Reports

Raiding the Safety Net: Leonard Green & Partners Seeks to Walk Away from Prospect Medical Holdings after Collecting $570 Million in Fees and Dividends

Private equity firm Leonard Green & Partners owns Prospect Medical Holdings, a healthcare company operating hospitals and clinics in California, Connecticut, New Jersey, Pennsylvania, Rhode Island, and Texas.

Leonard Green is now trying to quietly walk away from Prospect after collecting $570 million in fees and dividends and leaving its hospitals with numerous issues. Several of the hospitals are designated safety-net providers, providing care to patients regardless of insurance status.  

Our new report, Raiding the Safety Net: Leonard Green & Partners Seeks to Walk Away from Prospect Medical Holdings after Collecting $570 Million in Fees and Dividends, examines the impact of Leonard Green’s ownership of Prospect Medical Holdings and its implications for private equity’s role in the health care industry.

Summary:

Private equity firm Leonard Green & Partners acquired Prospect Medical Holdings in 2010.

Leonard Green and other owners have extracted $570.44 million in fees and dividends from Prospect since they took over the company.

Each of the health systems Prospect has acquired under Leonard Green’s ownership has struggled:

  • In Texas, Prospect is closing health system Nix Health in its entirety as of November 2019. Nearly 1,000 health care workers in San Antonio will lose their jobs.
  • In Connecticut, state regulators have placed Prospect’s three hospitals under review for deteriorating conditions that place patients in “immediate jeopardy.” One of the hospitals received the lowest possible quality rating from the US Centers for Medicare and Medicaid and the others received the second lowest.
  • In New Jersey, Prospect attempted to unload the hospital it acquired just three years into a five-year commitment. It had committed to $50 million in investments in the facilities and had reportedly invested only $26 million when it announced its intention to sell.
  • In Pennsylvania, Prospect refused to pay millions of dollars it had committed to establish a community health charity as part of the transaction to acquire the Crozer-Keystone Health System. It also withheld school district property tax payments and allegedly failed to pay required pension benefits to hospital workers.
  • In Rhode Island, Prospect-owned hospitals’ pensioners are suing Prospect for allegedly hiding the pension plan’s poor health to shield its own liability from regulators.

As of November 2019, Leonard Green is quietly walking away from its stake in Prospect and reportedly selling its 61% stake to the minority owners for $12 million—just 1.4% of what it acquired Prospect and many of its hospitals for.

Several of Prospect’s hospitals are safety net hospitals, which are obligated to provide care regardless of patients’ inability to pay. Leonard Green’s raiding the company is especially troubling given the service the hospitals provide to poorer patients.

As private equity firms continue to invest in health care, stakeholders may look to Leonard Green’s track record with Prospect as an example of the risks associated with private equity investment in the industry.

Full report available here.

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