitals, which were supposed to be in force until 2027. A court hearing in the lawsuit is scheduled for Tuesday.

Neronha also ordered Prospect to set money aside to stabilize the hospitals. But rather than agree to put $80 million in escrow to secure the hospitals, Prospect threatened to close them.

“There isn’t anything that I think about on a day-to-day basis more than the future of Roger Williams and Fatima hospitals,” Neronha said.

Senators Sheldon Whitehouse, a Rhode Island Democrat who chairs the Senate Budget Committee, and Chuck Grassley, an Iowa Republican and ranking member of the committee, recently launched a bipartisan investigation into the involvement of private equity firms in health care across the nation. It includes investigations into Prospect Medical Holdings and Prospect’s former majority owner, Leonard Green & Partners.

“As private equity has moved into health care, we have become increasingly concerned about the associated negative outcomes for patients. From facility closures to compromised care, it’s now a familiar story: Private equity buys out a hospital, saddles it with debt, and then reduces operating costs by cutting services and staff — all while investors pocket millions,” said Whitehouse in December.

Prospect has millions of dollars in unpaid bills with vendors and landlords, and owes back taxes to local governments. It has closed ambulatory centers, reduced services, and even shut entire hospitals, including in Pennsylvania. Connecticut Attorney General William Tong is investigating Prospect for financial mismanagement that has jeopardized three safety-net hospitals in Connecticut, where the private equity firm owes the state more than $67 million in back taxes, the CT Mirror reported in January.

In Rhode Island, the state Department of Health found Prospect collects all revenue from Fatima Hospital and Roger Williams Medical Center every day and gives the hospitals a smaller “operating allowance” once a week. In a 2023 compliance order, the Department of Health said Prospect underfunded the two hospitals to such an extent that it impacted operations.

“I don’t believe for a minute that [Prospect] will keep those hospitals open,” Neronha told the Globe. If Fatima and Roger Williams close, Rhode Island’s health care industry would “certainly be in crisis,” he said.

Alexa Gagosz can be reached at [email protected]. Follow her @alexagagosz and on Instagram @AlexaGagosz.