Updated April 21, 4:30 p.m.
After months of failed deals and temporary extension deals, Prospect Medical Holdings will officially shut down Pennsylvania's Crozer Health after failing to line up a buyer.
The bankrupt system outlined the plan in a Monday filing, where legal representation said it would begin emergency department diversions, end elective inpatient admissions and cease certain service lines on Wednesday. On Monday, April 28, it plans to close all ambulatory services, and all the while will be discharging the majority of its admitted patients "in the ordinary course" and arranging transfers as necessary.
Two of Crozer's four hospitals—Crozer-Chester Medical Center and Taylor Hospital—were still operating through the bankruptcy, thanks in large part to more than $40 million of funds provided by the state, the county, a nonprofit and even other provider organizations (see coverage of those extensions below the line break). State WARN notices obtained by local media show that over 2,650 employees will be impacted by the closure.
Some of the systems' assets—such as ambulatory surgery centers and imaging sites, as well as the hospitals' owned real estate—have received interest from buyers, the company's counsel wrote in the filing. The centers and sites will continue to operate during an "expedited" selloff as their values "are dependent upon the physicians and employees who provide services there," according to the filing.
An emergency meeting seeking bankruptcy court approval on the plans is scheduled for Tuesday. Based on earlier hearings, the judge is expected to permit the closure.
Several state legislators, all Democrats, released a "furious" statement Monday condemning the closure and blaming Prospect—as well as its private equity backers—for "corporate abuse" of the system.
"We’ve been hearing for months that the ongoing liabilities, deferred facility needs, and operating deficit that Prospect drove Crozer into were creating significant hardship for the dedicated and passionate staff who have delivered unwavering patient care," they said. "Those same issue created a nearly impossible situation for any nearby health system to take on without jeopardizing their own financial and patient health"
"... We are furious for the thousands of nurses, doctors, and staff who’ve put up with so much abuse for the sake of their patients just for their efforts to come to this, and saddened for all the people in our community who depend on Crozer for their emergency and routine medical needs," they said.
Prospect, in a statement, said it had worked extensively with the state attorney general and other stakeholders trying to find a deal.
"Unfortunately, we were unable to reach a viable alternative,” the company said, while noting it was focused on patient transitions and supporting employees as they look for new jobs.
Continuing to fund the hospitals was "not sustainable" for Prospect, according to Monday's filing. Since filing its initial closure motion on March 6, Crozer's hospitals incurred cash deficits of about $24.4 million—adding to the $97.9 million EBITDA losses they had incurred during the six months prior.
The company had once believed it had a deal to transfer Crozer over to "an entity supported by the Commonwealth," but shortly after filing a motion with the court for the sale saw its plans fall apart once the potential buyer learned the extent of Crozer's liabilities during due diligence, the company previously told the court.
The weeks to follow involved a slew of do-or-die funding deadlines, for which local groups came together to authorize temporary funding that offset those $24.4 million of losses. Earlier this month, however, Prospect found these parties no longer willing to burn through their millions. The final $6 million Crozer received was understood to be the last, prompting Prospect to begin transitioning some of the hospitals' service lines, such as OBGYN care, to nearby providers in anticipation of a likely shutdown.
At the time, Judge Stacey Jernigan agreed that the temporary funds could only continue for so long and, while thanking Prospect, the state and others for working to find a long-term solution, acknowledged that a shutdown would be imminent without a last-minute solution.
Updated April 10, 4:45 p.m.
Prospect's Crozer Health tiptoes past another funding deadline, but begins transitioning service lines
Yet another funding deadline has come and gone for two Pennsylvania hospitals owned by Prospect Medical Holdings, and while a concrete deal hasn't yet emerged the bankrupt for-profit raised enough funds to keep the lights on for at least another week.
On Tuesday, an attorney for Prospect told a bankruptcy judge that another $9 million was needed by 4:00 p.m. April 9 in short-term funding, otherwise the Crozer Health hospitals would go on diversion and begin transferring patients the following morning—a now-familiar precipice for the hospitals as Prospect struggles to close a sale.
The Pennsylvania attorney general's office, which has become an active participant in the past few months' discussions, told the press in a Wednesday evening statement that “efforts to secure the $9 million remain ongoing. We have been assured a closure notice will not be issued today.”
Local government and stakeholders have already put up tens of millions of dollars to support Crozer-Chester Medical Center and Taylor Hospital, as Prospect seeks a buyer or other long-term solution.
