Prospect Medical Holdings has underfunded two R.I. hospitals and affected operations, state says

Surgeries at Our Lady of Fatima Hospital in North Providence and Roger Williams Medical Center in Providence have had to be canceled when equipment and supplies were unavailable because of non-payment to vendors, the state’s compliance order said.

Roger Williams Medical Center in Providence.David L. Ryan/Globe Staff

PROVIDENCE — Prospect Medical Holdings, a Los Angeles-based company has been underfunding two Rhode Island hospitals to the point where its impacting operations and canceling patient surgeries, according to a new compliance order issued by the state health department Thursday night.

In October, at least 19 elective surgeries at Prospect’s facilities — Our Lady of Fatima Hospital in North Providence and Roger Williams Medical Center in Providence — were canceled because the proper equipment and supplies were not available because of non-payment to vendors, the compliance order said.

“These latest issues are part of a pattern of Prospect Medical Holdings engaging in non-compliance and creating delays in making required disclosures of financial information,” the state health department said in a news release.

An investigation by the Rhode Island Department of Health revealed that as of Oct. 24, more than 250 of the hospitals’ approximately 830 vendors were operating with the hospitals on a “cash on demand” basis. That means they only deliver supplies if they are paid at the time of delivery, a policy generally reserved for customers with a history of nonpayment. Fatima Hospital and Roger Williams Medical Center have historically taken more than 90 days to pay vendors, state filings say.

Hip joints, catheters, endoscopes, and eye lenses are among the supplies for which vendors of Prospect’s Rhode Island hospitals were not paid. The procedures that were canceled included endoscopies, eye surgeries, and a spinal surgery, according to the investigation with the health department.

“These facilities need more consistent support from their corporate owners,” said Dr. Utpala Bandy, the interim director of health. “The action we took today will ensure immediate accountability and get the hospitals on sounder footing. This is critical for the state as a whole, and for the communities these facilities serve as safety net hospitals.”

Otis Brown, a spokesman for the two hospitals, told the Globe that the letter the company received from the health department was “delivered simultaneously with the issuance of their press release.”

“We have no comment as we have not had an opportunity to review the letter and its implications,” said Brown in an email.

State law requires hospitals to have local governing boards, even when their corporate owners are based elsewhere. But many of the financial decisions for Roger Williams Medical Center and Fatima Hospital are made in California, said Joseph Wendelken, a spokesman with the Rhode Island Department of Health.

“Prospect Medical Holdings sweeps all patient care revenue from Roger Williams and Fatima every day and then returns an operating allowance back to the hospitals once a week,” Wendelken wrote in a news release. “The amounts of these allowances vary and are determined by Prospect Medical Holdings.

“The amounts of these allowances are inadequate to pay vendors in a timely manner, leading to interruptions in services,” added Wendelken.

In late 2022 Prospect, a private equity firm, announced that it planned to sell its hospitals to a nonprofit foundation. At the time, it seemed like welcome news for the state’s health regulators and patients who have long worried about low-income Rhode Islanders’ ability to access care. But nearly a year later, Prospect and its prospective buyer, The Centurion Foundation, have yet to complete the first step in the sale.

Rhode Island Attorney General Peter F. Neronha and the Rhode Island Department of Health, both of which must approve the sale of any hospitals in the state, have twice rejected Centurion and Prospect’s application, deeming them incomplete. Under the Hospital Conversions Act, health care groups in Rhode Island must submit completed applications to both offices for evaluation before the reviewing process can even begin.

On Aug. 11, the two health care organizations were informed that they had not completed at least 244 questions on their application, according to a letter from the attorney general’s office and the health department, which was obtained by the Globe.

“Failure to provide complete, accurate, and forthright responses may result in a rejection of the Transaction Parties’ application on its face without prejudice,” wrote Special Assistant Attorney General Julia Harvey and Fernanda Lopes, the chief of the Office of Health Systems Development.

A third version of their application was due in late October, but the health care organizations requested and were granted an extension to mid-November.

Representatives of The Centurion Foundation have not responded to multiple requests for interviews by the Boston Globe.

Prospect has also been in the process of trying to unload its other hospitals across the United States. In Connecticut, three long-struggling Prospect-owned hospitals have been eyed for acquisition by Yale New Haven Health. One of those hospitals, Waterbury Hospital, reportedly owes vendors “tens of millions of dollars.” At Crozer Health, the struggling four-hospital system in Pennsylvania owned by Prospect, executives have been unable to pay vendors and contractors who provide vital services to patients. Pharmacists told WHYY earlier this year that they’ve run out of equipment to package drugs and are on a credit hold with a supplier.

In Rhode Island, Thursday’s compliance order says that Prospect must hire an independent fiscal monitor and cover all operating costs for Our Lady of Fatima Hospital and Roger Williams Medical Center, said Wendelken. The fiscal monitor will determine what those costs are, he said.

Prospect must also create a “cash on hand” escrow account to ensure the stability of the facilities, and have an independent operations monitor on site who will report to the health department daily.

The compliance order includes “many additional, stringent requirements in the areas of finance, operations, and oversight,” according to Thursday’s news release. The health department “reserves the right to order a cease and desist on the daily sweeping of patient care revenue from the hospitals to the parent company in California.”

This story has been updated with comments from a spokesman from Prospect Medical Holdings.