Pa. AG sues Prospect Medical Holdings for ‘corporate looting’

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The Pennsylvania Office of Attorney General filed a complaint in the Delaware County Court of Common Pleas Monday evening, accusing Prospect Medical Holdings of mismanagement and “corporate looting.”

Prospect intended on making more service cuts at Crozer Health, the struggling four-hospital system in Delaware County. Attorney General Michelle Henry decided to intervene.

“Our lawsuit intends to have a receiver, an independent third party with experience in hospital management, appointed by the court in the immediate future to oversee the Crozer system until a suitable new owner can be put in place,” Henry said at Tuesday’s press conference.

If approved, the receiver would have “complete management authority” over Crozer, adding an additional level of transparency officials have found to be lacking from Prospect.

The Inquirer first reported that management firm FTI Consulting will be the likely choice to run Crozer.

“Today’s hasty, ill-considered, and completely unnecessary action by the Office of the Attorney General will only serve to harm Crozer Health and reduce health care access for patients in the communities we serve,” Prospect said in an emailed statement.

The California-based company said Crozer already employs FTI on several projects.

AG’s complaint: ‘The sale process has now failed’

The Delaware County Court of Common Pleas approved a plan in February to require Prospect to sell to a nonprofit buyer within 270 days.

CHA Partners had signed a non-binding letter of intent in August to purchase the embattled four-hospital system from Prospect Medical Holdings and transition it back to a nonprofit. The deal has since collapsed — for now.

Delaware County lawmakers and officials stood alongside Henry outside of the courthouse in Media as she addressed the press. State Rep. Leanne Krueger said the 270-day agreement to find a new buyer has expired.

“That clock has run out,” Krueger said. The deadline officially ended Oct. 28.

According to Henry’s complaint, “the sale process has now failed.”

It’s unclear if CHA Partners can or will return to the negotiating table. CHA Partners did not immediately respond to comment.

“At this point, we cannot say with any certainty who the new system’s owner would be,” Henry said.

State Sen. Tim Kearney told WHYY News that he’d be “shocked” if CHA Partners ends up as the buyer.

“Contrary to recent published reports, this potential new owner has not withdrawn from the acquisition process but remains committed to completing the transaction per the signed letter of intent which is in place,” Prospect’s statement said.

The effects of private equity on Delco’s health care

Kearney highlighted the necessity to remember Prospect’s “original sin.”

“In 2019, the private equity firm, Leonard Green & Partners, loaded Prospect Medical Holdings with hundreds of millions of dollars in debt in exchange for a massive stakeholder dividend,” Kearney said. “This weakened Crozer financially, turning it into a house of cards.”

Prospect first acquired Crozer in 2016. Henry asserted that Prospect agreed to keep acute care services at its four hospitals open for a period of no less than 10 years.

Now, only two of its hospitals are operational. Krueger said her district has been forced to live with the fallout of private equity.

“I have lost count of the number of times a nurse or doctor has reached out to me to tell me they didn’t have the supplies that they needed to treat their patients because Prospect refused to pay the vendor bill or that their caseloads were unmanageable because Prospect wasn’t willing to schedule enough nurses or doctors for that shift,” Krueger said.

Delaware County Councilmember Dr. Monica Taylor said these conditions are “unacceptable.”

“Our community is deserving of and should demand a health care system that prioritizes the well-being of its patients, supports its health care workers wholeheartedly and operates with a level of transparency and accountability that is beyond reproach,” Taylor said.

Prospect said it has made investments in the health system and the community since acquiring Crozer.

“These investments include more than $200 million in capital expenditures to upgrade facilities and acquire medical equipment, more than $657 million in charity and other uncompensated care provided to patients who were unable to pay in full for the services they received, and $200 million in contributions to the pension fund,” the company wrote in a statement.

The Pennsylvania Association of Staff Nurses and Allied Professionals (PASNAP), which represents nearly 900 Crozer employees, applauded Henry’s legal action in a press release.

“We look forward to the receivership both restoring the health system for the citizens of Delaware County and protecting the health system employees who have worked tirelessly, through the pandemic and after, to provide excellent care for our patients as a for-profit, out-of-state company prioritized financial returns over patient care and systematically dismantled our hospital system, piece by piece,” PASNAP wrote.