Dive Brief:
Prospect Medical Holdings said Monday it has a deal to sell its two hospitals in Rhode Island — collectively called CharterCARE Health Partners — for approximately $160 million to the Centurion Foundation, a nonprofit healthcare operator based in Georgia.
The deal precedes Prospect’s January Chapter 11 bankruptcy filing. Prospect and Centurion signed a definitive agreement in 2022, and Rhode Island regulators approved the sale last year. However, the attorney general’s office placed 40 closing conditions on the sale. In first day bankruptcy motions, Prospect said the terms were too onerous for the cash-strapped system to meet.
In a statement to Healthcare Dive, a spokesperson for the Rhode Island attorney general’s office was steadfast, saying the parties “must comply” with the regulators’ terms as laid out last year. “We are reviewing their filing carefully to determine whether their proposed sale does so,” the spokesperson said.
Dive Insight:
Prospect acquired the hospitals at the center of the Rhode Island deal — 220-bed Roger Williams Medical Center and 312-bed Our Lady of Fatima Hospital — for $45 million in 2014.
Since that time, both Prospect and state regulators agree the CharterCARE facilities have performed poorly. However, they disagree on why.
Prospect argues industry headwinds, including rising inflation and expense pressures related to the COVID-19 pandemic, caused liquidity concerns that weakened operations.
In a brief filed with the bankruptcy court, Rhode Island Attorney General Peter Neronha said Prospect’s management decisions directly created operational difficulties. The attorney general said Prospect swept patient revenue from its subsidiaries back to its West Coast headquarters every 24 hours and then provided hospitals a “weekly allowance” upon which to run.
The figure “is consistently inadequate,” Neronha said.
Neronha has paid close attention to Prospect’s efforts to sell the hospitals to Centurion. The office has required Prospect and Centurion to submit multiple rounds of documentation, which prolonged the sale process, and held listening sessions with the community about the possible transaction.
Rhode Island regulators ultimately approved the transaction, but they placed significant conditions on its closing.
To complete the sale, Prospect would be required to address 40 conditions across seven areas, including repairing the roof and “inadequate life safety equipment” at one facility and ensuring accounts to vendors were current. In addition, Centurion and Prospect together would have have to offer $80 million in cash toward financing the new health system.
At the onset of the bankruptcy process, Prospect said the demands were financially untenable for the cash strapped system.
Still, Prospect says it must make a deal to sell the facility.
In a court filing Monday, Prospect urged the bankruptcy court to approve the deal, saying that it was necessary to prevent layoffs and operational disruptions. Attorneys said operating the facilities cost Prospect $1 million per month.
“The costs of ongoing operations will continue to deplete the Debtors’ liquidity, and, as a result, the Debtors will have no choice but to cease operations and terminate employees,” wrote Paul Rundell, Prospect’s chief restructuring officer, in a Monday filing.
Prospect will appear before a federal bankruptcy court on Feb. 12 to seek approval for the deal. At that time, Rhode Island regulators will have the opportunity to speak on any concerns about unmet closing conditions.
The Rhode Island deal comes just days after Prospect unveiled a separate deal to sell its Pennsylvania hospital portfolio to an unnamed group of buyers.
In both proposed sales, Prospect opted to forgo a public auction, which could have driven the price of the hospitals higher. In court filings, attorneys for Prospect said the system needed to close deals quickly due to extreme liquidity constraints, and argued private deals would allow for an expedited sales process.
Attorneys for the health system have emphasized that generating cash quickly is of paramount importance. As of Dec. 31, Prospect had nearly $2.3 billion in outstanding liabilities. The system said that continuing to operate hospitals at a loss on the East Coast threatened the viability of its more profitable facilities in California.
