Background:
Prospect Medical Holdings, Inc., a private operator of 16 hospitals across four states (California, Connecticut, Pennsylvania, Rhode Island), filed for Chapter 11 bankruptcy on January 11, 2025. The filing in the U.S. Bankruptcy Court for the Northern District of Texas lists both assets and liabilities between $1 billion and $10 billion, with more than 100,000 creditors including employees, vendors, pensioners, and state governments.
Private Equity's Role:
Between 2010 and 2021, private equity firm Leonard Green & Partners owned Prospect Medical and extracted an estimated $645 million via dividends and preferred stock redemptions. This left Prospect with high debt and deteriorating facilities, fueling ongoing financial distress. Lawmakers and a Senate Budget Committee report accused the owners of "plundering" the company at the expense of hospitals and patients.
Connecticut Impact:
Connecticut, where Prospect controls three hospitals (Manchester, Rockville General, Waterbury), was hit hard. The Connecticut AG filed for $67 million in unpaid hospital taxes. State officials documented numerous harms: Underinvestment in hospital facilities; sale of hospital land for short-term shareholder payouts; cyberattack vulnerabilities (notably a 2023 ransomware incident affecting hospital operations and patient data); missed payments to vendors, unpaid taxes, and pension plan underfunding; patient care concerns and deferred maintenance.
Healthcare Delivery & Community Consequences:
Some hospital shutdowns (notably Crozer Health in Delaware County, PA) reduced community access. Connecticut's AG emphasized the need for responsible new operators after failed sales, ongoing litigation, and the impact of Prospect's financial practices. The bankruptcy highlights how financial engineering and private equity's focus on investor returns can clash with public health obligations.
Systemic Implications:
Prospect's collapse, coming soon after Steward Health's bankruptcy (another private equity-owned chain), is a warning about the sustainability of the private equity ownership model in healthcare. Policymakers are calling for new regulations on financial practices like dividend recapitalizations and sale-leaseback transactions to protect essential health services.
Looking Forward:
The restructuring will proceed through 2025, involving asset sales, creditor negotiation, and regulatory oversight. Maintaining patient care and hospital viability, especially for vulnerable communities, is a top concern during the transition.