In a court hearing held Thursday afternoon, Prospect's legal representation William Curtin told the court he had "more good news than bad news" on the issue, headlining with an affirmation that it would not be immediately shuttering the hospitals.
While the state and the Foundation for Delaware County—a nonprofit set up in 2016 to ensure Crozer hospitals remain funded and operational—told Prospect they couldn't continue funding extensions, the system turned elsewhere and was able to secure $6 million.
Most of that, $5 million, came from Penn Medicine as a donation, purchase and assumption of Crozer's leases at certain locations, Curtin told the court. Penn Medicine has been in negotiations with Prospect on a potential partnership—not an acquisition—to potentially keep services up and running in the area, parties previously told the court. The remaining $1 million came from Pennsylvania's Delaware County, where the hospitals are located, as an advance payment for behavioral services.
The $6 million will help the hospitals remain open for somewhere between a week and 10 days, the lawyer said.
But with no broader asset purchase agreement in hand and the process running long, Prospect now plans to transition some of the hospitals' service lines—starting with OBGYN care—to other nearby providers in line with the closure contingency plan put together by Prospect, Curtin said. Doing so doesn't foreclose the possibility of a long-term deal, but has the system "moving in the right direction" should no deal arise.
"it's much less of a hatchet than if we were closing and had to do it abruptly," said Curtain, who described the plan as "far from the worst choice" available to the parties.
Judge Stacey Jernigan agreed with the "good news, bad news" characterization and agreed that temporary extensions can only go so far.
"We're all keeping hope alive that we do get an asset purchase agreement during these days ahead, but we at least have a game plan ... to avoid these fits and starts," she said, later adding that the parties' dogged efforts keep her hopeful a solution could still emerge.
Closing the system would substantially limit access to care in Pennsylvania's Delaware County, and would jeopardize roughly 3,200 jobs, though the closure plan outlined by Prospect would transition some of those workers to other nearby providers alongside their services.
March 10
'11th hour' deal will keep Prospect's Crozer hospitals open, for now
A bankruptcy court-ordered face-to-face has yielded a deal to keep two Pennsylvania hospitals owned by Prospect Medical Holdings open "for the immediate future while permanent restructuring of the system is solidified," the state's attorney general announced Sunday.
Crozer Health, a system acquired by Prospect in 2016, was in danger of closing on March 14 after prior plans to hand off the entity fell through in February. Prospect, which filed for Chapter 11 protections in early January, had asked a bankruptcy court for permission to close the system's two remaining hospitals in Pennsylvania's Delaware County late last week, citing operating losses that would have impacted the other hospitals it is working to offload as part of the bankruptcy (see that story below).
U.S. Bankruptcy Judge Stacey Jernigan told Prospect, Pennsylvania officials, the Foundation for Delaware County—a nonprofit set up in 2016 to ensure Crozer hospitals remain funded and operational—and other stakeholders to hold one last in-person meeting in hopes of a "miracle" deal to keep the hospitals afloat. Those hopes appear to have paid off.
“I am pleased that the parties focused on how to move forward on behalf of Pennsylvanians, instead of how we got here, and worked to an agreement after more than six hours of negotiations,” Pennsylvania Attorney General Dave Sunday said in a release announcing the short-term deal. “I thank all parties for their good faith negotiations and sacrifices made to make this happen. This work was done on behalf of the thousands of people and families who depend on Crozer Health System for essential services—and the many hardworking professionals who provide that care."
According to the announcement, the necessary funds to sustain Crozer-Chester Medical Center and Taylor Hospital will be coming from the Foundation, which in court last week appeared hesitant to commit more of its $64 million in unrestricted investments to the failing hospitals. The foundation is already liable for Prospect’s rent and tax obligations, which could run as much as $30 million, it previously said.
“We are encouraged by this outcome and hopeful it will lead to a long-term solution with a nonprofit provider," Frances Sheehan, president of the Foundation, said in the attorney general's announcement. "For three years, we have advocated for the residents of Delaware County, supporting negotiations and exploring every available option to keep the healthcare system from closing. While we cannot sustain an entire health system, we remain committed to ensuring continued access to care.”
A court hearing is scheduled for the morning of March 11 where the parties will update the judge on their arrangement. Sunday's office said it expects to release more details "in the coming weeks as a permanent solution is pursued."
March 7
Prospect Medical's Crozer Health hospitals to close March 14 without 'miracle' deal
Pennsylvania hospitals owned by Prospect Medical Holdings will need to be closed unless a funding deal can be made within the next week, the bankrupt for-profit system told a judge Thursday.
