PROVIDENCE – The lyric for a new Broadway smash hit perhaps might begin: “Hospitals and bankruptcy, hospitals and bankruptcy, go together like a… choose your simile.

As the song, “Love and Marriage,” sung by Frank Sinatra [and written by Sammy Cahn] for a 1955 musical television production of “Our Town” by Thorton Wilder, instructed the characters residing in the small fictional town of Grover’s Corners, N.H., [played by Paul Newman and Eva Marie Saint], the answer is: “… because you can’t have one without the other.”

[Three decades later, the song became the theme of a popular television situation-comedy, “Married – with Children.”] 

TODAY, in 2024, when it comes health care delivery, the sad answer is: “…hospitals and bankruptcy, hospitals and bankruptcy, because you can’t have one without the other.”

 The pending hearing on the disposition of Steward Health Care’s eight bankrupt Massachusetts hospitals in Houston, Texas, scheduled to occur on Wednesday, July 31, before U.S. Bankruptcy Judge Christopher Lopez, promises to launch the next legal chapter in the future of U.S. health care delivery. (Editor's Note: The court proceedings have become a moving target, following disagreements about the lease agreements and if and when the State of Massachusetts will commit some $30 million to support the transfer of the bankrupt hospitals.)

[The original eight bankrupt hospitals may have been pared to six, given Steward Health Care’s reported intent to close two Massachusetts hospitals, Carney Hospital in Dorchester and Nashoba Valley Medical Center in Ayer, before Aug. 31.]

Translated, it promises to make a few wealthy law firms even wealthier, reminiscent of Harvey Wasserman’s memorable opening line from his book, Harvey Wasserman’s History of the United States, which begins: “The Civil War made a few businessmen very rich.”

The sordid tale of how private equity owners have driven hospitals into bankruptcy across the U.S., through no fault of the patients, is now unraveling in the news media, in the courtroom, and in Congress. The plot line follows a familiar pattern: greedy private equity owners suck the financial guts out of numerous health care delivery systems, selling off the real estate – and leaving the hospitals stuck with paying exorbitant rents, all to create obscenely high profits for the owners, at the expense of the patients and the communities served.

Excellent reporting  by Moe Tkacik from The Prospect and NBC’s Gretchen Morgenson have provided the gruesome details of what went wrong. [See link below to “Quackonomics.”]

R.I. Attorney General Peter Neronha has placed conditions on the attempts by Prospect Medical, a California, for-profit private equity firm, to sell off its two Rhode Island properties, Roger Williams Medical Center and Our Lady of Fatima hospitals. [See link below to ConvergenceRI story, “Exposing the pitfalls in private equity financing of hospitals.”]

Yet getting answers and accountability has proven to be a difficult task. On Thursday, July 25, the U.S. Senate Committee on Health, Education, Labor and Pensions voted to subpoena the CEO of Steward Health Care, Dr. Ralph de la Torre, alleging that Steward executives had mismanaged the for-profit system’s finances and put patient care at risk.

“It is time for Dr. de la Torre to get off his yacht, and to explain to Congress the financial chicanery which made him extremely wealthy, while the hospitals he managed went bankrupt,” said Sen. Bernie Sanders, the chair of the Committee.

Eyes on the prize.  
Here in Rhode Island, the legal team representing the owners of Prospect Medical’s two financially impaired hospitals, Roger Williams Medical Center and Our Lady of Fatima, will no doubt be paying close attention to the outcome in the July 31 Houston courtroom proceedings.

So, too, will Attorney General Neronha, who is attempting to compel the owners of those two Rhode Island hospitals to pay their outstanding medical bills of some $17 million, as ordered by R.I. Superior Court Judge Brian Stern.

The recent 5-4 decision by the U.S. Supreme Court, announced on June 27, could end up looming large in the future legal outcomes in bankruptcy court decisions involving Steward Health Care – and whether or not individual owners of bankrupt companies can be released from third-party legal actions against them.

The Supreme Court decision overturned the settlement reached in the bankruptcy case involving Purdue Pharma, a decision that had allowed the Sackler family, the owners of Purdue Pharma, to escape future liability from lawsuits, even though they were not personally bankrupt and had allegedly squirreled away financial assets in overseas accounts.

is the ConvergenceRI interview with R.I. Attorney General Peter Neronha, conducted in late June, following the announcement of the Supreme Court decision involving the Purdue Pharma bankruptcy case, discussing what happened and its repercussions.

