Part THREE

PROVIDENCE – The unprecedented decision by R.I. Attorney General Peter Neronha to create an $80 million escrow fund as a condition of the change in ownership at Prospect Medical Holdings, which owns Roger Williams Medical Center and Our Lady of Fatima Hospital in Rhode Island, is a big, big story, one that does not fit easily into the news formats available to most news media outlets.

Even WPRI’s Ted Nesi admitted on Twitter that he was struggling with how best to write the TV news script about the approval of the sale by the R.I. Attorney General. As much as we are all consumers of health care, which is personal, complex, too expensive, and often difficult to access, how we talk about health care in the news media often remains a daunting challenge.

We know our own health stories, intimately, whether we are talking about a hip replacement, attempting to schedule a primary care visit months in advance, going to the emergency room because a new mother has an unexplained fever, or attempting to coordinate a telehealth visit with a therapist – and making sure that it is covered by your insurance plan, these are part of our daily struggles, much like being caught up in rush hour traffic. Navigating big news stories about health care delivery requires a longer attention span than usual.

In Part ONE, ConvergenceRI framed the import and context of the story. In Part TWO, ConvergenceRI provided an in-depth transcription of the news conference held on Tuesday, June 1, as a way to have Attorney General Neronha to be talking directly with the readers, as if they were sitting in the room, listening. In Part THREE, ConvergenceRI is providing a transcript of the questions-and-answers between the news media and Neronha.

It may seem like “too much information” to provide so many details about the decision to create an $80 million escrow fund to ensure that the new Prospect Medical Holdings entity that will now own two Rhode Island hospitals will keep its financial promises. But health care has become the undercurrent in all of our lives, touching everything we do, in the wake of the recovery from the COVID-19 pandemic.

The exchanges between Attorney General Neronha and the Rhode Island news media following his presentation at the June 1 news conference displayed both good questions and thoughtful answers, a rare occurrence in our addiction to the breaking news world.

REPORTER: I don’t think you ever officially said what the initial draft decision had for [the amount of] money [to be placed in escrow], but Prospect, I believe, had suggested that it was $120 million; this is for $80 million. Did you come down in your overall financial demands? And why?
NERONHA: Yes. Well, the original number [to be held in escrow] was $120 million. I’m going to tell you why I arrived at the initial figure of $120 million.

At that point in my discussions with Prospect, they were not cooperating with me. It reminds me a little bit of how we addressed the situation involving the Sacklers and the Purdue opioid crisis.

If you want to talk to me about resolution, I need to understand your numbers. You need to share information candidly. Don’t tell me it’s all rosy and fine when I know that it isn’t.

And, so, I came up with a number [of $120 million]. Under those circumstances, I’m going to err to my good and their bad. Anything that can go in, including the kitchen sink, is going into the numbers.

After we took that position, I gave them opportunities, as you may recall, to come in and to convince me what number would be sufficient.

That [final] number, $80 million, is sufficient, based on our analysis through our experts, of what’s needed to cover operating expenses and necessary capital expenditures for the next five years.

That explains the difference. When you are cooperating, I’ll talk to you about the right number. If you are not cooperating, I’m going to err on the side of caution, and that’s exactly what we did here.

REPORTER: Can the new entity [of Prospect Medical Holdings] be sold and then leased back within the next five years?
NERONHA: It can’t be sold without this office’s approval.

REPORTER: It could theoretically, be sold, if approved?
NERONHA: If approved, [that is] correct. Any time you try to sell a hospital, in my view, or to close a hospital, you need approval of this office.

What I was really concerned about was that next July, whether I approved the [transaction], or didn’t approve it, without the condition [that is now part of the transaction], those hospitals could have been sold and leased back.

Why did I think that was likely? Because there wasn’t a whole lot else [for Prospect Medical Holdings] to sell or lease back [in terms of repaying the note that comes due in July of 2022].

We knew we needed to address that. There were really two things that we needed to address, when you go up to the 50,000-foot level.

