During a public meeting in 2020, speaker after speaker enthusiastically sang the praises of Prospect Medical Holdings, the California-based owner of Roger Williams Medical Center in Providence and Our Lady of Fatima Hospital in North Providence.
“We are grateful for the partnership of having Prospect being part of the community and rescuing CharterCARE and especially Roger Williams hospital back in 2014,” Matos said.
The meeting during which Matos spoke was held by the Health Services Council, an advisory group to the Rhode Island Department of Health. The issue was whether to allow two top executives who owned 40 percent of Prospect Medical Holdings to acquire the remaining 60 percent of the company.
Matos had a personal reason for supporting the deal. Her father was one of the first people diagnosed with COVID-19 in Rhode Island, and she credited his successful recovery to staff at Roger Williams. Matos also pointed to how CharterCARE employs thousands of local workers and how the firm was a top taxpayer in Providence.
“So with that I’d just like to say that I’m a supporter of this transaction,” she said.
But there was a lot more to this story -- and Matos appears to have been unaware of it at the time of this July 2020 meeting.
For the change in ownership to go forward, approval was needed from the Health Department and Attorney General Peter Neronha. And there were so many questions about the transaction that Neronha’s office had extended the deadline for reviewing it.
Miriam Weizenbaum, chief of Neronha’s civil division, during a latter part of the same meeting when Matos spoke virtually, urged the Health Services Council to dig deeper.
“We urge the council to be very deliberative in this process and to take all the time necessary to do a complete review of the implications of this decision,” Weizenbaum said.
A complete review was necessary since a Los Angeles-based private equity firm, Leonard Green & Partners, was looking to sell its majority stake in Prospect Medical for just $12 million, a conspicuously low price for a chain of 17 hospitals across the U.S.
And Leonard Green was already under fire in letters sent by members of Congress, including U.S. Rep. David Cicilline, for extracting hundreds of millions of dollars in fees and dividends from Prospect Medical while loading the company with debt.
MATOS “SEEMED TO BE SURPRISED”
Due to these issues, United Nurses and Allied Professionals, which represents about 800 CharterCARE workers, was concerned when Matos supported without reservation the change in ownership for Prospect Medical.
“We thought, you know, maybe she has not been fully briefed on what this transaction is all about,” said Chris Callaci, general counsel for the union, “and what the business practices were and are of Prospect Medical Holdings.”
Callaci said UNAP met with Matos, after she supported the transaction in a letter, to share information about Prospect.
“She seemed to be surprised and taken aback and concerned about, you know, the magnitude of these business practices and the extent to which we believed that they were putting these institutions in Rhode Island at risk,” he said.
Attorney General Neronha also thought that the proposed change in control of Prospect Medical would put Roger Williams Medical Center and Our Lady of Fatima at risk.
That’s why he conditioned approval of the deal in June 2021 on Prospect satisfying a series of steps, including the creation of an $80 million escrow account.
“They had placed our hospitals as collateral on a $100 million promissory note,” Neronha said. “So to me those were enormous warning flags. And there was simply no way in my view that we could ever approve that transaction without getting the money that we needed to ensure that they were in the black and invest it back.”
ONE CANDIDATE’S RISE
Matos was born in the Dominican Republic. Her family moved to Rhode Island when she was 20 and she first won a Providence City Council seat in 2010, representing the Ward 15 areas of Olneyville and Silver Lake.
She became council president in 2019.
Matos was picked by Gov. Dan McKee to be lieutenant governor in 2021, making her the first Latina to serve in that role.
She’s now part of a field of about 15 Democrats running in a special election for the First Congressional District seat formerly held by Cicilline. Her statewide profile and the length of her time in public office make her a leading contender.
A HIGH LIKELIHOOD OF CLOSING
During a recent interview, Neronha pointed to how Prospect has closed hospitals in other states in recent years. That shows, he said, that without the creation of the $80 million escrow account, Roger Williams and Fatima probably would have closed.
“Could I say definitively those hospitals would be closed?” he asked. “I can’t, but I can say that there are hospitals around the country, including a suburban hospital in Pennsylvania -- outside Philadelphia, just like these hospitals -- that have closed. And so I think the likelihood of them closing is very high.”
North Providence Mayor Charles Lombardi also offered unreserved support for Prospect’s change in ownership during the July 2020 meeting of the Health Services Council, saying in part: “Thank God, Prospect rescued Fatima from insolvency. You have no idea what this has meant to our community.”
Neronha was asked if elected officials should have known better than to offer unqualified support for the Prospect transaction in 2020.
“Certainly, there’s always a danger when you testify in support of a transaction when you don’t really understand what that transaction means or how it might impact the future of those hospitals,” he said.
Looking ahead, a nonprofit group based in Atlanta, the Centurion Foundation, is seeking to buy Roger Williams Medical Center, Our Lady of Fatima and the other entities that make up CharterCARE.
That process remains at an early stage, and Neronha said it’s too soon to say what will happen to the escrow account funded by Prospect Medical Holdings.
PRIVATE EQUITY’S MOVE INTO HEALTHCARE
According to a 2020 report by the Institute for New Economic Thinking, private equity firms made more than 800 deals involving healthcare, representing $100 billion in capital, just in 2018.
According to the report, “Policy makers should take note of private equity’s heightened role in healthcare as the country hotly debates the financial model of an industry that represents 18 percent of GDP and rising.”
But Eileen O’Grady, director of research and campaigns with the Private Equity Stakeholder Project, a watchdog group, said that what happened in Rhode Island reflects how elected officials have traditionally not been very skeptical about the impact of private equity on healthcare.
“Private equity firms are often buying hospitals or healthcare providers that are already struggling,” she said. “That gives them a good amount of leverage to basically position them as the saviors of struggling health systems when that may not always be the case.”
Campaign finance records show that Matos has in recent years received $1,000 in contributions from a former CharterCARE executive, Jim Bennett, and more than $5,000 from employees with a firm that has lobbied for CharterCARE, the Capital City Group.
Matos’ campaign declined to make her available for an interview with The Public’s Radio for this story or to answer a series of written questions.
In a statement, Matos called the change in ownership for Prospect a complex and complicated transaction.
She said she was confident that state regulators would take great care in assessing the clinical and financial implications of the proposal. Matos said she’s glad the process resulted in “an outcome that works for the people who work and seek care in Rhode Island.”
This is an expanded version of a radio story airing on The Public's Radio.
Ian Donnis can be reached at idonnis@ripr.org. Follow him on Twitter @IanDon and sign up for email delivery of his weekly RI politics newsletter.
