Prospect Medical's California Hospital Portfolio Poised for Sale Amid Bankruptcy

Prospect Medical Holdings, a troubled healthcare system, is on the verge of selling its California hospital portfolio as part of its ongoing bankruptcy proceedings. This development marks a significant shift in the company's restructuring strategy and could reshape the healthcare landscape in California.

Nor Healthcare Systems Emerges as Potential Buyer

Nor Healthcare Systems Corp., a recently established entity, has been named the stalking horse bidder for Prospect's California assets. This designation means Nor will set the minimum price for the hospitals should an auction occur. Interestingly, Nor's director is Michael Sarian, a former Prospect executive who served as SVP of hospital operations from 2005 to 2012.

The proposed sale includes six hospitals: Bellflower Behavioral Health Hospital, Los Angeles Community Hospital, Norwalk Community Hospital, Southern California Hospital at Culver City, Southern California Hospital at Hollywood, and Van Nuys Behavioral Health Hospital. This portfolio represents Prospect's core market, making the sale a pivotal moment for the company.

Bankruptcy Court Proceedings and Competitive Bidding

Prospect's attorneys have informed the Texas bankruptcy court that there are "multiple active bidders" for the facilities. The court has scheduled a final sales hearing for August 28, with the potential for a competitive auction to determine the ultimate buyer.

The sale process is moving quickly, driven by Prospect's mounting liquidity pressures. The company has been divesting assets and closing facilities since filing for bankruptcy in January, following years of financial difficulties.

Controversy Surrounding Prospect's Management

Critics, including lawmakers in Pennsylvania and Connecticut, have accused Prospect of prioritizing profits over patient care, leading to the deterioration of its facilities. A bipartisan Senate investigation released earlier this year found that as early as 2010, Prospect began diverting millions of dollars toward dividends and fees to benefit its then-owner, private equity firm Leonard Green & Partners, while hospital quality declined.

The potential sale to Nor Healthcare Systems, led by Michael Sarian, adds another layer of complexity to the situation. Sarian's post-Prospect career includes leadership roles at Prime Healthcare and the launch of his own hospital turnaround firms. However, reports suggest that some of Sarian's recent ventures have faced their own financial challenges, including payment delays to vendors and medical staff.