RI Healthcare System’s Key Player is Under Investigation by DOJ and Bonds Are Downgraded

Tuesday, May 30, 2017


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Prime Healthcare Service's bond rating was recently downgraded.

One of the keys to stabilizing Rhode Island’s fragile hospital system is the acquisition by Prime Healthcare Services of Pawtucket-based Memorial Hospital from Care New England (CNE).

Prime, however, is in the midst of growing financial turmoil and is facing a newly announced investigation by the U.S. Department of Justice.

Memorial - Center of CNE Debt

Memorial Hospital’s financial collapse is one of the reasons why CNE is piling up debt and recently announced its agreement to be purchased by Massachusetts-based mega healthcare group Partners.

De facto, the sale of Memorial to Prime is critical to the Partners’ acquisition of the remaining assets of CNE, which include Women & Infants, Kent Hospital, and Butler Hospital. Presently, CNE is on pace to lose in excess of $60 million annually and simply run out of cash to operate without an immediate deal.

As GoLocal first reported, financially troubled Care New England signed an agreement in April with Massachusetts-based Partners Healthcare to explore a potential merger. 

Founded in 1994 by Brigham and Women's Hospital and Massachusetts General Hospital, Partners HealthCare is a massive collection of services including community and specialty hospitals, a managed care organization, a physician network, community health centers, home care and other health-related entities. 

Partners generated nearly $12 billion in revenue in 2014 - it dwarfs all of the healthcare groups in Rhode Island combined, as Lifespan, RI’s largest healthcare group, generates approximately $2 billion a year.

But, the likelihood of Partners purchasing CNE with Memorial is unlikely. In preparation of the Partners and CNE deal, both companies announced major layoffs.

SLIDES: See 7 Implications of the CNE-Partners Merger BELOW

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GoLocal was first to report the merger.

Prime’s Problems Are Getting Worse

New Jersey Business reports that Prime’s financial situation is deteriorating "amid a turbulent financial time for Prime Healthcare Services, including a downgrade in its credit rating from S&P Global Ratings to a B-.” 

The implications of Prime’s financial decline not only impacts Memorial and CNE’s future, but also has implication for Woonsocket-based Landmark Hospital.  That hospital is not without its own controversy as Prime is seeking to take Landmark from for-profit to not-for-profit status to save about $1.6 million a year in property tax payments to Woonsocket.

Prime’s financial scrambling is taking place across the country. “S&P recently downgraded Prime’s credit rating, calling the company’s management and governance “weak, reflecting a history of disputes with unions representing employees at certain hospitals, as well as the ongoing whistleblower investigation, partially joined by the U.S. Department of Justice, into the company's Medicare billing practices,” wrote New Jersey Business.

“S&P added that there are significant issues regarding internal controls over financial reporting, which has resulted in reporting delays that partially spurred the second recent downgrade.”

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Prime facing ongoing DOJ investigation.

More Troubles:

In October of 2016, the Los Angeles Times reported: 

In a ruling last week, the National Labor Relations Board ordered Prime Healthcare Services, the owner of several Southern California hospitals, to pay back wages to laboratory technicians, clerks and pharmacists, among other employees.

The chain owes $6.5 million to 500 workers at Encino Hospital Medical Center and Garden Grove Hospital and Medical Center, according to the union representing them, the SEIU-United Healthcare Workers West.

In May of 2016, the U.S. Department of Justice issued a statement about their investigation of Prime:

“The United States has intervened in a lawsuit against Prime Healthcare Services Inc. (Prime); the company’s founder and chief executive officer, Dr. Prem Reddy; and 14 Prime hospitals in California that alleges Emergency Departments at Prime facilities improperly admitted patients to the hospitals and submitted false claims to Medicare, the Justice Department announced today.

The lawsuit alleges that Dr. Reddy directed the corporate practice of pressuring Prime’s Emergency Department physicians and hospital administrators to raise inpatient admission rates, regardless of whether it was medically necessary to admit the patients.  The lawsuit alleges that Prime’s corporate officers, at Reddy’s direction, exerted immense pressure on doctors in the Emergency Departments to admit patients who could have been placed in observation, treated as outpatients or discharged.  As a result of these medically unnecessary admissions from the Emergency Departments, Prime hospitals allegedly submitted false claims to federal health care programs, such as Medicare.

In January, Modern Healthcare reported:

"A federal judge denied a motion by Prime Healthcare Services to dismiss a whistle-blower lawsuit alleging the hospital chain fraudulently billed Medicare. 

