Private equity firm Prospect Medical Holdings has nine months to find a buyer for its struggling four-hospital system Crozer Health and avoid continued litigation from the Pennsylvania attorney general’s office and a local nonprofit.
Los Angeles-based Prospect has sought to divest the system, and individual hospitals, amid flagging financials. Prospect purchased Crozer in 2016. The PE firm signed an agreement to sell the system to ChristianaCare last year, but the deal fell apart months later.
Prospect’s subsequent desire to close Delaware County Memorial Hospital, lay off 334 workers and reopen the facility as an inpatient behavioral healthcare unit drew scrutiny from state officials and the Foundation for Delaware County, a nonprofit representing Crozer’s interests.
The state attorney general’s office alleged that shuttering Crozer facilities would violate Prospect’s 2016 pledge to invest $200 million into Crozer facilities over five years and keep the system open until at least 2026. The state attorney general joined a lawsuit filed last year by the nonprofit that sought to keep Crozer facilities open, with the foundation labeling Prospect’s efforts to shrink the health system a “public health emergency” for Pennsylvania residents.
However, months after the petition was filed, the Pennsylvania Department of Health ordered Prospect to close Delaware County Memorial Hospital, citing insufficient staffing levels.
Now, the state attorney general is giving Prospect a chance to sell Crozer Health with the goal of preserving access to care for Pennslyvanians under new ownership. Under the agreement, which was announced last week and is subject to court approval, the attorney general and the foundation will suspend their litigation for 270 days while Prospect explores a sale. The time frame could be extended, per the attorney general’s announcement.
“Every Pennsylvanian deserves access to affordable and accessible healthcare, and our focus is on maintaining the entire Crozer system as a hub of care in its community, as the sales agreement assured,” said Pennsylvania Attorney General Michelle Henry in an Oct. 19 statement.
The private equity firm said it is “pleased to reach the agreement to halt the litigation,” according to a spokesperson for Prospect. Morgan Stanley is advising Prospect during the sale process.
Crozer has continued to struggle. Vendors reported unpaid bills to NPR-affiliate WHYY and the system laid off 215 workers as part of a corporate restructuring announced in March. More recently, the health system suffered a cyberattack in August, prompting multiple facility closures.
The ongoing controversy surrounding Crozer has highlighted tensions in the state regarding the corporatization of healthcare and private equity investment in the sector. Last year, Pennsylvania lawmakers issued a memo stating that for-profit hospital ownership increased by nearly 348% from 1999 to 2020 while nonprofit ownership declined by 18%. Also last year, state lawmakers in Delaware County introduced legislation last year that would eliminate for-profit healthcare systems across the state.
"What's happening with Crozer Health is a tragedy and underscores the need for legislators to work to protect our local health care systems from manipulative and predatory private-equity practices in the future," State Senator Tim Kearney said at the time. "We want to give the state more oversight over these transactions and create other policies that deter these bad actors from looting our health care systems and then running when the resources vanish."
