Reporting on a Pennsylvania four-hospital system’s risk of collapse, WHYY noted that asking that he “decline to approve Prospect Medical Holdings’ proposed change of ownership until Leonard Green & Partners returns the fees and dividends it collected from Prospect.” WHYY reported the deal could be “catastrophic” to Delaware County hospitals.
WHYY cited the May 2020 letter, saying it called direct attention to Prospect’s “operating challenges, substantially underfunded pensions, and regulatory scrutiny” and that Leonard Green & Partners were “raiding the safety net.”
“Some of Prospect’s hospitals — including East Orange General Hospital, the Eastern Connecticut Health Network, Crozer-Chester Medical Center and Delaware County Memorial Hospital — are safety net hospitals, which are obligated to provide care to patients regardless of their insurance status. Leonard Green’s raiding of safety net hospitals is especially troubling given the service the hospitals provide to poorer patients,” WHYY printed from the letter.
PESP Research Manager Eileen O’Grady told WHYY, “I spoke to a few of the [Attorneys General] offices. I think there was a good degree of concern in multiple states. I think each of these regulators has pretty limited authority to review and intervene in these kinds of transactions.
“Given just how much the private equity firm had taken out of the company, [Leonard Green & Partners] responded to us, they responded to regulators, to lawmakers, to workers, to members of the public — all the same way. They said, ‘We are well capitalized and in a great position financially to continue to support these hospitals.’ And I think that was just a blatant lie,” O’Grady said.
WHYY detailed O’Grady’s past research on the subject, describing how Prospect got on PESP’s radar in 2019 as O’Grady was conducting research on private equity investments in hospital systems and found that the Prospect-owned Nix Health in Texas was being closed down.
WHYY wrote: “She followed the money trail and discovered that Leonard Green & Partners was ultimately at the top of the chain of command. As she looked further into Prospect, she saw news story after news story of quality and compliance issues at its hospitals.
‘Since then, I spent a lot of time researching and writing about it and got a hold of some of the financial statements for Prospect and discovered that Leonard Green and the minority owners had been piling debt on to Prospect to then pay themselves cash dividends. This is called dividend recapitalization and it’s a relatively common tactic of private equity firms to make money for themselves by piling debt onto the companies they own,’ O’Grady said.”
According to WHYY, “O’Grady could see in real time how the companies were siphoning money out of the hospitals. She said that no matter what the executives were telling her, concerned officials, and upset residents, the number one priority of making money remained the same.
“They were going around and telling everyone that everything was okay. Now, we finally have proof that it wasn’t okay — and they have basically gotten away with it and left these hospitals and these communities holding the bag.”