A healthcare company that owns and operates more than 182 hospitals and clinics nationwide filed for Chapter 11 bankruptcy protection in a Texas federal court on Saturday.
Prospect Medical Holdings, the Los Angeles-based healthcare company, sought bankruptcy protection after its previous owner extracted hundreds of millions of dollars in dividends and management fees while shareholders and executives were lavished with tens of millions of dollars in profit.
The company, which cited debts exceeding $400 million, attributed its financial challenges to the lingering effects of the COVID-19 pandemic, inflation, and increased health plan denials, according to documents filed in US Bankruptcy Court for the Northern District of Texas.
Prospect company reported liabilities ranging between $1 billion and $10 billion, attributing its financial distress to rising interest costs and substantial debt.
Prospect wants to use the bankruptcy process to expedite the sale of its hospitals outside California while maintaining operations across all facilities.
This strategy includes agreements to sell two Rhode Island hospitals — Roger Williams Medical Center and Our Lady of Fatima Hospital — to the Centurion Foundation, a private non-profit specializing in real estate financing for non-profit institutions.
Additionally, Prospect intends to divest from Crozer-Chester Medical Center in Pennsylvania.
Prospect’s financial collapse trajectory has been attributed to its former majority owner, the private equity firm Leonard Green & Partners.
Under Leonard Green’s ownership, Prospect initiated a $1.31 billion dividend recapitalization, resulting in Leonard Green receiving $658.4 million in dividends and management fees.
This move saddled Prospect with even more debt.
A bipartisan Senate committee report accused Prospect of prioritizing “profits over patients” by extracting significant dividends and fees.
In 2018, Leonard Green secured a $1.12 billion loan, using $457 million to issue dividends to executives. Prospect’s CEO, Sam Lee, reportedly received approximately $90 million from this dividend, according to the Senate report.
Lee and David Topper, the company president, own the majority of the firm after they bought out Leonard Green in 2021.
In a statement, the company pledged that its hospitals and clinics would continue to provide uninterrupted care during the proceedings.
A Prospect spokesperson denied these allegations, asserting that the Senate report contained inaccuracies and omitted critical context.
In 2019, Prospect Medical Holdings sold its hospital real estate in California, Connecticut, and Pennsylvania to Medical Properties Trust (MPT) for $1.386 billion as part of a sale-leaseback deal.
The company then leased back the properties, taking on obligations for rent, property taxes, and maintenance.
This arrangement added significant financial strain to Prospect, which was already burdened with substantial debt.
Prospect has faced lawsuits filed by several states, including Connecticut, Pennsylvania and Rhode Island.
In Pennsylvania, the company was sued after the closure of one of its hospitals left a community of nearly 85,000 residents without immediate access to emergency care.
The Post has sought comment from Prospect.
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