PROVIDENCE — Prospect Medical Holdings, the owner of two cash-strapped community hospitals in Rhode Island, was ordered by state Superior Court Judge Brian Stern to pay $17 million in unpaid bills within 10 days, according to court documents made public on Wednesday.
Stern’s decision follows a lawsuit filed against the out-of-state hospital owners by Rhode Island Attorney General Peter F. Neronha last year. At the time, Neronha outlined a series of violations in a 106-page petition that he said raised “significant concerns” about the financial viability of Roger Williams Medical Center in Providence and Our Lady of Fatima Hospital in North Providence.
If Prospect fails to comply with the court order, “we will pursue all available and appropriate remedies,” Neronha spokesman Timothy Rondeau told the Globe.
Otis Brown, a spokesman for the hospitals, could not be immediately reached for comment on Wednesday. Prospect’s lawyers had warned Stern that if he ordered Prospect to pay the bills, it would send the company into bankruptcy.
Fatima, which has 312 beds, and Roger Williams, which has 220 beds, treat a large number of individuals from low-income and underserved communities that significantly rely on Medicaid. The hospitals have struggled financially for years, and their board of directors took on $1.12 billion in debt in 2018 to pay $457 million in dividends to Prospect executives Leonard Green, David Topper, and Samuel Lee.
James P. Carris, an accountant who analyzed the hospitals’ financial statements for Neronha’s office, said the 2018 dividend transaction “weakened the balance sheet” and was “benefitting the shareholders while providing minimal or no funds to any of the local operating entities.”
Financial statements from 2015 through 2020, which were cited in Stern’s decision, revealed a trend of Prospect’s growing liabilities. In 2017, the hospitals’ assets exceeded its liabilities by $67 million. By 2020, the hospitals’ liabilities exceeded its assets by more than $1 billion.
The hospitals were subject to a set of conditions imposed by Neronha’s office in 2021 as part of his approval of a deal the company proposed under the Hospital Conversion Act. Prospect, a for-profit parent company, was required to put $80 million in escrow to ensure that the two hospitals could continue to operate. The hospitals could not be leased or sold for at least five years.
Following Neronha’s 2021 decision, however, Prospect’s unpaid bills to vendors began to pile up by the end of 2022. By July 2023, court documents showed that Roger Williams Medical Center owed vendors approximately $1.9 million in unpaid bills that were three months overdue, and $2.4 million in unpaid bills that were more than three months overdue. Fatima owed $1.6 million in unpaid bills that were three months overdue, and $2.8 million in unpaid bills that were more than three months overdue.
Yet, by October 2023, Prospect owed more than $24 million to vendors, and a number of elective surgeries had been canceled. According to an investigation by the health department, hip joints, catheters, endoscopes, and eye lenses were 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.
The Rhode Island Department of Health found Prospect collects all revenue from Fatima Hospital and Roger Williams Medical Center every day and gives the hospitals a smaller “operating allowance” once a week. In a 2023 compliance order, the Department of Health said Prospect underfunded the two hospitals to such an extent that it impacted operations. A review by the Centers for Medicaid & Medicare found that the hospitals’ local chief executive officer, Jeffrey H. Liebman was unable to manage the facility’s finances because Prospect “failed to provide funding necessary for the [CEO]... to make sufficient payments to its vendors resulting in several unpaid vendor accounts.”
Since Neronha’s lawsuit, further incidences of noncompliance from his 2021 conditions and the requirements from other agencies have been recorded at the hospitals.
Stern’s order for Prospect to hand over $17 million to vendors would “facilitate the continuation of safe, reliable patient care at these two essential safety-net hospitals. The decision unambiguously and correctly concludes that Prospect repeatedly failed to comply with important conditions set in our 2021 decision,” Neronha said in a statement on Wednesday.
The scrutiny over the hospitals’ operations comes as Prospect has been trying to sell several of the 17 hospitals it owns in five states. The Centurion Foundation, an Atlanta-based private nonprofit, is attempting to buy the two in Rhode Island. Together, the Roger Williams and Fatima hospitals employ about 2,800 people and care for thousands of patients each year.
Neronha, who has been tasked in mulling over the proposed sale, said Prospect uses the hospitals “as a private bank” and treats accounts payable “as a credit facility loan.”
This story has been updated with additional information from Judge Stern’s decision.
Alexa Gagosz can be reached at alexa.gagosz@globe.com. Follow her @alexagagosz and on Instagram @AlexaGagosz.