Landmark Medical Center owner hit with $1M fine for misleading state

PROVIDENCE, R.I. (WPRI) – The owner of Landmark Medical Center has been hit with a fine of $1 million for repeatedly misleading state officials about an illegal business transaction involving the hospital, the R.I. Department of Health announced Monday.

The dispute involves Prime Healthcare Services’ ongoing attempt to convert Landmark from a for-profit entity to a not-for-profit. The California-based company bought the long-struggling hospital in 2013, and state officials said at the time they approved the deal in part because Landmark would become a for-profit entity that pays property taxes.

At the end of last year, though, Prime requested state approval to donate Landmark to its own charitable foundation, reverting the hospital back to not-for-profit status. The company indicated it expected tax savings from the move. The state’s Health Services Council has been reviewing that application for months.

However, according to a consent agreement signed by both sides and released Monday, Prime did not wait for approval to transfer Landmark to its nonprofit affiliate – it did so last Dec. 31, on the same day it filed its application, in violation of state law. The company denied the move for months but was finally forced to admit in August, according to the agreement.

Prime could have faced a fine of up to $5 million for the illegal transfer, but Department of Health Director Dr. Nicole Alexander-Scott reduced the penalty to $1 million partly out of appreciation for the company’s ongoing commitment to Landmark, according to the consent agreement. The state and the city of Woonsocket will split the fine money.

The matter has also been brought to the attention of the attorney general’s office, a department spokesman said.

Elizabeth Nikels, a spokeswoman for Prime, downplayed the fine.

“Prime Healthcare provided a good faith application acknowledging that the conversion to non-profit was pending state and regulatory approvals,” she said. “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.”

Prime has already been in the headlines this month, after the Oct. 17 announcement that its proposed deal to buy Memorial Hospital had fallen through, triggering the facility’s planned closure. But Nickels said the Landmark matter “has nothing to do with Memorial.”

“Prime Healthcare spent many months in negotiations and expended tremendous resources in its effort to save Memorial Hospital of Rhode Island,” she said. “Unfortunately, we could not come to an agreement with Care New England on purchase terms that would have allowed us to turn the hospital’s financial condition around.”

The consent agreement lays out months of inaccurate statements Prime now acknowledges it made to Health Department officials, who asked and received assurance as early as Jan. 5 that the not-for-profit change had not taken place, though Prime said then it might be a “possible retroactive transaction” for IRS purposes.

According to the agreement, Prime again falsely claimed the transaction had not yet taken place when questioned by department officials during the month of July. The company finally came clean at a meeting on Aug. 25 after its audited financials showed the hospital had indeed been converted to not-for-profit status last Dec. 31.

Beyond the fine, the consent agreement states that the Health Services Council will take up Prime’s application to convert Landmark at its next regularly scheduled meeting. But if the council refuses to approve the transaction, Prime has promised to revert Landmark back to for-profit status.

Linda McDonald, president of the United Nurses and Allied Professionals union, argued the Prime fine shows state lawmakers made the wrong move earlier this year when they eased the requirements of the Hospital Conversions Act, the state law governing hospital ownership changes, to make it easier for Prime to buy Memorial.

“The consent agreement between Prime and the Rhode Island Department of Health exposes an ugly and alarming trend that has become all too common in healthcare: the prioritization of profit over patients and their families,” said McDonald, whose union represents about 500 workers at Landmark.

UNAP has raised serious concerns about the manner in which for-profit health care corporations, such as Prime, conduct business, but what is more alarming today is the extent to which Prime and others will go to sidestep regulations put in place to protect the public’s welfare,” she said. “The fine levied today by Health was not expected, but it wasn’t surprising either.”

Ted Nesi (tnesi@wpri.com) covers politics and the economy for WPRI.com. He writes Nesi’s Notes on Saturdays and hosts Executive Suite. Follow him on Twitter and Facebook