Palms-based private hospital operator Prospect Medical Holdings Inc., which operates 16 hospitals in four states, filed for Chapter 11 bankruptcy protection on Jan. 11, ostensibly to facilitate the sale of its two hospitals in Rhode Island and one hospital in Pennsylvania.
The filing was in United States Bankruptcy Court in the Northern District of Texas. The aim, according to the company’s statement issued at the time of the filing, is to complete the process of shedding all assets outside of California and focus going forward on its seven California hospitals.
“Divesting our operations outside of California will ensure that they receive necessary financial support so that the communities that rely on those facilities will maintain continued access to highly coordinated, personalized, and critical healthcare services long into the future,” Von Crockett, Prospect Medical’s chief executive, said in a statement.
The sale of Roger Williams Medical Center and Our Lady of Fatima Medical Center in Rhode Island to Atlanta-based Centurion Foundation Inc., as well as the sale of Crozer-Chester Medical Center in Pennsylvania, have been slowed by lawsuits from attorneys general in those states over conditions at the hospitals.
Long history of financial struggles
But Prospect Medical Holdings, which for more than a decade was majority-owned by Sawtelle-based private equity firm Leonard Green & Partners, has faced financial difficulties for years. Leonard Green purchased a 60% stake in Prospect Medical in 2011 for $363 million. A decade later, Leonard Green sold its stake to Prospect Medical’s then-Chief Executive Sam Lee and President David Topper for $12 million plus assumption of $1.3 billion in lease debt obligations.
In its bankruptcy filing, Prospect Medical listed a total of $2.3 billion in long-term debt. The assets were listed as “between $1 billion and $10 billion,” with no additional details. But other media reports have said the liabilities exceed assets by nearly $2 billion.
In the filing, Prospect Medical blamed the Covid-19 pandemic for its current financial problems. According to a declaration filed by Paul Rundell, Prospect’s chief restructuring officer, “Prospect’s financial distress started as a result of the decreased revenue and increased costs arising from the Covid-19 pandemic.”
Rundell said the financial effects of the pandemic hit Prospect Medical’s nine hospitals outside of California harder than the seven hospitals within the state.
Adding to the distress was a ransomware attack against all of Prospect Medical’s hospitals in the summer of 2023. Besides the costs of responding to the attack and boosting cybersecurity, Rundell said the attack caused a reduction in patient volume and delayed collections for services and receivables.
As a result of these factors, Prospect Medical decided to sell its hospitals and other operations outside of California, using the proceeds from those sales to strengthen the balance sheets of its hospitals inside the state.
But with sales of those out-of-state hospitals taking longer than expected, Prospect Medical has had to turn elsewhere for more immediate financial relief.
Prospect did reach a major sale-leaseback deal with property landlord Medical Properties Trust, a Birmingham, Alabama real estate investment trust. In exchange for reducing Prospect Medical’s debt obligations by $646 million, Medical Properties Trust assumed a 49% stake in Prospect Medical.
Then, in November, Prospect Medical Holdings and Alhambra-based Astrana Health Inc. reached an agreement for Astrana to buy Foothill Regional Medical Center in Tustin (in Orange County), a California-licensed health care service plan and medical groups in California, Texas, Arizona and Rhode Island from Prospect for a total of $745 million.
