Healthcare giant with 166 clinics across the US plans to ax half of their hospitals amid bankruptcy

A healthcare giant that operates 16 hospitals across four states has filed for bankruptcy – with plans to offload several of them. 

Prospect Medical Holdings – which also owns 166 clinics across California, Connecticut, Pennsylvania and Rhode Island, and employs 12,600 people – filed for Chapter 11 protection in Texas on Saturday.

The company, which was once an active buyer of struggling hospitals, has debts of more than $400 million.

Prospect said on Saturday that its hospitals, medical centers, clinics and physicians’ offices would continue to operate as normal while it restructures. 

But, after that, the company will focus exclusively on its facilities in California, where it has seven hospitals. 

It plans to sell its operations in the other three states to rival healthcare providers, along with transferring the associated jobs. It has faced problems offloading them in the past.

Two medical centers in Rhode Island – the Roger Williams Medical Center and Our Lady of Fatima Medical Center – are set to be sold to another healthcare company, Prospect confirmed.

But in Pennsylvania, it has yet to find a buyer for facilities including Crozer-Chester Medical Center in Chester and Taylor Hospital in Ridley Park.

There are also three hospitals up for sale in Connecticut, the Waterbury, Manchester Memorial, and Rockville General. A previous buyer is suing Prospect to get out of the deal after alleging they were rundown. 

Von Crockett, Prospect’s chief executive officer, said: ‘[The] actions represent an important step forward in our longstanding commitment to best serve the interests of our patients, physicians, employees, and communities.

‘Divesting our operations outside of California will ensure that they receive necessary financial support so that the communities that rely on those facilities will maintain continued access to highly coordinated, personalized, and critical healthcare services long into the future.’

Problems at Prospect come less than a year after the collapse of Steward Health Care, another major hospital system backed by private equity.

Steward, which owned more than 30 hospitals across eight states, was reported by CBS to have been drained of hundreds of millions of dollars by private equity investors, potentially contributing to shortages of life-saving medical equipment. 

Along with Steward, Prospect Medical has also been a focus of ongoing investigations by CBS into how how private equity investors have extracted millions from community hospitals.

Between 2010 and 2021, private equity firm Leonard Green & Partners held a majority stake in Prospect Medical.

The company’s financial maneuvers included a $457 million dividend paid to leadership in 2018. 

Sam Lee – the former CEO of Prospect, who is now the chairman –  reportedly received around $90 million that year, while Leonard Green shareholders took home $257 million. 

Both Prospect Medical and Steward relied on the value of their hospital real estate to help pay for large payouts for their owners. 

There had been signs of distress at Prospect Medical since last year. Hospital landlord Medical Properties Trust sought to take control of some of the firm’s health care facilities while accusing Prospect of defaulting on debt, Bloomberg reported.

The Steward bankruptcy drew government scrutiny and prompted debate about the regulation of private-equity owned hospitals whose failure could lead to devastating consequences for local communities. 

Last week, a bipartisan committee said there was ‘overwhelming evidence of financial mismanagement’ as Leonard Green and Prospect Medical sought to drive profits, which led to hospitals serving vulnerable Americans to cut services or close altogether, CBS reported.

The committee report concluded that hospital systems backed by private equity may pose ‘a threat to the nation’s health care infrastructure, particularly in underserved and rural areas.’

Both Leonard Green and Prospect Medical dispute the committee’s findings.

A Prospect Medical spokesperson said the company had spent more than $750 million in its hospitals and provided more than $900 million in charity and uncompensated care to patients.

‘Nearly all the hospitals Prospect acquired were cash-starved, neglected, in disrepair and on the verge of closure or bankruptcy,’ they added.

‘In nearly every instance, no one else wanted to acquire them, and many were headed to closure.’