Prospect Medical’s cash crisis forces surgery delays in Rhode Island

The Boston Globe – Wednesday, January 15, 2025
By Alexa Gagosz

PROVIDENCE — Bankrupt Prospect Medical Holdings did not pay vendors to provide basic medical supplies, and its hospital leaders in Rhode Island on Tuesday morning were forced to delay surgeries.

Prospect, a national for-profit health care chain, owns and operates Roger Williams Medical Center in Providence and Our Lady of Fatima Hospital in North Providence, and filed bankruptcy late Saturday night.

During the corporation’s first hearing in a Dallas courtroom, Prospect Chief Restructuring OfficerPaul Rundell said Tuesday afternoon that he spent his morning working with executives at the company’s two Rhode Island hospitals to work out arrangements to pay vendors in advance.

“I spent my breakfast talking to the CEO of Rhode Island. We had to push some surgeries and procedures because we have some vendors that needed cash in advance,” Rundell testified. “So I immediately got my people to call the vendors to work out arrangements. But until we send them the cash advance, we’re not going to get the necessary supplies we need to treat those patients.”

Otis Brown, a spokesman for Jeffrey H. Liebman, the CEO of Prospect’s two Rhode Island hospitals, said two spine cases were rescheduled to next Monday “without incident.”

“One particular vendor unexpectedly requested pre-payment and we are actively working with them to resolve it,” said Brown.

Prospect owes $400 million to vendors across its 16 hospitals in four states. Some vendors are owed as much as $30 million, Rundell explained.

Filings shows Prospect has more than 100,000 creditors and between $1 billion and $10 billion in liabilities. Last week, prior to Prospect filing bankruptcy, the company had less than $3.4 million cash on hand.

That amount “is not what you want to run 16 hospitals on across the country,” Thomas R. Califano, a partner at Sidley Austin LLP, who is representing Prospect, said when addressing Chief Judge Stacey G. C. Jernigan.

“We can’t keep pushing off our surgeries,” Rundell said during his testimony, which was livestreamed to more than 230 observers.

A spokesperson for Rundell did not respond to a request for comment.

Roger Williams and Fatima Hospital are considered safety-net hospitals and care for the state’s most vulnerable patients. Their patient mix skews toward mostly public payers and those who are uninsured, according to executives and state officials.

This is not the first time that Roger Williams and Fatima Hospital had to reschedule procedures due to a failure to pay vendors.

In November 2023, state investigators found that Prospect Medical Holdings had underfunded the two Rhode Island hospitals to the point where it was impacting operations and canceling surgeries. Nearly two dozen elective surgeries at the two facilities were canceled in October 2023 because the proper equipment and supplies were not available because of non-payment to vendors, according to a compliance order issued by the health department to the hospitals.

The investigation also found that more than 250 of the approximately 830 vendors were operating with the hospitals on a “cash on demand” basis. That means they only deliver supplies if they are paid at the time of delivery, a policy generally reserved for customers with a history of nonpayment.

Also during the hearing on Tuesday, Jernigan, the bankruptcy judge presiding over the case, approved Prospect to obtain access new loans up to $100 million, of which $29 million is available immediately, so the system does not run out of money over the next four weeks.

“There’s $3.4 million in cash and payroll is due tomorrow,” said Jernigan. “If this scenario doesn’t rise to the level of catastrophic — meaning if they don’t get the funding — then I don’t know what does.

“We’ve gotta keep these hospitals open,” added Jernigan. “We’ve got to get payroll. We’ve got to get vendors paid… This is triage: You’ve got to first take care of the community and patient care.”

Since late 2022, Prospect has been trying to sell its two Rhode Island hospitals, and in June 2024, Rhode Island state regulators approved the terms of a deal to sell them to The Centurion Foundation, a Georgia-based nonprofit. Their approval came with dozens of conditions set by the health department and Rhode Island Attorney General Peter F. Neronha’s office, which virtually guarantees that Prospect would not make a profit on the deal if the transaction goes through.

Despite regulatory approval, Matthew Niemann, the managing director of Houlihan Lokey’s Financial Restructuring Group, said he does not expect that deal to close anytime soon. Jernigan will eventually need to either approve or deny the proposed sale.

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