Deal or no deal? Roger Williams, Fatima owner may negotiate ‘non-negotiable’ hospital sale terms

Chris Callaci, general counsel for United Nurses and Allied Professionals gestures while speaking against the proposed sale of Roger Williams Medical Center and Our Lady during hearing conducted by the Office of Attorney General on March 19, 2024, at Rhode Island College. (Michael Salerno/Rhode Island Current)

“Non-negotiable” was how Attorney General Peter Neronha described the long list of conditions set by his office in its June 20 decision approving sale of two local “safety net” hospitals.

But the private equity firm looking to offload Our Lady of Fatima Hospital and Roger Williams Medical Center might not have gotten the memo.

In an email sent to employees on Friday, and obtained by Rhode Island Current, CharterCARE Health Partners CEO and President Jeffrey Liebman wrote that the conditional approval issued a day prior was a “welcome step” in the long-awaited effort to sell off the two hospitals. Liebman stopped short of saying the company was prepared to meet the 85 conditions required to proceed with the deal.

“We are now focused on reviewing the conditions of approval and continuing to work with our regulators in the days ahead,” Liebman wrote.

Neronha’s office and the Rhode Island Department of Health each set their own list of requirements, 40 and 45 respectively, in giving the OK for the sale. The dual review was required under the state’s Hospital Conversions Act because the deal would change hospital status from for-profit to nonprofit.

The health department must also issue an OK under a separate review related to health care facility licensing law. 

In other words, it’s not a done deal yet. And the tranche of financial, operational and health-related safeguards imposed by state regulators could be more than Prospect Medical Holdings, CharterCARE’s parent company, wants to — or even can — take on. The Los Angeles-based private equity firm has already signaled its unsteady financial standing, threatening bankruptcy in the face of a lawsuit seeking to make them cough up the $24 million in unpaid bills to local hospital vendors.

“Prospect has every right to say the conditions are too onerous,” said Chris Callaci, general counsel for the United Nurses & Allied Professionals, which includes 1,000 members who work for CharterCARE. “The additional financial burdens of the decision may result in Prospect saying, ‘We don’t have spare change to do this.’”

Indeed, the conditions set by Neronha’s office require Prospect, and the prospective buyer, The Centurion Foundation, to guarantee an extra $80 million in cash to the books of the new hospital system, while funneling another $66.8 million into a separate, dedicated fund unavailable for executive compensation or management fees. 

Neronha in an interview on Friday dismissed the notion that Prospect didn’t have the money, despite its worsening balance sheet and flurry of legal problems across the country. 

“The dollars are there,” Neronha said, referring to a June 12 order by Rhode Island Superior Court Judge Brian Stern demanding the company pay $17.3 million in overdue bills at its local hospitals. 

Otis Brown, a spokesperson for CharterCARE, declined to comment.

Ball is in CharterCARE’s court

While the company has acknowledged receipt of the decision by state regulators, it hasn’t indicated it’s willing to move forward. Technically, it doesn’t have to — there’s no deadline or formal signature required, Neronha said. 

“If they meet the conditions, they can go forward with the transaction,” he said. “The choice is for them to decide if they want to go forward with the conditions.”

If not, Prospect retains ownership of the hospitals and affiliated physician groups, home care and hospice agencies and offices. 

A third option, which Callaci suspects has emerged from Liebman’s internal email to employees, is for the companies to attempt to coax state regulators to ease up on the conditions tied to the sale.

“What that email says to me is that when the decision came out, it was not the product of a negotiated agreement between all the parties,” Callaci said. “It’s not like Centurion and Prospect knew about these conditions ahead of time and agreed to them.”

Prospect has every right to say the conditions are too onerous.

– Chris Callaci, general counsel for the United Nurses & Allied Professionals, which includes 1,000 members who work for CharterCARE.

State regulators appear unwilling to budge, though.

Brian Hodge, a spokesperson for Neronha’s office, reiterated Neronha’s prior statement when the decision was announced that the terms of approval were non-negotiable, in an email on Monday. Joseph Wendelken, a spokesperson for the health department, also confirmed that the health department would not add to or negotiate its own, separate conditions, except to clarify existing terms if necessary.

However, the health department could add new, even stricter conditions under a second, yet-to-commence review of the deal.

Prospect has yet to submit a completed application for the licensing change having been notified by health officials in March and again in late May about deficiencies in its original proposal.

When and if that second-round scrutiny begins, Callaci sees an opening.

The union decried the existing, conditional approval, citing a lack of the safeguards needed to protect the hospitals, and its employees. Many of its concerns center around Centurion, which does not have experience in hospital ownership and operations, and has proposed to pay for the $80 million price tag of the sale by issuing bonds, with debt tied to the local hospitals rather than the company.

Callaci in a March 29 letter to state regulators suggested specific provisions be imposed on a prospective sale, including requiring Centurion to cover the hospital’s net operating losses and preventing the nonprofit from adding to CharterCARE’s existing debt.

‘A great deal’

Most of those recommendations were left out of state regulators’ decisions, with the financial burden instead placed almost entirely on Prospect, Callaci said.

“If you’re Centurion, this is a great deal,” he said. “You might have to put in a few million dollars, but that’s really it.”

Neronha, however, insisted the safeguards imposed by his office in its June 20 approval offer protection and a chance to climb out of the hole dug by years of financial and operational mismanagement under Prospect. 

“They are facing worse headwinds than other hospitals that are also facing headwinds,” Neronha said. “It’s not going to be easy. Our decision, I believe, gives them a chance.”

Keeping Prospect as its owner is hardly ideal, Callaci acknowledged, but the protections imposed under a prior 2021 agreement with Neronha’s office offered some minimum assurances in operating capacity and debt management.

“We were prepared to live with that, because we knew they were forced to put enough money in and take on enough local hospital debt that we could struggle along,” he said of the 2021 agreement.

The 2021 agreement also requires Prospect to pay bills on time, which is why Neronha’s office took the company to court, leading to Stern’s June 12 ruling ordering Prospect to pay $17 million in overdue bills within 10 days. The company on June 17 asked for an extension until June 28 to comply, but has since withdrawn its request, according to Hodge.

This story has been updated to reflect Prospect Medical Holdings’ withdrawal of a court filing asking more time to pay overdue vendor bills.

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