One was to make sure that the money is there to pay for capital expenditures and to cover operating losses and to get those hospitals off that TRS note in the near term. And, to make sure that doesn’t happen without this office’s approval.

Again, because if Rhode Islanders were to wake up next July to learn that those two hospitals had been sold and leased back, I don’t think that would have been a good situation for anybody.

REPORTER: Could they do that without approval?
NERONHA: I would like to think that they couldn’t. But I wasn’t yaking it for granted. I don’t want to be in court litigating that issue. I wanted it resolved now.

REPORTER: In terms of the process, what’s the next step?
NERONHA: In terms of process, the next step will be to close the transaction after the money is in escrow.

That money may be in escrow, even as we speak.

It is a condition of them closing the transaction, meaning Leonard Green selling its 60 percent interest [in Prospect Medical Holdings] to Lee and Topper. Thy can close the transaction now, subject to our conditions, and one of those conditions is to have that $80 million in escrow.

The $80 million in escrow, it may already be there, then they can close the transaction, and the hospitals will continue to operate. They need to make these investments, and if they don’t, then the money is there to make sure that they do.

REPORTER: Is there any sort of timeline when your office needs to see that money in the escrow account?
NERONHA: Look, I wasn’t going to do this press conference until I was convinced that the money was in escrow or would be in escrow.

Again, I want to be very clear what that means. That money is there if bad things happen.

The alternative would have been to go ahead and let them make the changes [in ownership] without having the kind of security [the conditions create]. I don’t believe that this has ever been done in this state before; if it has, I am not aware of it.

And, I can tell you, this transaction is impacting hospitals elsewhere in the country.

ConvergenceRI: Is this precedent-setting decision something that other states may follow, in terms of conditions applied to the future sale of hospital properties?
NERONHA: I can’t say that, Richard. I know that it is unprecedented in this transaction. Look, I don’t know what other authorities, what other Attorney Generals around the county have in effect [governing] hospital sales.

REPRTER: Obviously, there is another application that is one your desk right now. Should the leaders of Lifepsan and Care New England expect this type of process of their own merger?
NERONHA: [laughing] You couldn’t let us go one day without bringing up the next thing [on the table].

Look. I just think it is really important that as a health care regulator in this state, that we look at every proposed transaction with a fair degree of objective skepticism. We shouldn’t be the cheerleaders for transactions; we’re a regulator.

I think the other takeaway is this: We’re going to do our job, and we’re going to look at these transactions carefully, and if we feel that we need to fight on behalf of the people of the state of Rhode Island, we are going to do that.

As regulators, you can’t get rolled. You can’t get rolled. You have to stand up. Sometimes that means fighting on behalf of people of the state. We are building an organization [at the Attorney General’s office] that will fight for the people of this state.

And, I really believe that when we do that, we get great outcomes. But you can’t be afraid to take a stand. That’s what we did here. I am confident that we’ve achieved a good result for the people of the state.

REPORTER: If these hospitals are losing money in their operations, year after year, I can see where there is an obligation to try to keep them healthy when they are trying to sell. On the other hand, does this just mean we are postponing the inevitable? That these hospitals are not going to be financially viable without an outside infusion of capital?
NERONHA: These are, like many hospitals, safety net hospitals, not the only ones here or around the country.

You tell me? Which hospitals are making money hand over fist? Whether they are nonprofit or for-profit?

I can’t stand here and solve for the overall health care structural problems.

The reality is that it is really difficult to break even in health care. We are not just seeing it with these two hospitals; we’re seeing it throughout the country.

There is a broader conversation here, which we need to have in the country, about how we are going to fund health care, and not just for hospitals, because of lot o fit is reimbursement. That is a much broader conversation than we can have today. I can’t solve for that.

What we can solve for here was that we needed these commitments to [ensure the financial capability of these hospitals to continue to operate]. We needed to make sure that those commitments are backed by financial security. That was the end game, and I think we achieved that.