Prospect Medical Holdings, a Los Angeles-based company owning hospitals across California, Pennsylvania, Rhode Island, and Connecticut, filed for bankruptcy under Chapter 11 protections late Saturday.
The filing revealed debts exceeding $400 million. Despite the bankruptcy, Prospect Medical assured the public that all of its hospitals, medical centers, and physician offices would continue to operate as usual, with patient care unaffected.
This bankruptcy marks the second major healthcare system backed by private equity to collapse within a year. Earlier, Steward Health Care, also supported by private equity, went bankrupt after being heavily burdened by financial mismanagement, including millions of dollars in payouts to owners and investors, leaving hospitals struggling with resource shortages.
Both Steward Health Care and Prospect Medical faced similar issues, with private equity investors drawing massive dividends from the companies while financing their operations through real estate deals and leasing arrangements that diverted resources away from patient care. These financial maneuvers have been linked to cuts in services and hospital closures, particularly affecting vulnerable communities.
A recent bipartisan Senate report condemned private equity’s impact on hospitals, claiming its financial model endangers the healthcare system, especially in underserved and rural areas.
However, both Leonard Green & Partners which controlled Prospect Medical from 2010 to 2021 and Prospect Medical disputed the findings, arguing that the report misrepresented the situation.
They pointed out that many of the hospitals Prospect acquired were struggling financially and on the brink of closure, and claimed the company has made substantial investments in its facilities and charitable care.
