R.I. attorney general approves sale of 2 safety-net hospitals with strict ‘non-negotiable’ conditions – The Boston Globe

Centurion will also have to ensure the hospitals remain in good standing with financial obligations; governing bodies for the hospitals must include independent members that have experience in health care, law, business, labor, and community purpose; and the hospitals will have to hire a chief restructuring officer to manage business affairs, oversee financial management, and explore “strategic alternatives,” according to letters from the state to the transacting parties that were obtained by the Globe.

In a statement, Neronha called the 40 conditions “non-negotiable” and said his office was “guided by the baseline principle that Rhode Islanders deserve quality, accessible and affordable health care.”

“We also know that the future of these hospitals is critical to the collective landscape of health care in Rhode Island,” said Neronha. “This decision and the conditions we have placed on the transfer of ownership were only arrived at after careful consideration and strong scrutiny.”

Neronha also demanded that Prospect and Centurion commit to guarantee $80 million in cash financing to add to the books of the new hospital system, “regardless of any failure to secure that amount through a bond transaction.”

In 2021, when Neronha mulled Prospect’s ownership changes, he demanded the corporation, which is owned by wealthy California-based financiers Sam Lee and David Topper and controlled by private equity, place $80 million in an escrow account to keep the two Rhode Island hospitals afloat.

The parties will have to contribute an additional $66.8 million to a dedicated fund, toward which Prospect may apply the outstanding escrow funds (about $47 million) from the 2021 decision to support the New CharterCARE System, which will own and operate the two hospitals. Those funds will not be available for Centurion’s management fee or for executive compensation, Neronha’s 177-page decision outlined.

“The self-evident truth is that private equity does not belong in health care. Such firms don’t care about patients or providers. They only care about profits,” said Neronha. Since his 2021 decision, Lee and Topper have made “rosy promises,” and have “continued to be exceedingly poor stewards for these hospitals.”

“This decision ensures that Prospect continues to be bound by the robust conditions of our previous decision until the transaction is finalized, and ensures that Prospect cannot walk away from these hospitals until they have met their baseline obligations,” added Neronha.

It’s unclear if Prospect or Centurion will agree to all 40 conditions. Otis Brown, a spokesman for the hospitals, did not immediately respond to the Globe in its requests for comment.

“Rhode Island needs a stable network of hospitals that supports the health and wellness of every community in the state,” said Dr. Jerry Larkin, the new director for the state health department, in a statement on Thursday. “In light of the historical and ongoing financial and operational challenges at the hospitals, RIDOH issued a decision today with conditions carefully developed to restore local control, help stabilize these two facilities, and help ensure that the new operators would be positioned to provide consistent, safe, high-quality care.”

Prospect, which was long controlled by private firms, purchased the hospitals in 2014. Since then, the financial situation at the hospitals has increasingly gotten worse. As of late 2023, the two hospitals owed more than $24 million to vendors. At least 19 surgeries had to be canceled in October when equipment and supplies were unavailable, according to a state compliance order released in November.

On June 12, state Superior Court Judge Brian Stern ordered Prospect to pay $17 million in unpaid bills within 10 days, which Prospect requested an extension for through the end of the month. Stern’s decision follows a lawsuit filed against the out-of-state hospital owners by Neronha last fall, a 106-page petition that outlined a series of violations that he said raised “significant concerns” about the financial viability of the hospitals.

As part of the attorney general’s decision, Prospect and Centurion must fund a turnaround consultant that will have to be approved by Neronha’s office. The New CharterCARE System must also notify the attorney general’s office of any reductions in workforce and maintain the current level of employee benefits during the initial period following the closing of the proposed transaction.

“Beyond the numbers, figures, and provisions that make up a transaction are the communities, patients, and providers that these hospitals serve and employ,” said Neronha, who called his stipulations “non-negotiable.” “Our conditions aim to ensure that these hospitals continue to deliver quality, accessible, and affordable healthcare, gainfully employ thousands of Rhode Islanders, and successfully operate long into the future.”

Previously sealed court documents recently obtained by the Globe revealed hazardous conditions inside the two for-profit hospitals. The documents cite federal and state inspections and an accreditors report that found bedbug infestations, cockroaches, mice, leaking roofs, improper sterilization, problems with staff administering anesthesia, and other conditions that posed “immediate jeopardy” to the health and safety of patients.

“Not only are the hospitals scrambling to obtain supplies day to day,” wrote Stern in his decision. “But other areas of the hospital are falling into disrepair.”

A spokesman from the hospitals previously told the Globe that the deficiencies have been corrected. A state Department of Health spokesman said the facilities have “submitted a plan of correction.”

In previous interviews with the Globe over the deal, executives at CharterCARE said approving the deal would have given the two hospitals a boost to become stronger in a struggling industry.

This story has been updated with more from Peter Neronha’s decision.

Alexa Gagosz can be reached at alexa.gagosz@globe.com. Follow her @alexagagosz and on Instagram @AlexaGagosz.