A Los Angeles-based company that owns more than a dozen hospitals in four states filed for bankruptcy late Saturday night, the second major system acquired by private equity to collapse in less than a year.
In an initial filing seeking Chapter 11 protections, Prospect Medical Holdings, which owns facilities in California, Pennsylvania, Rhode Island, and Connecticut, listed debts of more than $400 million. In a press release announcing its restructuring, the company said it would continue to operate as normal.
“Throughout the Cchapter 11 process, Prospect Holdings’ hospitals, medical centers, and physicians’ offices will remain open, and patient care and services will continue uninterrupted,” the company wrote.
Prospect Medical bankruptcy comes less than after the bankruptcy of Steward Health Care, another major hospital system once-backed by private equity. CBS News documented how Steward, along with private equity investors, extracted hundreds of millions of dollars from before that company, potentially leading to shortages of life-saving medical equipment.
Along with Steward, Prospect Medical has been a one focus of an ongoing CBS News investigation revealing how private equity investors have siphoned hundreds of millions of dollars from community hospitals with devastating public health consequences.
From 2010 to 2021, private equity firm Leonard Green & Partners controlled a majority stake in Prospect Medical. CBS News has reported on a series of financial moves the company took to issue leadership a $457 million dividend in 2018. Prospect Medical’s CEO Sam Lee took home about $90 million while Leonard Green shareholders were paid $257 million.
Among the similarities between Prospect Medical and Steward– both companies sold off the land and buildings to a real estate investment firm prior to its executives issuing themselves large payouts. The transactions resulted in onerous lease agreements that diverted funds away from direct patient care.
Last week, a powerful, bipartisan Senate committee found what it said was “overwhelming evidence of financial mismanagement” as Leonard Green and Prospect Medical sought to drive profits, causing hospitals serving vulnerable communities to cut services or close altogether. The Senate committee’s findings were part of a 162-page report report that concluded private equity’s financial model may pose “a threat to the nation’s health care infrastructure, particularly in underserved and rural areas.”
Both Prospect Medical and Leonard Green disputed the findings by Senate investigators.
In a statement, a Prospect Medical spokesperson said the report drew false conclusions and omitted key facts.
“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, noting the company has invested 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,” the spokesperson wrote. “In nearly every instance, no one else wanted to acquire them, and many were headed to closure.”
