New opposition to Landmark transfer?
AG wants court to order hospital to pay millions before it becomes non-profit
WOONSOCKET – If Greater Woonsocket’s two for-profit hospitals are donated to the Prime Healthcare Foundation, the nonprofit organization should inherit all the financial commitments their owner made as a condition of purchasing them in 2013.
So says Attorney General Peter Kilmartin, who has petitioned the Superior Court for an order to do just that if Landmark Medical Center and the Rehabilitation Hospital of Rhode Island get a new owner.
The petition is the latest twist in Prime Healthcare Services’ application to the state Department of Health to donate all the assets of Landmark and the North Smithfield rehab hospital to its nonprofit counterpart. Kilmartin says Prime made multi-million dollar promises lasting through the end of 2018 as part of the $62 million acquisition of the hospitals, but those commitments may be unenforceable if Prime’s nonprofit, charitable branch assumes control of the facilities.
The terms of the sale are enshrined in an asset purchase agreement (APA) approved by the court and a decision rendered by the attorney general under the Hospital Conversions Act (HCA), a law that governs the sale of hospitals.
“The petition requests that the court enforce the APA and the condition of the AG HCA decision so that the 5year obligations, which do not expire until the end of 2018, transfer to the
foundation,” Amy Kempe, a spokeswoman for Kilmartin, said via e-mail.
As a condition of the sale, Prime pledged to invest millions in the two hospitals, including:
• $30 million in capital expenditures to improve Landmark
• no less than $4.5 million for physician recruitment
• no less than $15 million towards routine equipment upgrades
While the petition says Prime’s outstanding commitments to Landmark may not be enforceable against the foundation if DOH approves the application for change of ownership – Kilmartin says they should be.
“Should the proposed transaction be implemented, the five (5) year obligations must be inherited by the foundation,” court papers say. “Those promises were considered, and relied upon, by regulators, the court and the public at large. The attorney general, and this court, should not allow Prime to curtail the promises made in its initial acquisition of Landmark.”
The petition is slated for hearing on March 20 before the same jurist who oversaw the sale and approved the APA – Associate Superior Court Judge Michael Silverstein.
The petition is the latest salvo from a government agency attempting to mitigate potential financial repercussions of a change of ownership for Landmark and RHRI.
At the request of Mayor Lisa Baldelli-Hunt, state lawmakers filed a bill in the General Assembly last week that is aimed at maintaining Landmark’s annual obligation of roughly $1.6 million in taxes it pays to the city on real estate and hospital furnishings, including medical equipment.
The bill is an amendment to a state law that exempts certain classes of property from taxation, including nonprofit hospitals. It would generally preserve the exemption except for “nonprofit hospitals that are converted from for-profit to nonprofit hospitals, or nonprofit hospitals that are owned directly or indirectly by forprofit hospitals or by forprofit healthcare companies and or for-profit holding companies…”
The proposed measure says hospitals that fall into the exclusion “shall not be exempt unless authorized in whole or in part by the City or Town Council of the city or town in which the hospital is located after holding a properly advertised public hearing and making a determination that such exemption is in the best interest of the community…”
Landmark and RHRI had been in receivership for more than five years before Prime, a for-profit hospital chain, purchased them in 2013. Prime’s acquisition marked the first time hospitals had ever been converted to forprofit status, a move that caused state lawmakers to amend the HCA in order to allow the sale to occur.
Now, if Prime’s application for change of effective control is approved, the two hospitals would become the first to be switched back from for-profits to nonprofits.
Based in Ontario, Ca., Prime owns more than 30 hospitals in several states, operating most of them as forprofits. But more than a third are run as nonprofit organizations.
In documents on file at DOH, Prime argues that the switch to nonprofit status would be a better fit for the income demographics of the area and allow for all of the earnings of the facilities to be reinvested in hospital improvements.
In a separate application on file with DOH, Prime is also seeking a permit to establish a Level III trauma center at Landmark Medical Center, a move that represents an investment of $11.3 million, partly in upgrades to the emergency room.