Prospect Medical Holdings, a Los Angeles-based healthcare company operating hospitals and medical facilities in four states, filed for Chapter 11 bankruptcy late Saturday night, CBS News reports.
The filing comes as scrutiny mounts over the role of private equity in hospital management, with Prospect’s financial practices drawing comparisons to other struggling healthcare systems.
The company, which owns hospitals in California, Pennsylvania, Rhode Island, and Connecticut, reported debts exceeding $400 million in its bankruptcy filing. Despite the financial turmoil, Prospect Medical stated that its operations would continue uninterrupted during the restructuring process.
“Throughout the Chapter 11 process, Prospect Holdings’ hospitals, medical centers, and physicians’ offices will remain open, and patient care and services will continue uninterrupted,” the company announced in a press release.
The bankruptcy marks the second collapse in under a year of a hospital system once backed by private equity, following the bankruptcy of Steward Health Care. Both companies have been subjects of investigations into how private equity ownership has influenced the financial health of community hospitals.
From 2010 to 2021, Leonard Green & Partners, a private equity firm, controlled a majority stake in Prospect Medical. During this time, the company undertook several financial maneuvers, including a $457 million dividend payout in 2018. Of that amount, Prospect’s CEO, Sam Lee, received approximately $90 million, while Leonard Green shareholders collected $257 million.
Critics argue that such payouts were funded through the monetization of hospital real estate, which created burdensome lease agreements that diverted resources away from patient care. Similar strategies were employed by Steward Health Care, leading to financial strain and, in some cases, shortages of critical medical supplies.
A bipartisan Senate committee recently released a 162-page report alleging “overwhelming evidence of financial mismanagement” by Leonard Green and Prospect Medical. The report concluded that private equity-driven financial models pose risks to healthcare infrastructure, especially in underserved and rural communities.
The report highlighted how financial practices aimed at maximizing profits led to reduced services or closures at hospitals serving vulnerable populations.
Prospect Medical and Leonard Green have disputed the findings. A spokesperson for Prospect Medical argued that the Senate committee’s conclusions were inaccurate and lacked context.
“The Committee drew general conclusions about the quality of care at our hospitals without ever reviewing information from those hospitals,” the spokesperson said.
The company also emphasized its investments in hospital infrastructure and community care, stating it had spent more than $750 million on its facilities and provided $900 million in charity and uncompensated care.
The spokesperson added:
“Nearly all the hospitals Prospect acquired were cash-starved, neglected, in disrepair, and on the verge of closure or bankruptcy. In nearly every instance, no one else wanted to acquire them, and many were headed to closure.”
