Prospect clashes with Rhode Island regulators over plans to close two hospitals

Diving brief:

• The fate of Prospect Medical Holdings’ two bankrupt Rhode Island hospitals is in a precarious balance this week, as the health system and the state’s attorney general clash in court over Prospect’s desire to close the facilities by the end of the year.
• Prospect sought court approval Thursday to close the two safety-net hospitals, saying in court papers that the facilities were losing millions every month and that conditions of sale imposed by state regulators made the deal untenable.
• The Centurion Foundation, the proposed buyer of the hospitals, and Attorney General Peter Neronha opposed the motion in their own filings Monday. Neronha warned that closures would be “catastrophic” for patients.

Dive overview:

Prospect and Centurion have been working on a deal to sell Roger Williams Medical Center and Our Lady of Fatima Hospital – collectively CharterCARE Health Partners – for three years. Prospect’s Chapter 11 bankruptcy filing in January only increased pressure on the parties to close the deal.

Both federal bankruptcy court overseeing Prospect’s restructuring and Rhode Island regulators have already given the green light to the sale. However, the Attorney General’s Office imposed 40 conditions on the saleincluding Prospect’s obligation to make repairs to the facilities. Regulators relaxed some of those conditions last July in an effort to help the parties finalize the deal.

Yet in its court filing, Prospect said it was “held hostage” by the remaining terms of sale, as well as Centurion’s “inability to raise the necessary financing.”

“The primary obstacle to completing the Centurion sale (and also to any potential sale to another hypothetical buyer) is the financial requirements imposed by the Rhode Island Attorney General and [the Rhode Island Department of Health]as well as the buyer’s inability to raise sufficient funds,” Prospect wrote in its filing.

Prospect says the hospitals are operating at significant losses and that keeping hospitals open past May, when the deal was originally expected to close, has already cost about $18.7 million. The operator has warned that it could lose an additional $11 million in hospitals by the end of the year.

Centurion, a Georgia-based nonprofit, tells a different story. Although Centurion has struggled to raise the bond financing needed to complete the transaction, attorneys say they are committed to completing the transaction and keeping the hospitals open.

“Hospitals have been losing money for years [Prospect’s] property, and they cannot now be surprised by the continued losses or use these losses as justification to abandon the sale,” Centurion’s lawyers told the court on Monday.

Yet, “Centurion has remained steadfast in its commitment to preserving these vital healthcare facilities despite extraordinary challenges, many of which stem from [Prospect’s] own actions,” added the lawyers.

Meanwhile, Neronha raised the possibility of Prospect selling to another buyer if Centurion proves unable to purchase the facilities. The attorney general said Prospect began conducting due diligence before an acquisition with another unnamed buyer.

“Prospect should pursue this alternative (or others) aggressively,” the attorney general said.

Closing establishments, which mainly welcome low-income patients, would be disastrous for patients, the regulator warned.

“The vital services provided by [these] hospitals are not replaced or moved quickly or easily,” the attorney general told the court.