WHYY : Crozer Health’s transition back to nonprofit status could come with a catch

PESP healthcare researcher Eileen O’Grady was featured in a story about Prospect Medical Holdings by Philadelphia PBS affiliate WHYY.

Prospect Medical Holdings is currently being scrutinized as it “has been floating the idea of receiving an undisclosed amount of management fees from Crozer [Health] in exchange for managing it once it becomes a nonprofit.” Pennsylvania State Representative Mike Zabel pointed out the possible double standard that arises with Prospect’s management of Crozer saying that Prospect could “make a profit off of our healthcare system, while theoretically its subsidiary, Crozer, reaps the benefits of being a nonprofit.”

WHYY August 26, 2022: Crozer Health’s transition back to nonprofit status could come with a catch

The concern here is valid, as Prospect already has a shaky history with private equity investment and management fees. The company and the investment of its former private equity owner was recently examined by PESP. When owned by PE firm Leonard Green & Partners, Prospect shelled out over $600 million in fees and dividends to Leonard during a time when it was facing operating challenges, substantially underfunded pensions, and regulatory scrutiny.

“They had what’s called a management services agreement with Leonard Green, where basically, Leonard Green ostensibly provides a vaguely defined set of management services and in return Prospect would pay Leonard Green $1 million a year for those services,” O’Grady said to WHYY.

Now, the potential relationship of Prospect and Crozer becomes another example of an arrangement O’Grady has seen previously between healthcare, private equity, and nonprofit organizations. With this proposed fee structure, O’Grady is wary of “how the fee is determined, what Prospect is actually doing to justify the fee, and what happens if the hospital can’t pay it.”

“It’s kind of hard to understand why this is more beneficial to the hospital and to the community that is served by it than just simply creating a traditional nonprofit structure,” O’Grady said.

“I think people have every right to be suspicious of what Prospect is proposing with this new nonprofit structure and the process should be given very, very, very careful attention.”

For more on healthcare research or recent acquisition data in the healthcare sector, visit the PESP website.