Since filing for Chapter 11 protections in early January, California-based Prospect has sought buyers for, and expedited transactions of, hospitals and systems it runs in other parts of the country.
Among these are Crozer Health, a Pennsylvania system it acquired in 2016 that has incurred heavy losses for the company. Prospect had already shut down two of Crozer’s four hospitals in 2020 and 2022—a violation of its initial purchase agreement that fueled tensions and lawsuits with local government bodies.
Prospect said at the time of its Chapter 11 filing that it planned to keep all facilities open and care uninterrupted as it sought new operators for its hospitals.
However, in a Texas bankruptcy court and concurrent filings, its legal representation described failed short- and long-term deals to sustain Crozer-Chester Medical Center and Taylor Hospital, both in Pennsylvania’s Delaware County.
In late January and early February, amid “constant” negotiations with Pennsylvania’s attorney general and other state entities, Prospect believed it had a deal in place to transfer Crozer to “an entity supported by the Commonwealth,” but shortly after filing a motion with the court for the sale “issues arose first with regard to diligence, and then with regard to the potential acquirer understanding the extent of the liabilities,” William Curtin of Sidley Austin, Prospect’s attorney, said Thursday.
Prospect and the state were able to pull together 30 days of stopgap funding, arranged through a receiver, which is set to run dry by March 14.
Curtin said Prospect has been hesitant to move toward filing a closure notice because it was “hopeful there was a positive solution” for more short-term funding. Those discussions had continued between the parties and the Foundation for Delaware County—a nonprofit set up in 2016 to ensure Crozer hospitals remain funded and operational—right up until about 25 minutes before Thursday’s court hearing, he said.
“We don’t have funding beyond the 14th,” he told U.S. Bankruptcy Judge Stacey Jernigan, “so we need to either have a permanent solution; temporary funding or additional funding for the receivership beyond the 14th; or we need to begin the shutdown process so that we’re not incurring significant costs beyond the 14th, because if we do, your honor, it puts the rest of the Prospect enterprise at risk.”
Crozer is Delaware County’s largest healthcare system with 3,200 employees and a trauma center. It logged nearly $92 million of total EBITDA losses in the six months between Aug. 1 and Jan. 31, according to court filings.
As of a March 4 census, its two hospitals had an estimated 284 patients in beds as inpatients or observations. Prospect said it has developed a closure plan that, if needed, would provide for the safe transfer of patients and records from the hospitals.
During the hearing, Jernigan asked the foundation why its $64 million of unrestricted investment isn’t being used to keep the hospitals open. Its legal representation responded that the foundation is liable for Prospect’s rent and tax obligations—potentially as much as $30 million—and therefore hesitant to provide more temporary support.
Still, the judge instructed the parties to hold another meeting this weekend in search of “a miracle." Another court appearance is scheduled for Tuesday morning, which could become a hearing on Prospect’s emergency motion for approval to close the hospitals depending on the negotiations.
In a Thursday news release, members of the Delaware County Council said the Crozer hospitals’ tight position was preventable and the result of Prospect’s search for profits.
“It is infuriating to hear that Prospect has failed to keep their promises yet again to the residents of Delaware County, now that they’re done lining their own pockets at the expense of our communities,” Council Chair Monica Taylor, Ph.D., said in the release. “Our county government has spent months hard at work to prepare for the possibility that these hospitals would be closed. We remain committed to an orderly, calm and comprehensive process to helping ensure patients are transferred to other facilities that can provide the care they need.”
Beyond the potential for hospital closures, Prospect’s bankruptcy proceedings have drawn attention due to the for-profit’s history of private equity ownership.
Leonard Green & Partners majority owned Prospect from 2010 to 2021, with media reports noting facility closures, service suspensions and deteriorating conditions at Prospect locations near the end of the firm’s involvement or shortly after its exit. Federal lawmakers also criticized the firm’s influence over Prospect, which they wrote in a report fueled a slew of hospital acquisitions, a damaging sale-leaseback agreement and all-around declines in care.
“While Prospect Medical Holdings paid out $645 million in dividends and preferred stock redemption to its investors—$424 million of which went to Leonard Green shareholders—it took out hundreds of millions in loans that it eventually defaulted on,” Sen. Sheldon Whitehouse, D-Rhode Island, said in early January. “Private equity investors have pocketed millions while driving hospitals into the ground and then selling them off, leaving towns and communities to pick up the pieces.”