Prospect Medical Holdings, a chain of hospitals running in California, Pennsylvania, Rhode Island, and Connecticut, based in Los Angeles, has filed for Chapter 11 bankruptcy protection. The company estimated its debt to be over $400 million. This is another disturbing trend that has been shown within the private equity-backed healthcare system regarding financial instability. There might be immense implications for the people in the healthcare coverages and services within the communities this company serves during the restructuring process.
Background on Prospect Medical Holdings
Prospect Medical Holdings was established in 1996 and, ever since then, has become one of the biggest players in the healthcare sector, mainly within underserved areas. The company has been criticized for the financial practices in the wake of large payouts to executives and private-equity investors; reportedly, it gave out over $457 million in 2018 alone to the leadership, raising questions about financial mismanagement and placing profits over patient care.
It is by no means an isolated bankruptcy as it follows another privately equity-backed hospital chain, Steward Health Care’s failure. The two have done it again, bringing to light a trend where drastic distributions to the owners will ultimately lead to such consequences as cuts in services and hospital closures.
Short-term implication in health care delivery
Despite the bankruptcy filing, Prospect Medical said its hospitals and medical facilities would maintain normal operations throughout the restructuring process. The company stated there would be no disruption in patient care, an important statement given that its hospitals provide critical services to vulnerable populations.
Prospect alone in Connecticut has three hospitals: Waterbury Hospital, Manchester Memorial Hospital, and Rockville General Hospital. The local level leaders have feared the aftereffect of the bankruptcy for these hospitals. The state officials are on a high alert and tracking this issue so that no dislocation happens to the health care system. The state authorities have already moved in and grabbed the reins of this fragile period.
Long-range impact on health care coverage
Prospect Medical’s bankruptcy has serious long-term consequences. Its financial instability, therefore, raises concerns about the ability of the firm to sustain quality health care delivery for its served communities. A bipartisan Senate report criticized private equity involvement in health care, concluding that driven by profit motivations may compromise not just the safety of patients, but the sustainability of operations.
More than that, because Prospect is desperate to speed up the sale of some of its hospitals so that it can focus on its California operations, it is not certain who will purchase those facilities and how they will be run. The ongoing legal fights over such sales only further an already unsustainable situation.
Legislative response and future considerations
In response to these changes, state lawmakers are taking legislative steps to avoid similar situations in the future. The Putting Patients Over Profits Act by Connecticut Senator Jeffrey Gordon is going to limit private equity investments into hospitals to avoid corporate practices that make profits rather than patients.
This is a worrying trend with increasing private equity interference in healthcare, which threatens to undermine quality and access. With private equity ownership posing financial stressors on hospital systems, lawmakers face an ever-greater imperative to act.
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