Los Angeles-based Prospect Medical Holdings, a private equity-backed company with a portfolio of more than 11,000 physicians, filed for Chapter 11 protection Jan. 11.
The company, which operates facilities in California, Pennsylvania, Rhode Island and Connecticut, stated in a news release that it will continue normal operations despite listing over $400 million in debt.
This marks the second major private equity-owned health system to collapse in the past year. In May, Dallas-based Steward Health Care, a for-profit system, also sought Chapter 11 bankruptcy protection and is now working to sell its 31 hospitals.
Prospect Medical Holdings, which owns seven hospitals in California, four in Pennsylvania, three in Connecticut, and two in Rhode Island, attributed its financial struggles to a combination of factors. According to a filing by Chief Restructuring Officer Paul Rundell, the company faced reduced revenue and rising costs due to the COVID-19 pandemic. Additionally, supply chain issues, increased expenses and a slower recovery of outpatient visits compared to pre-pandemic levels exacerbated its financial distress. The filing identified a "loss of liquidity" as the primary driver of the bankruptcy.
As part of its restructuring efforts, Prospect is negotiating the sale of several facilities. It is working to sell two Rhode Island hospitals — Our Lady of Fatima Hospital in North Providence and Roger Williams Medical Center in Providence — to the Atlanta-based Centurion Foundation. The company is also finalizing terms for the sale of Crozer-Chester Medical Center in Upland, Pa.
According to a report from CBS News, private equity firm Leonard Green & Partners held a majority stake in Prospect Medical from 2010 to 2021. The report highlighted a $457 million dividend issued in 2018, with Prospect's CEO, Sam Lee, receiving approximately $90 million and Leonard Green shareholders collecting $257 million. A Senate oversight committee then allegedly discovered an "overwhelming evidence of financial mismanagement" as Leonard Green and Prospect Medical prioritized profits, leading to service cuts or closures at hospitals serving vulnerable communities.
According to the report, both Prospect and Steward "relied on the value of their hospital real estate to help finance large payouts for their owners. The transactions resulted in onerous lease agreements that diverted funds away from direct patient care."
A Prospect Medical spokesperson disputed the committee's findings in a statement to CBS News, stating that the conclusions were based on incomplete information.
"The Committee drew general conclusions about the quality of care at our hospitals without ever reviewing information from those hospitals, which is where the focus on care takes place, rather than at the corporate level," the spokesperson wrote in a statement.