Rhode Island's health department has fined Prime Healthcare Services $1 million for violating state law by failing to get permission to move its two Rhode Island hospitals into the company’s charitable foundation, effectively converting them to nonprofits.
The fine is the largest in at least three decades, if not ever, leveled by the state against a health system, Joseph Wendelken, a health department spokesman, said.
Prime’s actions enabled the California for-profit hospital chain to avoid paying millions of dollars in annual property taxes for Landmark Medical Center in Woonsocket and the Rehabilitation Hospital of Rhode Island in North Smithfield.
Prime has agreed to pay $500,000 to the Rhode Island General Treasurer and another $500,000 to the City of Woonsocket to be used to benefit the public health of its residents and surrounding communities, according to the consent agreement signed by state regulators and Michael Souza, chief executive officer of Landmark and the Rehabilitation Hospital.
State health regulators discovered Prime’s illegal actions last summer, when the company's 2016 financials became available, according to the consent agreement. The discovery came after repeated assurances by Prime to state regulators, the agreement said, that there had been no change in the hospitals' status.
“Prime Healthcare provided a good faith application acknowledging that the conversion to non-profit was pending state and regulatory approvals,’’ Elizabeth Nikels, a spokeswoman for Prime, said in an e-mail. “After extensive discussions with the state, and in the interest of time and moving this application forward, Prime Healthcare has entered into this consent decree.”
The agreement follows the collapse in mid-October of negotiations between Prime and Care New England, Rhode Island’s second-largest health system, for the purchase of Memorial Hospital in Pawtucket. The purchase was to be done through Prime’s nonprofit arm -- Prime Healthcare Foundation, Inc.
Care New England has said it now plans to shut down Memorial to stem its chronic financial losses.
It’s unclear whether the collapse of the Prime Healthcare Foundation’s purchase of Memorial had anything to do with the discovery by state regulators that Prime had illegally transferred its two Rhode Island hospitals into the foundation.
“The Rhode Island Department of Health never received an application from Prime to purchase Memorial Hospital, so I cannot comment on that hypothetical scenario,’’ Wendelken said in an e-mail. “However,’’ he said, “character and standing in the community are factors that are considered during the approval processes for the purchase of a hospital” under the state’s Hospital Conversion Act.
United Nurses and Allied Professionals union, which represents hospital employees, expressed alarm over Prime’s efforts to “sidestep regulations put in place to protect the public’s welfare.” The revelations in the consent agreement, UNAP said, “exposes an ugly and alarming trend that has become all too common in health care: the prioritization of profit over patients and their families.”
Prime has built a business on buying distressed hospitals at a low price and then turning them into revenue-generators. Prime purchased Landmark and the Rehabilitation hospitals in 2013, as the City of Woonsocket was on the verge of bankruptcy. Prime pledged to invest $30 million in capital improvements and pay property taxes.
After an extensive review process, the health department and the state attorney general approved the deal.
Prime’s proposal to move Landmark and the Rehabilitation hospitals into its foundation so the hospitals could operate as nonprofits drew sharp criticism earlier this year from the Woonsocket officials, who said the loss of tax revenues from Landmark would destabilize the city financially. Woonsocket has received more than $4 million in property tax revenues from Prime during the last three years, according to data from the city’s tax assessor.
In its consent agreement, state health regulators have agreed to allow Prime to continue for the time being to operate Landmark and the Rehabilitation hospitals as nonprofits, to “avoid disruption” in patient care. A review of Prime’s application to maintain them as nonprofits is scheduled to come before the department’s Health Services Council when it meets Tuesday.
This story has been updated.