Earlier this week, lawmakers from California, Pennsylvania, Connecticut, Texas and Rhode Island sent a letter to private equity firm Leonard Green & Partners regarding its investment in safety net hospital company Prospect Medical Holdings, which owns hospitals in California, Connecticut, New Jersey, Pennsylvania, and Rhode Island. Prospect shuttered its Texas hospitals late last year. Safety net hospitals provide health care regardless of patients’ insurance status or ability to pay. Leonard Green and other owners have taken over $658 million in dividends and fees from Prospect even as its financial performance has declined.
The exchange between members of Congress and private equity firm Leonard Green & Partners escalated this week when the legislators fired back a letter to the firm saying its response to their initial letter was “filled with inaccuracies.”
On June 4, Representatives Katie Porter (CA), Lloyd Doggett (TX), Mary Gay Scanlon (PA), and Rosa DeLauro (CT), who all have or recently had Prospect hospitals in their districts, sent a letter to Leonard Green & Partners raising concerns with the Leonard Green taking hundreds of millions of dollars in fees and dividends from Prospect Medical Holdings.
Leonard Green replied with its own letter, but the members of Congress appear to be unsatisfied with the response.
“While we appreciate your detailed reply to our inquiry, your response is filled with inaccuracies about the hospitals and health care workers we represent, and it fails to address the key concern we raised: that the Leonard Green-led investor group that owns Prospect Medical has drawn $658 million dollars in fees and dividends.”[i]
Rep. David Cicilline of Rhode Island, who also multiple Prospect hospitals in his district, joined the most recent letter.
The Congressional letter also took aim at Leonard Green for using the fact that many of its investors are public pension funds, foundations, and university endowments to justify the fees and dividends it collected from the hospitals. Leonard Green wrote:
“We would also like to correct your assertion that Leonard Green is using Prospect to ‘enrich wealthy investors.’ The reality is that our investors are largely composed of public and corporate pension funds, endowments and foundations, including several state pension funds providing retirement benefits for millions of public employees, including teachers, firefighters and other first responders. Two of our largest investors are public pension plans that have many thousands of members in your constituencies.”[ii]
The legislators wrote back:
“Let us be clear: It is not appropriate for private equity firms to generate returns for their investors by extracting hundreds of millions of dollars from safety net hospitals, regardless of who their investors are. Having pension funds as investors does not justify Leonard Green taking critical funds from safety net hospitals and the pension funds of health care workers. Using the pension funds of public employees and other first responders as a cover for the harmful actions Leonard Green has taken against these hospitals and health care workers is unacceptable and dishonest.”[iii]
Copies of the letters between the members of Congress and Leonard Green & Partners are available below:
- June 4, 2020 Letter from members of Congress to Leonard Green & Partners
- June 12, 2020 Reply from Leonard Green & Partners
- July 6, 2020 Second letter from members of Congress to Leonard Green & Partners
- Wall Street Journal, July 6, 2020: “Lawmakers and Leonard Green Spar Over Hospital Operator”
- Wall Street Journal, June 9, 2020: “Leonard Green Comes Under Fire in Congress Over Hospital Management”
- Modern Healthcare, June 9, 2020: “Lawmakers ask private-equity firm to return Prospect Medical dividends”
- Bloomberg, June 11, 2020: “Bloomberg: PE-Owned Hospitals Paid Owners Millions and Got Low Care Ratings”
- Journal Inquirer (CT), June 12, 2020 “Prospect owners shelling out millions in dividends as hospitals suffer”
See our reports on Prospect Medical Holdings and Leonard Green & Partners: