The future of two cash-strapped hospitals — Roger Williams Medical Center in Providence and Our Lady of Fatima in North Providence — has become increasingly tenuous over the last four years. Things got even more uncertain when the hospitals’ California-based owner, Prospect Medical Holdings, filed for bankruptcy in January. Rhode Island Attorney General Peter Neronha thought that might doom a plan to sell the hospitals to an Atlanta-based nonprofit, the Centurion Foundation, so he went looking for another buyer.
“I spoke personally to the heads of a number of other hospital organizations out of state, in nearby states — at least four of them — and not a single one was interested in buying these hospitals,” Neronha said in a recent interview.
Neronha declined to identify the hospital organizations but said they are among the largest such organizations in Connecticut and Massachusetts.
Not one was interested because of Rhode Island’s difficult financial landscape for healthcare. Public and private insurers pay healthcare providers here less than their counterparts in neighboring states. And balancing the books is far more challenging for safety-net hospitals like Roger Williams and Fatima since they serve a larger percentage of low-income patients.
Neronha said this precarious footing explains why the Centurion Foundation is the only option for keeping Roger Williams and Fatima open.
“Whether I like it or we like it or not, Centurion is the alternative and we’re just kind of going to have to see how it goes over the next couple of years,” he said. “But I remain very concerned about — I won’t even say the long-term future of these hospitals, but the short term.”
Part of the concern is Centurion’s plan to use up to $220 million in debt to finance its purchase of Roger Williams and Fatima, without putting any of its own money in.
Bonds would be issued through a little-known quasi-public state agency, the Rhode Island Health and Educational Building Corporation. RIHEBC spokesman Chris Hunter said Rhode Island taxpayers would not be on the hook if Centurion ultimately defaulted on the bonds since RIHEBC is a conduit that connects borrowers with underwriters who market bonds. Bond buyers would assume the risk for buying the bonds, he said. Centurion partnered with Barclays Capital to finance the hospital deal.
The CharterCARE transaction is expected to be on RIHEBC’s agenda for a meeting on Wednesday, March 19, for, at minimum, a status update and possibly final approval.
If things go south with Roger Williams and Fatima, under a worst-case scenario, a judge in Rhode Island would appoint a receiver to respond to creditors and try to find another path forward for the hospitals.
If the transaction goes ahead, the hospitals would pay the Centurion Foundation a management fee of $750,000 a year.
Critics of the deal say that means Centurion will collect money for doing little work.
But Centurion CEO and Chairman Ben Mingle rejects that.
“I don’t see it that way,” he said. “My view is, we’ve worked for three years and we’re going to work for a lot more to turn this hospital around … Getting something? Yeah, Centurion is going to get a management fee, we’re going to have staff working on this night and day, and we’re gonna have costs and we have obligations.”
The Centurion Foundation first signaled interest in Roger Williams and Fatima in 2022.
Mingle, whose record shows was paid nearly $400,000 in 2023, said the foundation was created in part to counter the effects of private equity. Centurion, a charitable organization known as a 501(c)(3), says it helps other nonprofits achieve their purpose by developing, arranging, financing and leasing facilities.
Mingle contends that Centurion can restore the CharterCARE hospitals’ fiscal health by adopting nonprofit status, reinvesting revenue, supporting local administrators who will run the hospital’s day-to-day operations, tapping overlooked opportunities and considering new services.
“CharterCARE’s been losing money because they haven’t been allowed to do the right thing to get to a place of sustainability,” he said. “Every dollar that they make goes to California. It’s not reinvested.”
Mingle said Centurion’s financing plan to pledge future revenue against debt is a typical approach for the type of transaction involving hospitals like Roger Williams and Our Lady of Fatima.
But Harvard Medical School professor of health care policy and medicine Dr. Zirui Song sees it differently.
“A nonprofit organization buying hospitals using exclusively debt makes it more akin to a classic private equity leveraged buyout than a classic acquisition by nonprofit entities,” Song told The Public’s Radio.
A bankruptcy judge in Texas last month cleared the way for the Centurion Foundation to buy Roger Williams and Our Lady of Fatima by separating the deal from Prospect Medical’s bankruptcy.
Prospect has become a poster child for the negative effect of private equity on healthcare, closing hospitals in other states after steering hundreds of millions of dollars in dividends to investors. The company figured prominently in a critical bipartisan report released in January by the U.S. Senate Budget Committee, chaired at the time by U.S. Sen. Sheldon Whitehouse.
While Dr. Song said a buyer like Centurion has various levers it can use to improve the finances at Roger Williams and Fatima, he said it’s unclear if these will be enough to pay back the debt for the transaction: “That’s a great question.”
Others are more skeptical.
“We don’t have a lot of confidence – even if there is an issuance of the bonds and there’s a closing – that this is a business model that is going to secure the future of these hospitals,” said Chris Callaci, general counsel for United Nurses and Allied Professionals, the top union at Roger Williams and Fatima.
Callaci called Centurion’s financing plan a disaster waiting to happen.
He said that’s because the debt (and interest) would be paid back through hospital revenue, and the two CharterCARE hospitals have been losing tens of millions of dollars a year for years.
While the return of annual budget deficits limits the state’s ability to address the situation, Callaci said an effort to raise Rhode Island’s lagging medical reimbursement compared with neighboring states can’t happen soon enough.
“Otherwise,” he said, “we’re going to see what we saw years past — a receivership at Landmark, a receivership at Westerly, a closure of Memorial Hospital. I don’t know what other crises have to occur in healthcare in this state before the General Assembly does something about the reimbursement rates in the healthcare industry in this state.”
Almost $50 million in escrow previously obtained by Neronha from Prospect Medical, as part of a change in Prospect’s ownership in 2021, will also be at Centurion’s disposal. The attorney general imposed a series of conditions on the transaction, including the hiring of a turnaround consultant — subject to Neronha’s approval — by or immediately after the financing closes.
There’s a lot on the line with the future of Roger Williams and Fatima. They’re among the biggest employers in their respective communities and other hospitals would be overwhelmed by an influx of patients if the two CharterCARE entities went belly up.
Centurion’s Mingle said he expects financing for the hospital transaction to close five to six weeks after state regulators’ final approval of the deal.
This story was reported by The Public’s Radio.
