Two years ago, Attorney General Peter Neronha called it unprecedented when a California company, Prospect Medical Holdings, agreed to a lengthy set of conditions as part of a change in the company’s ownership.
The most headline-grabbing aspect was the creation of an $80 million escrow account. The money would be used as leverage to ensure payment of operating expenses and guarantee tens of millions in capital improvements at Prospect Medical’s two Rhode Island hospitals, Roger Williams Medical Center in Providence and Our Lady of Fatima Hospital in North Providence.
Two years later, Neronha’s office said the escrow has been monitored independently by the Chicago-based firm RSM and about half of the original escrow, or $45 million, is left. The remainder has been returned to Prospect Medical’s past and current owners as various conditions have been met.
“We’re keeping a close eye on the finances, and that’s where our principal concern is,” Neronha said during an interview at his office.
But for now, there is no public document specifying capital improvements at Fatima and Roger Williams since Prospect Medical agreed to provide the escrow in 2021.
Neronha’s office said it has not yet received a monitor’s report on Prospect’s capital expenditures for the fiscal year ending in September 2022.
As a result, Chris Callaci, the lawyer for United Nurses and Allied Professionals — which represents hundreds of workers at both hospitals — feels left in the dark about whether Prospect Medical met its obligations after that to do things like buy new equipment, renovate facilities and improve information systems.
“A significant question for the union would be, have they complied with those capital expenditures which are critical for the operation of those hospitals?” Callaci said.
The hospitals’ operation was a top concern back in 2021, when Neronha outlined his findings about Prospect Medical in a 150-page report.
He said Prospect put Fatima and Roger Williams at risk by taking a $1 billion loan in 2018, paying off some existing debt, and giving almost a half-billion dollars in dividends to two top Prospect executives, a Los Angeles private equity firm that owned part of the company and other investors. The company had cut jobs at its hospitals in Rhode Island, where workers complained of short-staffing and difficulty getting basic supplies.
Before Neronha weighed in, an advisory panel to the state Health Department recommended approval, without conditions, of an ownership change at Prospect Medical — even though a leading accounting firm cited concerns about the firm’s liabilities. Supporters of the transaction included Lt. Gov. Sabina Matos, then president of the Providence City Council.
A spokesman for Prospect’s Rhode Island hospitals, Otis Brown, referred questions about spending by Rhode Island’s third-largest hospital group since 2021 to Neronha’s office.
After months of requests by The Public’s Radio, Neronha’s office last week released a document showing $12 million in capital expenditure spending at Fatima and Roger Williams from October 2019 through June 2021.
Some other documents released by the AG are harder to scrutinize, including a series of reports by the independent monitor, with the financial details redacted. The general escrow agreement between Prospect Medical and Neronha’s office is heavily redacted. And Neronha’s 2021 decision on Prospect Medical, despite its scathing tone toward Prospect’s management, redacts many details about the company and its top executives.
“It doesn’t appear his office was as transparent as possible when they redacted information in this document,” said John Marion, executive director of Common Cause of Rhode Island, who noted that Neronha’s stated view is one of favoring transparency.
But Eileen O’Grady of the Private Equity Stakeholder Project, a Chicago-based nonprofit watchdog group, praised Neronha’s 2021 decision and its impact.
She credited Neronha with imposing unprecedented accountability, thanks in large part to a state law known as the Hospital Conversion Act, which gave him authority to regulate such health care transactions.
“It’s really impressive what this office did,” O’Grady said. “And I think it’s a good sort of lesson for how other states can design their laws and their hospital merger and acquisition review processes to ensure that this kind of thing does not happen again.”
Neronha said the redactions in his 2021 decision are due to confidentiality considerations that he didn’t consider necessary to challenge.
“I think we laid out in great detail what the problems were, how we got there,” he said, “and so I think the public had a pretty good understanding, not only the history of how these hospitals came to be acquired by Prospect, but what the current situation was and why we got there.”
What happens moving forward, however, is unclear.
Under the Hospital Conversion Act, Neronha can regulate changes in Prospect Medical’s ownership for five years. He said all bets are off when that clock runs out.
“The real question for me at least is what happens in 2026,” Neronha said.
An Atlanta-based nonprofit, The Centurion Foundation, is continuing an effort to buy Prospect Medical’s Rhode Island properties. Centurion says its mission is increasing access to community-based healthcare.
But the union representing workers at Fatima and Roger Williams, United Nurses and Allied Professionals, used a recent mailer to say that Centurion has failed for months to make any commitments against layoffs, hospital closures or terminating services.
A revised offer by Centurion to buy Prospect Medical’s Rhode Island properties, following a requested extension, is now due by Nov. 14.
Ian Donnis can be reached at idonnis@thepublicsradio.org.
