Court order details bedbugs, cockroaches and risky financial moves that threaten future of ‘safety net’ hospitals

This story was originally published in Rhode Island Current, a publication partner of Ocean State Stories.

Roger Williams Medical Center in Providence – Photo by Michael Salerno/Rhode Island Current

It’s no secret that the LA-based private equity firm looking to sell off a pair of Rhode Island hospitals is struggling.

But the financial straits, and internal hospital environments, appear far worse than previously suggested. Prospect Medical Holdings said in court filings it would file for bankruptcy if forced to pay $17.3 million in outstanding bills to vendors at Roger Williams Medical Center and Our Lady of Fatima Hospital.

Prospect failed to sway the judge who ordered the company to cough up the money within 10 days of last week’s decision.

Rhode Island Superior Court Judge Brian Stern blasted Prospect in his 45-page decision, alleging its “use of the hospitals as a private bank and treatment of accounts payable as a credit facility loan…constitutes irreparable harm.”

Harm to the patients who depend on the more than 500 hospital beds across both facilities and the 2,500 employees of the two hospitals plus its affiliated physician groups, home care and hospice agencies and offices. 

Stern’s stern rebuke comes on the brink of an expected decision by the Rhode Island Office of the Attorney General and the Rhode Island Department of Health on the proposed sale of the two community hospitals to a nonprofit owner. The high-stakes transaction is framed by proponents as the only escape from increasingly toxic ownership.

The pivotal role the hospital plays in Rhode Island’s health care landscape is of great concern to Rhode Island Attorney General Peter Neronha, who filed a Nov. 8 court petition asking for a judge to intervene on Prospect’s stack of unpaid bills.

“I appreciate Judge Stern’s decision and careful consideration of this matter,” Neronha said in a statement. “The decision unambiguously and correctly concludes that Prospect repeatedly failed to comply with important conditions set in our 2021 decision.”

Otis Brown, spokesperson for Prospect’s Rhode Island subsidiary, CharterCARE Health Partners, declined to comment.

The court order paints a bleak picture of the Providence and North Providence hospitals, describing bed bugs, mold, brown water leaking from an eyewash device and absence of standard safety procedures. Federal inspectors who visited Roger Williams in April found water leaking from the ceiling into a light fixture, prompting an “immediate jeopardy” warning by the The Centers for Medicare & Medicaid Services. The leak has since been fixed, but the hospital remains in “substantial noncompliance” with CMS, according to the court order.

Then there are the string of canceled surgeries — 19 in October 2023 alone — as the unpaid bills from vendors supplying key equipment and materials pile up. The company initially blamed the missed payments on an August 2023 cyberattack, but it was already facing overdue bills before that, and the mountain is growing by the day.

The hospital owes $43 million to 726 vendors, with $24.4 million more than 90 days overdue, according to testimony from Steve Salisbury, accounts payable and payroll manager for CharterCARE, included in court documents.

Salisbury also acknowledged that the company has dipped into its accounts payable in Rhode Island to pay bills at other hospitals it owns around the country, including California, which requires a minimum cash balance for hospital operations. Rhode Island does not have the same minimum cash balance requirement.

“The court is troubled by the respondent’s prioritization of entities in one state over another, particularly to Rhode Islanders’ detriment,” Stern wrote. “Respondent’s obligation to comply with regulatory requirements imposed upon it by Rhode Island is no less important or stringent than its obligations to comply with California requirements.”

Failing to keep the hospitals open, operating and paying the bills runs “the risk of losing the hospitals as reliable health care facilities for Rhode Islanders,” Stern wrote.

Addressing Prospect’s protests that paying its overdue bills would force it to file for bankruptcy, Stern noted the $2 billion operating deficit recorded in 2023 financial statements.

Some see the proposed sale as salvation for the embattled hospitals, including staff and patients. But the interested buyer, Atlanta-based The Centurion Foundation, might not be the ideal savior.

Most concerning to the 1,000 union workers across both hospitals is how Centurion intends to finance the deal. In its December application to state regulators, Centurion proposed using $130 million of taxable and tax-exempt bonds to cover the sale and an initial balance sheet investment, estimated at $80 million apiece.

Workers with the United Nurses & Allied Professionals warned of crushing debt that could ultimately force the hospitals to shutter, even under new ownership. However, hospital administrators maintained that Centurion’s nonprofit status and commitment to local control would cut costs while improving services.

Even more compelling to supporters of the sale: There’s no other option. Centurion was the only “eligible” respondent to Prospect’s solicitation seeking interested buyers, Jeffrey Liebman, CEO and president of CharterCARE, said during a March hearing on the proposed deal.

State regulators can approve or reject the sale, or, a third option: approval with conditions attached. A decision is expected in the coming days, according to Brian Hodge, a spokesperson for the attorney general’s office.