Newly unsealed court filing details debt at two hospitals in state

Numbers don’t lie, and in the case of the private equity firm that operates two Rhode Island hospitals, the numbers don’t look good.

A newly unsealed court document paints a bleak financial picture for the LA-based Prospect Medical Holdings, including $24 million in past-due payments to vendors at Our Lady of Fatima Hospital and Roger Williams Medical Center. 

Not only have the unpaid bills hurt hospital services, forcing elective surgeries to be canceled because of a lack of supplies, staff and equipment, the debt also violates a key condition of a 2021 agreement between Prospect and the Rhode Island Attorney General’s Office. 

Now, the state’s top prosecutor is turning to the court to force Prospect to pay up.

“For nearly three years, this Office has had significant concerns with the financial health of Prospect Medical Holdings and its impact on the continued operation of Roger Williams and Fatima hospitals,” Attorney General Peter Neronha said in a statement on Friday. “Prospect’s financial condition continues to deteriorate; they are closing and otherwise disinvesting in their hospitals across the country.”

Otis Brown, a spokesperson for CharterCARE Health Partners, a Prospect subsidiary, said in an email on Friday that the company did not comment on litigation. However, Brown blamed a data security breach that disrupted company facilities nationwide for six weeks earlier this year as reason why it was unable to bill or collect payment for medical services.

“These systems are now fully restored, our operations are back to normal, and our catch-up billings and collections from the cyber incident will rectify over the coming months,” Brown wrote. “Prospect and CharterCARE continue to be committed to providing high quality healthcare to the community.”

CharterCARE managed 2,500 employees, including those at Roger Williams and Fatima hospitals as of May 2023, according to an organization news release. 

Neronha filed a petition in Providence County Superior Court on Nov. 8, seeking court intervention over Prospect’s failure to comply with the terms of a 2021 agreement with Neronha’s office which was tied to a change in hospital ownership. The original court petition was sealed – meaning not publicly available – though Neronha hinted at the company’s growing debt in an interview with The Public’s Radio.

Rhode Island Superior Court Associate Justice Brian Stern granted Neronha’s request to unseal the court filing on Thursday, albeit with a few redactions which Neronha’s office said it is still seeking to make public. The 106-page filing details a history of missed payments to vendors at the two Rhode Island hospitals, along with other ways that Prospect has flouted the terms of the 2021 agreement.

“As it stands today, our concern is greater than it has ever been, which is why we took decisive action in court last week,” Neronha said in a statement. “We need to ensure the continued viability of these hospitals for as long as we can. They are integral to our community network of care and employ thousands of Rhode Islanders. Prospect needs to fulfill their legal, and frankly ethical, obligations to Rhode Islanders — and our lawsuit is the next step in making sure they do so.”

Especially because Prospect’s worsening financial position has led to layoffs and closures among the 17 hospitals it operates nationwide, including those in Connecticut, Pennsylvania and California. 

Well aware of the company’s troubled balance sheet, Neronha tried to safeguard Rhode Island hospitals by imposing conditions on a 2021 change in company ownership, which required his office’s approval. The conditions included creating an $80 million escrow account to ensure the hospitals could stay up and running, a five-year moratorium on lease and sale, and paying bills on time.

Which is where the problem lies. Despite agreeing to “timely payment” for payroll, employee benefits and vendor invoices, CharterCARE Health Partners has routinely failed to pay those bills on time, accruing $24 million in past-due debt as of Oct. 31, according to Neronha’s petition. And with more than 250 of the hospitals’ 830 vendors operating on a “cash-on-demand” basis, not getting paid means they’re not delivering the supplies and equipment needed to care for patients.

The company has also failed to meet reporting requirements with Neronha’s office, including providing details of the revised agreement with its primary creditor to ensure the two Rhode Island hospitals were not put up as collateral on its debt.

At the time of the 2021 ownership change, Prospect had $3.1 billion in liabilities, according to the petition. Since then, the financially troubled firm has sought to unload the two Rhode Island hospitals from its portfolio, attempting to sell the hospitals to Atlanta nonprofit The Centurion Foundation. Prior applications were deemed incomplete. 

A revised sale application, which requires approval by the state health department and Neronha’s office under the Hospital Conversions Act, was submitted on Nov. 14.

Neronha’s petition asks the court to force Prospect to immediately pay its bills and comply with the rest of the terms of the 2021 agreement, while also imposing up to $2 million in fines.

Separately, the Rhode Island Department of Health issued a compliance order on Nov. 9, ordering Prospect to hire “an independent fiscal monitor” and pay its operating costs after a review determined that underfunding was hurting operations. 

Joseph Wendelken, a spokesman for the health department, said in an email Friday that the office was “engaging in dialogue” with Prospect’s legal counsel regarding the compliance order. The order does not affect Neronha’s court complaint.

The court is scheduled to hold a hearing on Neronha’s request on Nov. 28.

Updated to include response from CharterCARE Health Partners.