Cue the refrain: “Hospitals and bankruptcy, hospitals and  bankruptcy, go together like…”

ConvergenceRI: The beat goes on. Can you explain what the Supreme Court decision around the Sacklers bankruptcy case means for Rhode Island, moving forward?

NERONHA: I’m glad we can have this conversation, because it is more of a long-form story. We in Rhode Island had a case filed against Purdue and at least one member of the Sackler family. We sued Purdue and some related Purdue companies, as did other Attorneys General across the country – although some states didn’t bring lawsuits, such as California. [Unlike Rhode Island], they didn’t file an actual complaint in a California courtroom; they didn’t take any depositions, they didn’t do discovery, they didn’t argue motions.

There are reasons why, I think, that you wanted to file a case, [one of] which is that you keep pressure on the company. The bottom line is that AGs across the country agreed to a deal with Purdue Pharma and the Sacklers, and, to my memory, that deal, Richard, was that it called for $4.5 billion to be distributed to the states in varying amounts, based on factors, mostly population.

Why settle with them? Purdue was in bankruptcy at the time, and the Sacklers were seeking bankruptcy protection, without showing that they were individually bankrupt.

There was no question that Purdue was bankrupt, but they wanted third-party releases, which meant that basically, they [the Sacklers] were discharged [from liability] through the bankruptcy process, too, so any claims against [the Sacklers] were extinguished.

The problem for us, was, the fact that the Sacklers had moved a lot of their money offshore. So, you can chase them around for their personal assets, for the next 10 to 15 years, but in the meantime, you don’t have money coming in that can actually, work [to address] the opioid crisis.

You’ve got to weigh, why should these SOBs get away with, frankly, not paying more. Virtually all of the AGs agreed to a settlement of $4.5 billion that would give the Sacklers releases through bankruptcy, even though they weren’t [pesonally] bankrupt.

[Initially], nine of us, including me, held out, for four or five months. I had two reasons: the principal one was the victims, or the victims’ families, were not getting a chance to confront the Sacklers, which is what many of them really wanted – they wanted to face down the Sacklers in the courtroom.

And, I felt that Rhode Island was not getting enough money – that the opioid crisis didn’t affect all states equally, and the small states were not getting the dollar amount they deserved.

So, nine of us held out – there were California, Maryland, Washington, Vermont, and Connecticut, [in addition to Rhode Island]. We held out and continued to negotiate with the federal bankruptcy court magistrate. I remember being on a lot of phone calls and Zooms with my colleagues. [Our office] went to New York to try and negotiate this.

At the end of the day, we reached an agreement where the victims could confront the Sacklers, which eventually they did, and we added $1 billion in additional [money] into the deal, with the possibility of another $500 million.

It resulted in increasing the money to support our Rhode Island recovery efforts from around $20 million to $45 million. So, that meant there was a lot more money coming back to Rhode Island.

Who objected to the third-party releases being granted to the Sacklers? I don’t know if some victims’ families did or not, in terms of filing a court action, but the Department of Justice did. And, while we understood the legal point, we were more about getting money back to Rhode Island and our sister states and being put into prevention and recovery efforts.

The Department of Justice appealed and took it to the Supreme Court. And, the Supreme Court, in an odd split, you’ve got [Justices] Kavanaugh, Roberts, Kagan, and Sotomayor on one side and then you’ve got Justices Alito, Thomas, Gorsuch, Barrett, and Jackson on the other side, which is a weird split, right?

What I found ironic is that the Department of Justice, which I believe, according to some reporting in The Globe, thought that this would lead to a better settlement. That I doubt.

The federal government, to my knowledge, had not recovered a dime for this work. They could have pursued the Sacklers criminally, and haven’t.

So, what does that mean for us in Rhode Island, bottom line? We still have our court action, and we are going to pursue that, unless our deal can be renegotiated. And, we’ll just see how that goes.

ConvergenceRI: One of the conditions of the settlement was that Purdue Pharma opened up a whole bunch of data, to you and other states. It is not like that data can be put back into the proverbial toothpaste tube.    
NERONHA: And, the victims have already confronted the Sacklers, so they can’t take that back, either.

ConvergenceRI: Is there an opportunity for the opportunity for the Department of Justice to bring criminal cases against the Sacklers, if anyone had the gumption to do so?

NERONHA: I wouldn’t hold my breath for the Department of Justice to do that.

