Crozer Health’s owner filed for bankruptcy protection
The move by Prospect Medical Holdings was long expected. Its local hospitals, including Crozer-Chester Medical Center in Upland and Taylor Hospital in Ridley Park, are expected to continue operating.
Prospect Medical Holdings Inc., the owner of Delaware County’s Crozer Health, filed for bankruptcy protection Saturday night. The move by the Los Angeles company was long expected, as it struggled to sell its money-losing East Coast hospitals in Pennsylvania, Connecticut, and Rhode Island.
Prospect’s hospitals, including Crozer-Chester Medical Center in Upland and Taylor Hospital in Ridley Park, are expected to continue operating during the bankruptcy. Both hospitals have seen significant cutbacks in services in recent years and are increasingly relying on other local health systems for support.
Crozer-Chester is a crucial safety-net provider in a low-income area of Delaware County. If it were to close, the closest hospitals would be Riddle in Media and Mercy Fitzgerald in Darby, both nearly 10 miles away.
Crozer employed about 4,000 people in early 2023. The company did not respond to a request for an updated figure Sunday.
» READ MORE: Crozer Health since Prospect acquired it in 2016: A timeline
In an email sent to Crozer nurses and other Prospect employees after the filing in U.S. Bankruptcy Court for the Northern District of Texas, Prospect’s CEO Von Crockett said the company’s financial challenges were “due in large part to the lingering impacts of the COVID-19 pandemic, inflation, a significant cyberattack, and increased denials from health plans.”
The goal of the bankruptcy filing is to help facilitate the sale of the hospitals by eliminating some of the debts and other liabilities carried by Crozer and other Prospect hospitals. Crozer’s liabilities include a $155 million mortgage with Medical Properties Trust, its former landlord, and a pension liability estimated at $100 million or more. Many millions more are needed to upgrade outdated facilities and equipment.
With the bankruptcy filing, Delaware County officials are entering a new phase of worry about the fate of Crozer.
“We are deeply concerned about the potential impact of Prospect Medical Holdings’ bankruptcy filing on the health-care services our community relies on. Crozer Health is not just a hospital — it is home to a trauma center, burn unit, and stroke center, and serves as Delaware County’s largest EMS provider,” said Frances Sheehan, president of the Foundation for Delaware County.
A history of turmoil
The bankruptcy follows years of turmoil for Delaware County’s largest health-care provider.
Crozer has been under for-profit ownership since 2016, including several years under the control of a Los Angeles private equity firm. In that time, two of Crozer’s four hospitals have closed, and the system has endured numerous rounds of layoffs. State hospital inspectors get called to Crozer facilities for safety problems and complaints almost twice as often as to other area hospitals.
The bankruptcy filing will at least temporarily put an end to the Pennsylvania attorney general’s effort to take control of Crozer and to recoup $457 million in dividends paid to Prospect’s owners. That money came from debt and rent obligations piled on Prospect’s hospitals. For example, Prospect sold Crozer’s real estate in a 2019 deal that valued them at $420 million and saddled Crozer with $35 million in annual rent payments.
After Crozer stopped paying rent, Medical Properties Trust converted its interest in the Crozer properties into a mortgage in 2023. Whether any of that mortgage gets paid could be hotly contested during the bankruptcy.
A U.S. Senate Budget Committee report released last week highlighted $160.5 million in dividends paid between 2011 and 2019 to two top Prospect executives, Sam Lee and David Topper. Los Angeles private equity firm Leonard Green & Partners was also a major recipient of dividends, which it passed on to its wealthy institutional and individual investors.
Saturday’s filing is just the beginning
The initial Prospect filing had few details, listing the company’s assets and liabilities each in the range of $1 billion to $10 billion. The company’s biggest unsecured creditor is Cerner Corp., a software company owed $129 million. The second biggest is Medical Properties Trust, which is owed $61 million in rent.
Prospect hired Paul Rundell, a managing director at consulting firm Alvarez & Marsal, as its chief restructuring officer. The same company is overseeing the bankruptcy of University of the Arts. The bankruptcy petition with a time stamp of 10:04 p.m. Saturday says Prospect will seek court approval for a $100 million loan from JMB Capital Partners Lending to fund operations during bankruptcy.
Prospect will also ask the court to approve a sale agreement it has for its Rhode Island hospitals and “conduct a fulsome marketing and sale process” for its other hospitals, including those in Pennsylvania, which Prospect has been trying to sell since at least 2021.
It’s likely that state officials in Pennsylvania, Connecticut, and Rhode Island will weigh in during bankruptcy proceedings in a bid to protect health-care services for residents as Prospect disposes of assets, potentially in an auction the highest bidder.
“The Shapiro administration, alongside the Office of Attorney General, has worked for many months to preserve access to quality, affordable health care in Delaware County and facilitate a sale of the Crozer Health System to stable, non-profit ownership — and that work continues after Prospect Medical Holdings’ decision to file for bankruptcy,” spokesperson Manuel Bonder said Sunday in a statement.