The offer to turn two hospitals in Rhode Island into nonprofits creates more uncertainty

Jo-Ellen Paterno lives with her husband, Paul, and three children in Warwick.

“I am a teacher by profession,” Paterno said during an interview at her home. “I have been a physical education teacher for about 24 years.”

Two years ago, in the summer of 2022, Parterno added a new title: cancer patient.

After considering her options at local hospitals, Paterno decided to go to Roger Williams Medical Center in Providence because that was where her primary care physician was affiliated.

“They were so good to me,” she said. They placed her in an “absolutely beautiful” spacious corner room with yellow walls and large windows, Paterno said. The nurse called her “VIP – a very important patient.”

“She said, ‘Listen,’” Paterno recalled, “we read the backstory of what you’re here for and this is a room that we’re saving as people we know are going through tough times.”

Paterno is still fighting her battle against cancer and is now receiving treatment in Boston. But she said having a well-regarded cancer center down the street made a huge difference when she was at a very vulnerable point.

“I thought, ‘Thank God I came to Roger Williams,’” she said, “because this wouldn’t have happened anywhere else.”

Roger Williams and Our Lady of Fatima Hospital in North Providence are both part of CharterCARE Health Partners, owned by California-based Prospect Medical Holdings. After years of divesting from the national chain of hospitals, Prospect Medical closed some while trying to sell others, encountering difficulties in at least one case. Now it has put CharterCARE Health Partners, including the two hospitals, up for sale. And the only buyer making a bid is a nonprofit based in Atlanta, the Centurion Foundation.

At a public hearing at Rhode Island College in March, Ben Mingle, president of the Centurion Foundation, said Centurion wants to be on the right side of improving hospitals like those in Rhode Island.

“Our mission today is just about changing the health care dynamic in this country,” he told the crowd in a prepared statement.

Centurion does not operate any other hospitals and plans to keep most of CharterCARE’s local management team in place. Mingle said Centurion saves its clients millions of dollars each year by financing real estate transactions, and that this shows how the foundation would restore better financial prospects for Fatima and Roger Williams.

“Our proposal will return local control and independence to the existing management team,” Mingle said. “Centurion is confident in our management team’s ability to transform these hospitals into self-sustaining organizations, which is critical to long-term success.”

A challenging vision

Long-term success has been elusive at CharterCARE hospitals in Rhode Island.

Prospect Medical bought CharterCARE in 2014 and later sent nearly half a billion dollars in dividends from the national chain of hospitals to top executives and other investors.

The majority stake in Prospect was previously owned by a Los Angeles private equity firm, Leonard Green & Partners. In Massachusetts, eight hospitals — including Morton Hospital in Taunton and Saint Anne’s Hospital in Fall River — are facing uncertainty following a recent bankruptcy filing by Steward Health Care, which was previously owned by a private equity firm. Critics say these cases are a stark warning of the dangers of the way healthcare private equity firms are taking ownership.

In Rhode Island, some longtime employees have left and hospital workers are complaining about the deteriorating quality of basic supplies such as gloves.

Despite this, the union representing hundreds of Fatima and Roger Williams employees opposes the proposed takeover by Centurion.

“At first we were optimistic when Centurion came forward, then we read the business model and realized it’s not worth the paper it’s written on,” said Lynn Blais, a nurse at Fatima and president of the United Nurses and Allied Professionals.

Under the proposal Centurion submitted to Rhode Island health care regulators, it would finance the proposed deal with $160 million in debt. The foundation plans to use $80 million to purchase CharterCARE and spend the remaining $80 million on investments in local hospitals.

Blais wondered how Centurion can turn hospital losses into profits, especially since the foundation has not disclosed its own management fees and has no plans to invest its own money.

“So how are we going to come in, borrow money and then expect to be able to pay that money back plus interest and continue to have a positive outcome?” she asked. “So all that’s going to do is guarantee that we go bankrupt, go into receivership or otherwise lock the doors because we can’t afford those bond payments.”

