Prospect Is Another Casualty of Private Equity in Healthcare, Experts Say

Prospect Medical Holdings — a company that was named in a recent Senate report on the negative impacts of private equity on healthcare — said it has filed for Chapter 11 bankruptcy in federal court in Texas.

It’s the latest private equity-backed healthcare company to encounter serious financial troubles, following Steward Health Care, a for-profit system owned by a private equity firm. Some emergency medicine physician staffing firms with heavy investment from private equity, including American Physician Partners and Envision Healthcare, also struggled in recent years.

In its report last week, the Senate Budget Committee pointed out that Prospect’s private equity owners, Leonard Green & Partners, pushed Prospect’s leadership to prioritize the parent company’s financial goals regardless of patient outcomes. The report stated that Prospect paid $645 million in dividends and preferred stock redemption to its investors (including $424 million to Leonard Green shareholders) but it took out hundreds of millions in loans that it later defaulted on.

“This is just another one of the multitude of issues we’ve seen with allowing wealth-extraction entities to get involved in healthcare,” Robert McNamara, MD, chief medical officer of the American Academy of Emergency Medicine and a co-founder of Take Medicine Back, which is focused on reclaiming medicine from corporate interests, told MedPage Today.

McNamara has followed closely the story of Crozer Health in Pennsylvania, which was bought by Prospect Medical Holdings in 2016. The Pennsylvania Attorney General sued Prospect for closing one of the four hospitals in the health system even though it was supposed to keep it open for 10 years. The suit was suspended after Prospect agreed to sell Crozer, but a deal fell through, and the Attorney General filed another lawsuit after the deadline for the sale passed.

Amidst the financial troubles, Crozer’s general surgery residency program lost its accreditation after an anonymous complaint called attention to declining surgical volumes, leaving 15 residents at Crozer-Chester Medical Center in limbo last year. McNamara said the program was officially shuttered this summer.

Chester, Pennsylvania is an economically depressed community, McNamara said. The hospital is a “valuable resource for that community, but now they’re on the ropes because of the business practices” of the private equity firms.

Prospect is also supposed to sell two of its hospitals in Rhode Island to a not-for-profit entity. In a statement, Rhode Island’s Attorney General Peter Neronha pointed to Prospect’s statement that the bankruptcy plan includes moving forward with those sales, and that the possibility of the bankruptcy filing “has been looming for some time.”

Neronha said in the statement that he has “a couple of physicians in my family who regularly relay to me the challenges of providing quality care in the current healthcare landscape.”

“We will continue to help facilitate the responsible transfer of these hospitals to new ownership, leaving behind the dark days of private equity ownership, which is inherently destructive, and moving towards a future where we give our safety net hospitals a fighting chance,” he added.

In a press release, Los Angeles-based Prospect said it plans to focus on its California operations, and that its “hospitals, medical centers, and physicians’ offices will remain open, and patient care and services will continue uninterrupted.” Related subsidiaries, including Prospect Health Plan and Prospect Medical Systems, aren’t part of the bankruptcy proceedings and are expected to be sold to Astrana Health in mid-2025.

A growing body of evidence suggests worse outcomes for patients after private equity takes over hospitals, including a study published in JAMA last week showing how patient care experiences tanked after the investment firms took the reins.

“Their goal is to create profit for investors,” McNamara said. “They don’t swear an oath to take care of patients. Their number one priority is the people who are giving them money to make money.”

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