U.S. Magistrate Judge Patrick Walsh ordered that the lawsuit, which the U.S. Justice Department joined in May, contains “sufficient facts” to sue Prime under the False Claims Act."


Related Slideshow: 7 Implications and Unintended Consequences of a Care New England and Partners Merger

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Providence does not usually do well in mergers

Remember Providence Gas, Fleet Bank, and Narragansett Electric?

Big employers, deep community involvement, and significant charitable donors — all were consumed and in each case, the number of employees left in Rhode Island by the succeeding company is a fraction of the once independent venture.

To the victor goes the spoils.

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As if the Boston economy isn't good enough, and the Providence economy couldn't be more stagnant

The cityscape of Boston is littered with cranes. Boston Business Journal maps the construction projects utilizing cranes in Boston (see image) and the number of projects is staggering. 

In Providence, there few construction projects and not a crane to be seen. The last thing Providence needs is for another one of its largest employers to be merged into a Boston mega-organization. The likelihood is that jobs will be lost or consolidated to Boston - basic functions like purchasing, accounting, etc. will be lost. 

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Harvard beats Brown in Ivy League match-up

Harvard Medical School is ranked as the #1 research-based institution in America by U.S. News and World Report.

Partners Healthcare’s academic partner is Harvard.

In contrast, Care New England’s academic affiliation is with the Warren Alpert Medical School of Brown University. Brown’s best ranking is 21st for primary care - and is ranked for research way back at #31.

One of the biggest losers in the merger could be Brown's medical school.

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Care New England is RI’s 2nd largest employer, so what will It be in 2 Years?

According to the RI Department of Labor and Training, Care New England is Rhode Island’s second largest employer.

Lifespan is the largest: 12,050

Care New England: 8,500

CVS: 7,800

Cities like "Meds and Eds" (the medical and educational business segments), but Providence and all of Rhode Island is likely to lose high paid, highly educated jobs as a result of this deal.

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Care New England Continues to Struggle

Despite hopes that closing Memorial Hospital would solve the financially beleaguered Care New England's economic woes, new financial documents unveil that CNE continues to struggle.

Additionally, the pursuer - Partners HealthCare - is also making cuts. The Boston Globe unveiled the Partners is cutting about 100 of the company’s tech workers that their jobs were being outsourced to India to cut costs.

“Many of the employees have worked for Partners for several years, or even decades, and are struggling with the company’s decision. Almost all are coders — people who scour patients’ medical records to pinpoint billable services — and earn upward of $40 an hour. Coders in India earn a fraction of that amount, making overseas coding an attractive way for hospitals to cut costs,” wrote the Boston Globe.

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Can the unions battle?

Within hours of GoLocal breaking the news of the merger, the United Nurses and Allied Professionals (UNAP) President Linda McDonald, RN, released the following statement today:

"This proposed merger has the ability to impact thousands of jobs and the quality of care in Rhode Island and should be thoroughly scrutinized. Like most Rhode Islanders, we only recently learned of this proposal but expect Care New England and Partners HealthCare to be transparent in their process and begin a conversation with our union about the effect any deal would have on our members and our patients.  

Memorial Hospital provides critical care to scores of Blackstone Valley residents every year and preserving its status as a fully-functioning community hospital will be among our top priorities as this process continues to unfold. 
The onus is now on Care New England, Partners HealthCare and Prime Healthcare Services to make the details of this proposal public and to do it quickly so that workers, patients and state regulators may begin asking the appropriate questions."

The nurses represents nearly 1,400 registered nurses, CNAs, ER techs, surgical techs, orderlies, endo techs, environmental employees and ancillary staff at Kent and Memorial hospitals.  But, will they have any impact on the decisions?

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Speaking of Lifespan - will they be forced to merge with a Boston partner?

Lifespan is having its financial challenges too. While Care New England lost $53 million last year, Lifespan's losses were $40 million. The Lifespan losses were smaller proportionately to the healthcare group's overall budget and it does not have the cash crunch that Care New England was battling.

In February, Lifespan announced it had has entered into another Boston Hospital agreement. This agreement with Dana-Farber Cancer Institute is a long term agreement with the goal of advancing cancer treatment and research. Lifespan previously entered into an agreement with New England Medical Center and that deal led to years of protracted litigation to unwind. Lifespan also ran into a legal battle with Tufts Medical Center.

Will Partners' potential arrival in the market force Lifespan to affiliate?


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