The Roger Williams Medical Center and Our Lady of Fatima are important institutions in more ways than providing critical health care. They are among the largest employers and taxpayers in their respective communities.

Blais said it would be a catastrophe if Fatima and Roger Williams went bankrupt.

“I don’t think the state of Rhode Island can afford to have those two hospitals closed,” she said. “Those hospitals probably offer almost a hundred psychiatric beds. They provide a cancer institute, they provide surgical services. They provide inpatient hospital care that no other hospital system can provide. So if you close the doors of those hospitals, the health care system in Rhode Island would go into a spiral.”

Through a CharterCARE spokesperson, Centurion President Ben Mingle declined an interview request.

Instead, in a written statement, Centurion called its financing plan a traditional model that has received a “high trust” letter from Barclays Capital. Centurion says the bonds it plans to sell would raise enough money to recapitalize the hospitals’ parent company. These and other changes would allow the company to compete on an equal footing in the Rhode Island health care market, according to Centurion.

“Centurion is committed to empowering a local leadership team to implement and execute the hospital’s mission of delivering health care to the community it serves,” Mingle told the crowd at the public meeting in March. “Centurion will leverage both of our intellectual financial resources to ensure hospitals have access to the capital they desperately need to succeed in the future.”

But the main union at CharterCARE isn’t the only entity skeptical of Centurion’s plan.

A public records request from The Public’s Radio revealed a letter to Centurion sent by the Department of Health in February. It questioned how the nonprofit would make Rhode Island hospitals sustainable, noting that Centurion has no experience running health care facilities. The foundation’s response has not been made public.

Regulators are investigating the proposed deal

The Ministry of Health would have to approve the sale of these hospitals. Attorney General Peter Neronha also says this.

The regulators can approve, reject or conditionally approve the sale. For some observers, a conditional sale is the most likely outcome.

However, during an interview in his office in late May, Neronha said he still has serious concerns about Centurion’s offer and that his office had not yet made a decision.

“You have a proposed transaction that could ultimately lead to bankruptcy even if we were to approve it,” he said.

Neronha has shown a willingness to play hardball when it comes to regulating healthcare. In 2021, he conditioned a change in ownership of CharterCARE’s parent company, Prospect Medical, on the creation of an $80 million escrow account.

Without that money, Neronha said, “these hospitals would be closed. Those are not empty words. This same company closed hospitals where regulators had no ability to stop them. I, we, were able to stop them by – what is the crudest mechanism to do that? We hold their money and they can’t get it back unless they keep it open.”

Under state law, Neronha can only enforce the terms of the 2021 agreement for five years.

Part of the challenge for Roger Williams and Fatima, he said, is that they treat a large portion of patients with Medicaid and Medicare, which pay less than private insurance. Neronha said there is a desperate need to dramatically change the way health care is reimbursed in Rhode Island.

“The way reimbursements are made, Medicaid, Medicare and commercial insurance – those are the three components of revenue,” he said. “If these hospitals cannot generate enough revenue to pay off debt financing, break even and reinvest in themselves, they will find themselves in a difficult situation.”

Looking ahead, the attorney general said if a neutral third party were responsible for seeking offers for CharterCARE, instead of current owner Prospect Medical, there might be more interest.

For now, Neronha is worried about choosing between two unpalatable options.

“Whatever we do on this transaction,” Neronha said, “we are potentially choosing between a very bad place and a place that may not hold much promise even if we were to approve it conditionally.”

The state regulators’ decision on Centurion’s application must be made no later than June 11.

This story was produced in partnership with Rhode Island PBS. A television version will air on Sunday, June 2 at 7:30 PM on RIPBS Weekly and can also be found on YouTube.

Ian Donnis is the political reporter for The Public’s Radio. He can be reached at [email protected]. Follow him on Twitter/X on IanDon

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