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Prime Healthcare fined $1 million for hiding its transfer of Landmark to its nonprofit foundation without state approval

In a consent decree, Prime Healthcare agrees to pay $500,000 to the state’s general fund and $500,000 to Woonsocket

File photo by Richard Asinof

The entrance to Landmark Medical Center in Woonsocket.

By Richard Asinof
Posted 10/30/17
Prime Healthcare attempted to hide the fact that it had transferred the assets of Landmark Medical Center and the Rehabilitation Hospital of Rhode Island to its nonprofit foundation, without state approval, which resulted in a $1 million fine.
How will the consent decree impact the pending proposal before the R.I. Department of Health by Prime to establish a Level III trauma center at Landmark? How will Woonsocket invest its $500,000 share of the fine? What knowledge did the president and CEO of Landmark, Michael Souza, of the transaction completed in December of 2016?
At a time when the hospital-driven health care delivery system in Rhode Island is under stress and siege, the role of the R.I. Department of Health to fulfill its regulatory function and carefully review proposals for new facilities and transfers of existing assets becomes an important protection of the public health in Rhode Island.

PROVIDENCE – In a consent decree made public today, Oct. 30, by the R.I. Department of Health, Prime Healthcare admitted that it had wrongfully transferred the assets of Landmark Medical Center in Woonsocket and the Rehabilitation Hospital of Rhode Island in North Smithfield to its nonprofit foundation in December of 2016, without state approval, and then attempted to hide that fact from state regulators.

As a result, Prime Healthcare agreed to pay a fine totaling $1 million. According to the consent decree, the terms of the settlement include:

Prime agreed to pay a fine totaling $1 million, with $500,000 payable to the R.I. General Treasurer, and $500,000 payable to the City of Woonsocket, within the next three weeks.

The money paid to Woonsocket will be used for one or more public health purposes that address the social and environmental determinants of health, eliminating health disparities, and ensuring health care access to vulnerable populations.

The proposed transfer of assets from Prime’s for-profit health system to its nonprofit foundation is still under review by the R.I. Health Services Council and the R.I. Department of Health, according to the consent decree.

If Prime does not receive subsequent approval for the transfer, then Prime agreed in the consent decree to implement a reversal of the transaction, which will result in Landmark reverting to its previous status as a subsidiary of the for-profit Prime Healthcare Services within 30 days, after all appeal rights are satisfied.

A convoluted timeline
The ferreting out of Prime Healthcare’s actions regarding the transfer of assets of Landmark Medical Center and its sister facility, the Rehabilitation Hospital of Rhode Island, speaks to the due diligence and tenacity of the regulators at the R.I. Department of Health.

The consent decree provides details about the convoluted timeline and alleged deception employed by Prime Healthcare to hide the fact that the transfer of assets from its for-profit health system division to its nonprofit foundation had already occurred and was a fait accompli, completed as of Dec. 31, 2016.

On Dec. 31, 2016, Prime submitted its application to the R.I. Department of Health for Change in Effective Control, as required under the Hospital Conversion Act.

On Jan. 3, 2017, the R.I. Department of Health requested, and, on Jan. 5, 2017, Prime provided confirmation that the transaction had not yet taken place.

On Feb. 14, 2017, the R.I. Department of Health issued written deficiencies in respect to the initial submission for the transaction, and on March 17, 2017, Prime replied with a resubmission of the pending application.

On March 28, 2017, in response to Prime’s March 17 submission, the R.I. Department of Health issued a second set of written deficiencies, and on April 11, 2017, Prime replied to a second set of deficiencies with another resubmission of its pending application.

Following the review of the April 11, 2017, resubmission, and relying on Prime’s representation in a Jan. 5, 2017, email that the transaction had not yet occurred, the R.I. Department of Health determined that the submission was acceptable.

On April 25, 2017, the R.I. Department of Health engaged an expert to review the submission.

On May 16, 2017, Prime appeared before the R.I. Health Services Council to provide an initial presentation on its pending application.

On May 23, 2017, the R.I. Department of Health sent supplemental questions to Prime based upon the expert’s review,

On June 13, 2017, the R.I. Department of Health received Prime’s answers the additional questions. The answers raised questions as to whether the transaction had already occurred.

On June 29, 2017, the R.I. Department of Health suspended the review of Prime’s pending application, based upon questions whether the transaction had occurred before obtaining approval from state regulators.

On July 7, 2017, a meeting was held between representatives of Prime and representatives of the R.I. Department of Health, at which Prime represented the transaction regarding transfer of assets had not yet occurred.

On July 13, 2017, Prime Foundation submitted a letter to the R.I. Department of Health, and on July 14, 2017, and on July 25, 2017, Prime Healthcare Services submitted letters to the R.I. Department of Health, with all of the letters saying that there had been no change to the operations of Prime-Landmark.

However, in July and August of 2017, the 2016 audited financial statements for the Prime Foundation became available, which showed that the transfer of the hospitals to the Foundation had actually occurred in December of 2016.

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