Prospect Medical’s Pennsylvania Hospitals at Risk of Closure

(Bloomberg) — Prospect Medical Holdings Inc. is looking to shutter several hospitals and outpatient facilities in Pennsylvania to stem its cash outflows, a move that employees said could “devastate” local residents.

“There is no long term solution at this point,” William Curtin, an attorney for Prospect said at a Tuesday court hearing. The closures would allow the system to leave other hospitals open, the firm’s debtors argued in court documents.

Doctors at Crozer Health, a critical employer and health-care provider in Pennsylvania’s Delaware County, said the closure could “will devastate not only our residents but also the thousands of employees and patients who rely on this network for their wellbeing,” wrote in a letter to the bankruptcy judge Friday.

The hospital operator filed for bankruptcy in January and is among a number of facilities that have struggled since the pandemic as health-care systems grapple with labor shortages and rising costs. Prospect’s ties to private equity further underscore the ongoing scrutiny over private finance’s role in the health-care system.

On Sunday, the hospital chain reached a deal with the state’s attorney general to temporarily keep the Crozer system open after Prospect proposed closures in a motion filed Thursday. 

The debtor-in-possession budget only provides for funding of the hospitals’ operation until March 14, Paul Rundell, the chief restructuring officer of the company wrote. 

The four hospitals or medical centers in Pennsylvania, along with other facilities, incurred about $92 million total losses in a 12-month period, the papers showed. Prospect had looked for funding, acquisitions, or parties who could assume responsibilities for operation, but the efforts had been unsuccessful, Rundell wrote. 

The decision to shut down the hospitals came after the bankrupt company handed the operations to a state-backed receiver in February. The receiver, FTI Consulting Inc., was overseeing $20 million in funding to support the hospitals. 

A non-profit community foundation in Delaware had agreed to provide short-term funding to extend the receivership for two more weeks, according to Curtin. That helped to avoid an immediately closure, but, he said, “if we are not able to reach a long-term solution, we’d be forced in that direction again.” 

Prospect’s management of hospitals in Pennsylvania has led to multiple legal actions over the years. A local nonprofit and the state’s Attorney General sued the company after it closed Delaware County Memorial Hospital, a cash-strapped hospital outside Philadelphia.

Last year, Pennsylvania authorities sued Prospect over the “mismanagement and neglect” of the Crozer Health system. Related closures impacted care for hundreds of thousands of state residents, the authorities said. 

Private equity investors’ involvement has attracted heightened public scrutiny amid fresh financial distress. The fallout from Steward Health Care’s bankruptcy prompted public outcry in Massachusetts, but legislative efforts to push for curbs on those investments have made little progress. 

Prospect was backed by private equity firm Leonard Green & Partners — which was accused by US Senate in a report this year, along with the bankrupt company, of maximizing profits at the expense of patients. A representative for Leonard Green had previously told Bloomberg News that the the company exited its Prospect investment in 2021. 

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