A longstanding battle between a private equity-owned hospital operator and Rhode Island reached new heights with the former threatening to close two hospitals in the state rather than submit to the attorney general’s conditions.
Los Angeles-based Prospect Medical Holdings, owned by private equity firm Leonard Green & Partners, runs 17 hospitals in five states, including Roger Williams Medical Center and Our Lady of Fatima Hospital in Rhode Island. In October 2019, Leonard Green announced plans to sell its 60% stake in the for-profit hospital chain to Prospect CEO Sam Lee and his business partner for $12 million. The ownership change is subject to state regulators’ approval — and while four states have approved, Rhode Island has not.
Following an analysis of Prospect’s finances, the attorney general’s office said it would impose a condition of approval that would require Prospect to put $120 million to $150 million in escrow “to purportedly ensure the financial viability of the hospitals,” according to an April 29 letter from Prospect to the attorney general.
“The imposition of such an escrow is unreasonable and unacceptable, [and] will adversely affect Prospect operations throughout the United States, and would leave Prospect with very little choice but to start the process to sell the hospitals in Rhode Island to an acceptable third party (and if the sale process is unsuccessful, to ultimately close them),” the letter states.
The Rhode Island Department of Health and attorney general’s office hired national accounting firm PYA to analyze Prospect’s financial statements. The firm found “long-term financial viability risks,” including that Prospect has reported limited liquidity and a highly leveraged position in recent fiscal years.
But Prospect argues that it is well-capitalized with liquidity and resources, and has approximately $325 million in cash and an unused J.P. Morgan line of credit of $200 million.
Rhode Island Attorney General Peter Neronha blasted the hospital chain and its private equity owners in an April 30 news release.
Neronha accused Leonard Green of wanting to walk away with $12 million “more in its pockets and absolved of billions of dollars in debt.”
“The people of Rhode Island deserve the truth. It is a hard truth: that those who claimed to care about healthcare here in Rhode Island and around the country cared much more – orders of magnitude more – about lining their own pockets than about the people they purported to serve,” he said.
The financial assurance his office is seeking is necessary for the continued operation of the hospitals, Neronha said.
“Under the proposed transaction, majority owner Leonard Green, having made its money at the expense of the financial health of the hospitals, now wants out. So be it. But that choice comes at a price: remedy the malady you have created,” he said. “You chose to get into healthcare. Act like you believe in it.”
On April 30, Prospect asked the attorney general for an additional short window to show they are prepared to provide the guarantees of financial security, which Neronha has granted.
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