In the closure of Delco hospitals, a warning about private equity ownership

When the federal judge overseeing the bankruptcy proceedings of Prospect Medical Holdings optimistically stated only a few weeks ago that “it sounds like we’re on the verge of breathing a sigh of relief that there’s a long-term solution here,” so many people I know stopped holding their breath.

It seemed Crozer-Chester Medical Center, which is owned by Prospect, would be saved. The Foundation for Delaware County provided more emergency short-term funding, Penn Medicine was reported to be involved, an asset purchase agreement was in the works, and Prospect halted its motion for immediate closure.

In truth, we never should have allowed ourselves to exhale.

Crozer-Chester Medical Center, the hospital my spouse has worked at since before the pandemic, a hospital that has been around since the Civil War, and the only remaining trauma center in Delaware County, is now facing imminent closure for the fourth time in as many weeks. The same fate is expected for another Prospect facility, Taylor Hospital. And this time, there will likely not be a reprieve. The hospitals could close as soon as May 2.

As someone whose family’s financial situation is about to be directly impacted, I am angry. But for the community of Chester, I am furious.

Crozer-Chester Medical Center is a critical safety-net trauma hospital, burn center, and psychiatric care provider, routinely serving underinsured and low-income patients of the city of Chester.

Delaware County Council member Monica Taylor explains what has happened in Delco clearly: “Prospect came to our town, bought Crozer, broke our healthcare system, and paid themselves hundreds of millions of dollars to do it.”

This is what Prospect Medical Holdings does. Prospect is a for-profit healthcare company owned by the California-based private equity firm Leonard Green & Partners. The company buys up struggling healthcare systems in vulnerable communities with promises of investment and revitalization. Instead, according to Pennsylvania’s attorney general, it guts services and resources while lining its own pockets.

Prospect still owns hospitals in California, Pennsylvania, Connecticut, and Rhode Island, and now wants to divest those “assets” as tax write-offs.

The level of corporate greed is astounding. Since the sale of Crozer Healthcare System in 2016, Prospect has diverted over $450 million to private investors and its own shareholders.

In 2018, Prospect took out a $1.12 billion loan and used that to pay itself and its private equity shareholders a $457 million dividend, the attorney general said.

Then, to continue the grift and pay back the loan, in 2019, Prospect sold off real estate assets (including the real estate Crozer-Chester Hospital sits on), forcing Crozer to pay $35 million annually to lease the land it once owned.

The private equity watchdog group Private Equity Stakeholder Project summarizes the moneymaking scheme clearly: “Leonard Green and the minority owners had been piling debt onto 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.”

Over the course of its 10-year ownership of Prospect, Leonard Green collected over $658 million in dividends and fees, even as its Prospect-owned hospitals dramatically reduced available services and conditions declined.

Today, it seems as though we are finally calling Prospect’s long history of abhorrent business practices for what they are: criminal. Last fall, the Office of the Attorney General sued Prospect and its leaders for financial mismanagement and negligence.

More recently, the Pennsylvania Supreme Court ruled against Prospect in the closure of Delaware County Memorial Hospital (too little, too late), and a bipartisan U.S. Senate Budget Committee report was just released detailing clear evidence that Leonard Green and Prospect consistently put profits over patients. Prospect subsequently filed for bankruptcy in January.

Prospect now wants to be able to write off the shuttering of an entire healthcare system as a corporate tax loss.

» READ MORE: Bankruptcy judge approves the closure of Delaware County’s Crozer hospitals

This is what happens when we allow the privatization of healthcare. For-profit business principles cannot be applied when dealing with the critical care of human beings.

We are talking about the closure of a place of healing, not a restaurant franchise or tech company. What Prospect has done to the healthcare system of Southeastern Pennsylvania is beyond unethical and amoral.

Without dramatic intervention, the two Prospect-owned hospitals will be closed within days. Crozer-Chester is the only trauma center in Delaware County. It treats over 2,000 trauma-level patients annually. It closed its emergency department on Wednesday.

The next two closest trauma centers, Lankenau Medical Center (in Montgomery County) and Penn Presbyterian Medical Center (in Philadelphia), are both at least 30 minutes away from the city of Chester. (And that is without accounting for traffic on I-95 or the Blue Route.)

These hospital closures will result in a massive healthcare desert for the over 33,000 residents of Chester, and an influx of patients to surrounding hospitals that are often already at capacity. (Just recently, at another nearby hospital, my 93-year-old grandmother lay in a bed parked in the emergency department hallway for over 10 hours before a room became available and they could admit her. And that was with nearby Crozer being fully operational.)

Crozer admits 19,000 patients annually and reports around 53,000 emergency department visits each year. Where are those patients going to go? We are going to feel this loss and the resulting harm throughout the entire region.

Once the dust has settled, our attorney general needs to hold Prospect’s leaders accountable for what they’ve done, and Pennsylvania lawmakers must pass legislation to keep private equity out of our hospitals. Only then will we finally be able to breathe.

Christine Polizzi, a native of Delaware County, is a school counselor in Philadelphia with a background in teaching and educational policy.