Prospect Medical's Crozer Health Hospitals Face Imminent Closure Amid Bankruptcy Proceedings

Prospect Medical Holdings, a bankrupt for-profit healthcare system, announced that its Crozer Health hospitals in Pennsylvania may be forced to close by March 14 unless a last-minute funding deal can be secured. This development comes as part of Prospect's ongoing Chapter 11 bankruptcy proceedings and highlights the challenges facing healthcare providers in the current economic climate.

Failed Negotiations and Funding Shortfall

Prospect Medical's legal representation revealed in a Texas bankruptcy court that both short-term and long-term deals to sustain Crozer-Chester Medical Center and Taylor Hospital have fallen through. Despite "constant" negotiations with Pennsylvania's attorney general and other state entities, a proposed transfer of Crozer to "an entity supported by the Commonwealth" collapsed due to due diligence issues and concerns over the extent of liabilities.

A 30-day stopgap funding arrangement, set to expire on March 14, was implemented through a receiver. However, William Curtin of Sidley Austin, Prospect's attorney, stated, "We don't have funding beyond the 14th, so we need to either have a permanent solution; temporary funding or additional funding for the receivership beyond the 14th; or we need to begin the shutdown process."

Impact on Local Healthcare and Employment

Crozer Health is Delaware County's largest healthcare system, employing 3,200 people and operating a trauma center. As of March 4, its two hospitals had approximately 284 patients in beds as inpatients or under observation. The potential closure of these facilities would have significant implications for healthcare access in the region.

Prospect has developed a closure plan that, if implemented, would provide for the safe transfer of patients and records from the hospitals. However, local officials and community members have expressed concern about the impact on healthcare services in the area.

Controversy Surrounding Private Equity Ownership

The bankruptcy proceedings have drawn attention to Prospect Medical's history of private equity ownership, particularly its relationship with Leonard Green & Partners, which held a majority stake in the company from 2010 to 2021. Critics, including federal lawmakers, have pointed to this period as a contributing factor to the current financial troubles.

Sen. Sheldon Whitehouse, D-Rhode Island, stated, "While Prospect Medical Holdings paid out $645 million in dividends and preferred stock redemption to its investors—$424 million of which went to Leonard Green shareholders—it took out hundreds of millions in loans that it eventually defaulted on."

The situation has reignited debates about the role of private equity in healthcare and its potential impact on patient care and financial stability of medical institutions.