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

A health care giant that operates 16 hospitals in four states has filed for bankruptcy — with plans to lay off some of them.

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

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

Expectation said Saturday that its hospitals, medical centers, clinics and doctors’ offices would continue to operate normally while it restructures.

But after that, the company will focus solely 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 the transfer of associated jobs. It has had problems unloading it in the past.

Two medical centers in Rhode Island – Roger Williams Medical Center and Our Lady of Fatima Medical Center – will be sold to another health care company, Prospect confirmed.

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

Prospect CEO Von Crockett said the company plans to focus on hospitals in California and will sell operations in Rhode Island, Connecticut and Pennsylvania.

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

Von Crockett, CEO of Prospect, said: ‘[The] These actions represent an important step forward in our long-standing commitment to best serve the interests of our patients, physicians, employees and communities.

“Divesting our operations outside of California will ensure they receive the necessary financial support so that the communities that rely on these facilities will continue to have access to highly coordinated, personalized and critical healthcare services well into the future.”

The troubles 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 in eight states, was reported by CBS that private equity investors have siphoned off hundreds of millions of dollars, potentially contributing to shortages of life-saving medical equipment.

Along with Steward, Prospect Medical has also been the focus of ongoing investigations by CBS into 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 include a $457 million dividend to leadership in 2018.

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

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

There had been signs of distress at Prospect Medical since last year. Hospital owner Medical Properties Trust tried to take control of some of the company’s healthcare facilities while accusing Prospect of defaulting on debt. Bloomberg reported.

Sam Lee – Prospect’s former CEO who is now chairman – reportedly received around $90 million in 2018

Prospect Medical said it is focusing on operating its hospitals in California and plans to sell two of its medical centers in Rhode Island.

In a press release announcing the restructuring, Prospect Medical said its hospitals would continue to operate normally

Steward’s bankruptcy attracted government attention and sparked debate over the regulation of private equity hospitals, the failure of which could have devastating consequences for local communities.

Last week, a bipartisan commission said there was “overwhelming evidence of financial mismanagement” as Leonard Green and Prospect Medical tried to turn a profit, leading to hospitals serving vulnerable Americans having to cut services or close altogether, CBS reported.

The committee report concluded that private equity-backed hospital systems “could pose a threat to the nation’s healthcare infrastructure, especially in underserved and rural areas.”

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

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

“Almost all of the hospitals Prospect bought were cash-strapped, neglected, in disrepair and on the brink of closure or bankruptcy,” she added.

“In almost all cases, no one else wanted to acquire them, and many were on the verge of closure.”