Prospect of bankruptcy has R.I. regulators closely watching sale of Roger Williams, Fatima

Just when the yearslong saga of selling two urban safety net hospitals appeared to have reached its final chapter, a plot twist has emerged.

Prospect Medical Holdings, the California-based hospital operator that owns Roger Williams Medical Center in Providence and Our Lady of Fatima Hospital in North Providence, is facing new financial difficulties. The company has missed rent payments to its landlord, Medical Properties Trust, and is now working with a team of legal consultants to consider potential restructuring — including, potentially, bankruptcy, the Wall Street Journal reported on Jan. 8. 

Conn. officials respond to threat of Prospect Medical Holdings bankruptcy

Otis Brown, a spokesperson for The Centurion Foundation, the prospective buyer of Roger Williams and Fatima, did not comment on the situation except to say the company was “aware” of the reports. The Atlanta nonprofit previously intended to close on the $80 million deal to buy Roger Williams and Fatima sometime this month.

“We want to make it clear that The Centurion Foundation remains fully committed to the agreement to acquire CharterCARE Health Partners from Prospect Medical Holdings, and the terms and conditions approved by state regulatory agencies,” Brown said in an email Friday. “We continue to work closely with all parties to advance the sale closure in the very near future.”

Prospect did not return inquiries for comment Friday. The hospital chain had not filed for bankruptcy as of Friday, according to federal court documents.

State regulators are bracing for the possibility that Prospect’s new financial woes might unravel the carefully configured deal to sell Roger Williams and Fatima.

“For the past year, we have been preparing for the possibility of this exact scenario,” Attorney General Peter Neronha said in a statement on Thursday. “Rhode Islanders know the devastating effects of private equity on our healthcare system, not because we’ve studied it, but because we’ve lived it.”

AG: ‘Prepared for all scenarios’

A potential bankruptcy would only affect the pending sale if Prospect files before the local deal closes, Neronha said in an interview Friday. Even then, a federal bankruptcy judge could still agree to the ownership change. Or, in what Neronha fears would be the worst-case scenario, the local hospitals could become assets in a bankruptcy case, sold to pay off Prospect’s creditors.

“We’re prepared for all scenarios,” Neronha said Friday.

For years, Neronha has blasted Prospect and its former majority owner, private equity firm Leonard Green, for dipping into the hospitals’ pockets to pay out investors, shortchanging critical health care operations.

Leonard Green and Prospect were also singled out in a new report by the Senate Budget Committee investigating the consequences of private equity ownership on hospitals.

“Private equity has infected our health care system, putting patients, communities, and providers at risk,” U.S. Sen. Sheldon Whitehouse, a Rhode Island Democrat, said in a statement. Whitehouse co-led the bipartisan investigation along with U.S. Sen. Chuck Grassley, an Iowa Republican. 

The 167-page report, released Tuesday, lays bare the ways that Leonard Green, which took control of Prospect in 2010, manipulated Prospect Medical’s finances for its own profits and to satisfy investors, “regardless of patient outcomes.” For example, Leonard Green forced Prospect to take out a $325 million loan to redeem its preferred stock value at $88 million, granting stock options to Prospect employees based on earnings’ goals, with no similar benchmarks for patient safety and care.

By the time Leonard Green sold its majority stake in Prospect in 2021, the company faced more than $1 billion in liabilities, relative to its assets. Prospect didn’t perform much better without Leonard Green, continuing to post annual losses while letting $24 million pile up in unpaid vendor bills in 2023, alongside federally documented health and safety violations. Prospect paid $17 million in overdue bills in July 2024 after Neronha’s office took the company to court.

“Roger Williams and Fatima have the best possible chance for continued operation because of the work my office has done to transition these safety net hospitals out of Prospect ownership,” Neronha said in a statement on Thursday. “I know Rhode Islanders are concerned about the hospitals, and the sorry state of health care in this State; I am too. But know that we are well-prepared for this moment and laser-focused on ensuring our hospitals stay open and thriving.”

Neronha in 2021 required Prospect to set aside $80 million in escrow to keep hospital operations afloat, regardless of its financial condition. About $50 million remains, which should be enough to keep Roger Williams and Fatima open even if they become part of a bankruptcy sale, Neronha said Friday. 

The biggest question mark: Who, if anyone, would buy them?

Centurion was reportedly the only qualified candidate when Prospect first sought interested buyers for the pair of Rhode Island hospitals two years ago. Neronha couldn’t imagine who else would want the struggling hospitals, at least without a little boost from state coffers.

The Massachusetts approach

In Massachusetts, Gov. Maura Healey authorized hundreds of millions of dollars in state and federal funding to sweeten the sales of a half-dozen hospitals formerly owned by  Steward Health Care, which also filed for bankruptcy.

Neronha was skeptical Rhode Island officials would be willing to do the same.

“We continue to whistle past the graveyard in health care, which is a source of concern and frustration for me,” he said. “If these hospitals were to close, that would have a significant impact on our overall health care system. I don’t know if there’s a more important issue facing our state right now.”

Neronha said he tried, but was unable to reach Gov. Dan McKee on Thursday to discuss potential scenarios for Roger Williams and Fatima.

McKee’s office did not immediately respond to inquiries for comment on Friday.

Meanwhile, the $80 million sale of Roger Williams and Fatima hospitals to Centurion also requires significant investments in their operations. Among the 80 conditions set by the AG and the Rhode Island Department of Health in their joint review of the transaction: The parties have to put another $80 million in capital directly into the hospitals, while setting aside another $66.8 million to be held in escrow, reserved for uses other than executive compensation or management fees.

Despite these conditions, and Prospect’s problematic history, critics were still unhappy with the sale because of the debt financing funding the deal, and Centurion’s lack of experience in hospital operations.

But the prospect of federal bankruptcy may have warmed skeptics to Centurion as the lesser evil. Under Centurion, the hospitals would have to file regular financial reports with state regulators, offering Neronha the opportunity to put the hospitals in court-appointed receivership before a federal bankruptcy filing could arise. That’s not the case now, under Prospect. 

“We are, I believe, in a better position to try and manage these hospitals through a state receivership proceeding than in a federal bankruptcy proceeding in another state,” said Chris Callaci, general counsel for United Nurses & Allied Professionals, which represents the 1,200 union members who work for CharterCARE hospitals, affiliated physician groups, home care and hospice agencies and offices in Rhode Island.

Neronha shares that view.

“Should a bankruptcy occur, we believe the transaction can and should move forward and away from Prospect,” he said.