Judge orders Landmark to uphold investment pledges
PROVIDENCE – A Superior Court judge has placed Prime Healthcare Services under a consent order to honor its multi-million dollar financial and regulatory commitments to Landmark Medical Center and the Rehabilitation Hospital of Rhode Island in the event the Greater Woonsocket facilities are converted to nonprofit status.
Associate Superior Court Judge Michael Silverstein’s order means Prime must live up to the original tenets of the Asset Purchase Agreement and the Hospital Conversation Act decision that paved the way for Prime’s $62 million acquisition of the two hospitals in 2013.
Acting on a petition by Attorney General Peter Kilmartin, the March 24 order calls for Prime to invest no less than $30 million in capital improvements in the hospitals, $4.5 million toward physician recruitment and $15 million in new medical equipment through Dec. 31, 2018 – even if the hospitals are converted to nonprofit status earlier.
Another provision requires Prime to maintain Landmark as an acute care hospital with an “open and accessible” emergency room and an independent medical staff during the same time period.
Also, Prime must keep the attorney general apprised of any actions taken against the owner of the 44hospital, California-based chain in connection with an ongoing investigation by the Department of Justice into allegations that Prime knowing- ly misclassified certain federal insurance claims to enhance reimbursements. The allegations predate Prime’s acquisition of the 214-bed acute care hospital on Cass Avenue and the 88-bed rehabilitation hospital in North Smithfield.
Kilmartin pushed for the order – which Prime did not contest – after the owner of Landmark and the rehab hospital filed a petition with the Rhode Island Department of Health to donate all the assets of the two hospitals to its charitable arm – Prime Healthcare Foundation, Inc., a Delaware-based nonprofit corporation. The application is pending.
“I am pleased with the court’s order enforcing the conditions of our HCA decision, which were put in place to ensure that the parties continue to provide quality healthcare services to the people of northern Rhode Island,” Kilmartin said in a statement. “This order will ensure that the promises Prime made when they first purchased Landmark will be kept.”
What the order does not do is protect the revenues that the city of Woonsocket receives in the form of taxes on real estate and business equipment from Landmark’s assets in the city. The city says about $1.6 million is in jeopardy if DOH approves Prime’s petition for change of ownership. The city’s tax agreements with Prime were the result of an autonomous and local administrative process that had nothing to do with the court’s approval of the APA.
Rhode Island law, however, requires the state to supplant tax revenues lost to nonprofit hospitals by about 27 percent, which means the net loss to the city in a worst-case scenario would be closer to $1.2 million.
Meanwhile, the city’s legislative delegation has introduced a measure in the General Assembly that seeks to preserve Landmark’s status as a taxable property, but the future of the measure is uncertain.
Also, Landmark and city officials have both expressed a willingness to negotiate a plan for the hospital to make some contribution to the city in lieu of taxes if the conversion is successful.
Landmark and the rehab hospital were both nonprofit entities until Prime purchased them out of receivership in 2013, at which point the new owner proposed converting them to for-profit facilities, like most of the other hospitals in the Prime network.
Now, if DOH approves the Prime’s application for change of control, the two hospitals that were the first in the state to be converted to for-profit status would also become the first to switch back.