ConvergenceRI: Is there an opportunity to pursue liability claims against the Sacklers, particularly related to the facility in Rhode Island?

NERONHA: Well, we have already sued the Sacklers. So, that action will actually just start up again.

It hasn’t been dismissed. It is just on hold.  We will go back to Superior Court and continue to pursue it. What I don’t remember is which judge had it. Because we had a lot of these going. And, it could be Judge Licht, and my memory is, that it is. Which is actually a good thing, because he is a fine jurist. I imagine that there will be a court conference in that case, in the relatively near future, to plan out moving forward toward a trial.

ConvergenceRI: Would that be a good thing?

NERONHA: I would rather have $45 million for Rhode Islanders in my hands right now. I think the more money that we can bring into the state to work on this crisis, the better. There is no shortage of need. You know that, Richard. There is no shortage of need.

There are a lot of nonprofit agencies that can put this money to good use, helping everyday Rhode Islanders. And, while that money is going out the door, for every dollar that goes out, there is another agency that could use two. And so, $45 million is not a small amount of money.

I don’t think that we would do much better. I mean, we could get a judgment against the Sacklers, which says that the Sacklers, individually, are on the hook for X, OK? A lot of that money is beyond our reach. It’s already been moved out of the country. And, it’s very difficult to access it.

Now, could the federal government do that? Sure. Could they bring criminal charges? I suppose, potentially. But, I haven’t seen any appetite for that at all, because if there were, they would have already done it.

We have been working this for at least three, maybe four, five years. It’s all well and good for the federal government to object to third-party releases on a legal principle. But it is another example of the federal government being a little too far away from the work on the ground.

ConvergenceRI: How could they improve on what they are doing?

NERONHA: Well, they could bring their own claims, and put their money where their mouth is, and bring a criminal case. I have no objection to it. I just know enough about the Department of Justice that it would surprise me if they actually did it. If they are going to do it, great! They have my full support.

ConvergenceRI: What other questions should I be asking about the Sackler case as it pertains to the third-party liability, because it seems like a lot of people have glommed onto that, and in particular, I was wondering if it had any ramifications for the potential bankruptcy settlements with Steward?

NERONHA: I don’t really see the connection. And, it’s not about third-party liability, Richard. It’s about third-party relief.

The issue here is, and it’s pretty narrow. And it may have explained the odd split on the Supreme Court. The question is, under federal bankruptcy law, whether or not, as a part of a negotiated settlement, where all the parties of interest agree, whether or not you can discharge in bankruptcy individuals who are themselves not bankrupt, but are the principals of a company that is. That’s the question.

The Sacklers have not demonstrated that they are individually bankrupt. But as part of the Purdue bankruptcy proceedings, approved by a bankruptcy judge, can they be discharged from liability in bankruptcy, even though they themselves are not bankrupt?

And, I understand why that offends some. Look, if the Sacklers had more money in the U.S., we wouldn’t be settling for just – and I would put quotes around “just” -- $6 billion.

But, a lot of the money is overseas. This is something that we have discussed as Attorneys General. It is all well and good to fight for a principle but when your residents are dying, there is also a need to get money home to help. And, we’ve seen already the good that that money can do.

ConvergenceRI: Thank you for clarifying all of this. It’s a really helpful series of answers. Moving forward, I am curious to see what happens with Steward, because my guess is Dr. de la Torre is watching this very carefully.

NERONHA: Yes, he is, if he thinks there is personal liability for him, and I don’t know enough about that case to know whether there is. For example, with Prospect, I would love to impose personal liability on Mr. Lee and Mr. Topper, but that is what corporation law does – it insulates principals from personal liability.

I don’t know if Dr. de la Torre is trying to seek a personal discharge. I imagine what he is doing is relying on the corporate structure of Steward to insulate himself from liability.

There is a principal called “piercing the corporate veil” but that is a difficult thing to do. What that means is, when a corporation is really a sham corporation, meaning it is not traded on a stock exchange, it does not have an independent board of directors, but it is a closely held corporation where the principals are making all of the decisions, and there either is no board, or the board is a sham board, meaning a board of people who don’t show up at meetings, don’t keep minutes, or don’t have all those things that you would expect, in a publicly traded corporation, of those sorts of things that make a corporation a corporation.

That’s how you pierce a corporate veil, but it’s very difficult, Because good corporate lawyers set up those things to insulate people like Dr. de la Torre from personal liability.