Pennsylvania Attorney General Michelle Henry on Tuesday announced that her office has filed suit against the for-profit owner of health care facilities in Delaware County for “years of mismanagement, corporate looting, and the neglect of the hospital system, it’s patients and its staff.”
The complaint, filed in the Delaware County Court of Common Pleas on Monday evening, names Prospect Medical Holdings Inc., Prospect Crozer LLC, the private equity firm Leonard Green and Partners, and Prospect co-Chief Executive Officers Samuel Lee and David Topper as defendants.
The AG’s office will also ask the courts to appoint a receiver to oversee Crozer Health’s finances, and to make sure the entity is sold.
Prospect Crozer spokesperson Lori Bookbinder provided a statement from Prospect that described Henry’s complaint as “hasty, ill-considered, and completely unnecessary,” which would only serve to harm Crozer Health and reduce health care access for patients.
Broken contract
The complaint accuses the defendants of violating a 2016 asset purchase agreement and seeks the imposition of a constructive trust for dividends paid out to shareholders, as well as the installation of a receiver to manage the operations of the healthcare system until a new owner can be found.
“Our legal action shows how corporate greed has severely harmed Delaware County’s largest health care provider, its patients, its staff and the community,” said Henry Tuesday afternoon at a press conference on the County Courthouse steps with lawmakers and other stakeholders.
Henry noted that prior to the 2016 sale, the Crozer Chester Health System was a nonprofit charitable system consisting of four hospitals and other practices. The AG’s office has oversight on such sales and had some concerns at the time, Henry said, but ultimately agreed to the sale with certain conditions.
“Those conditions included a guarantee that no hospital would close and there would be no substantial cuts to services for at least a decade,” Henry said. “Those were the conditions and the court ordered that those conditions be part of the sale agreement.”
But Henry said Prospect did not hold to that agreement. Instead, it sold all of Crozer’s real estate to a private equity buyer for $257 million.
“That money lined the pockets of shareholders when it should have been reinvested in the health care system to keep its doors open and keep the facilities well-staffed,” Henry said. “After selling the real estate assets, Prospect then leased back the buildings at astronomical rent rates that they could never afford long-term.”
It also effectively closed two of the four hospitals, Delaware County Memorial Hospital and Springfield Hospital, and Henry said her office has learned of new proposed cuts to the Crozer Chester Medical Center’s trauma center, burn unit and services for children and women.
“Today, this hospital is hemorrhaging millions of dollars a month in operating costs,” Henry said. “Our lawsuit seeks to have those costs paid by Prospect and its principal shareholders while new ownership can be put in place.”
The complaint points to several grievances, including funding at least $457 million in dividend payments to shareholders financed by a $1.2 billion loan in 2018; failing to pay vendors or tax bills; failing to make lease obligations or pay into a pension system; and losing accreditation of a resident surgery program.
At least $90 million of those dividends went to Lee, according to the suit, while Leonard Green and Partners received $600 million in dividend payments and management fees.
To pay back the $1.2 billion loan, the suit says Prospect sold some of its properties in Pennsylvania, Connecticut and California, then leased them back. For Crozer properties, that amounted to a $35 million annual rental payment on properties it formerly owned.
Leonard Green and Partners later sold its 60% share in Prospect to Lee and Topper for $12 million in 2021, in a move paid for by Prospect, according to the complaint.
A Rhode Island court found in June that Prospect had effectively been using its hospitals’ accounts payable as a “line of credit” to pay other hospitals’ bills around the country, the lawsuit notes.
Meanwhile, health services for county residents have been systematically dismantled, the complaint states.
Springfield Hospital “temporarily” suspended services in January 2022, which have never resumed. DCMH likewise eliminated services like its intensive care unit, pregnancy services and pulmonary services, and Prospect announced in September 2022 that it would be converted to a behavioral health hospital.
Elected leaders on board
County Council Chair Dr. Monica Taylor said the hospital system has long served as a vital hub, providing essential care to thousands of families throughout the region, but in recent years has displayed a distressing erosion of resources, reducing the quality of care that residents depend on and placing undue strain on dedicated hospital staff while severely compromising the overall healthcare infrastructure the community relies on.
“Under the management of Prospect Medical Holdings, Crozer Healthcare System has faced repeated challenges by a series of ongoing issues, including chronic understaffing, a critical shortage of necessary supplies and a disinvestment in necessary facilities and services,” she said. “These conditions are fundamentally unacceptable and reflect a system that is breaking down. Our community is deserving of, and should demand, a health care system that prioritizes the well-being of its patients, supports its health care workers wholeheartedly, and operates with a level of transparency and accountability that is beyond reproach.”
Taylor added that closing the trauma center was of particular concern in cases where every second is critical to ensuring the best possible outcome for patients.
“I have lost count of the number of times a nurse or doctor has reached out to me to tell me they didn’t have the supplies that they needed to treat their patients because Prospect refused to pay the vendor bill, or that their caseloads were unmanageable because Prospect wasn’t willing to schedule enough nurses or doctors for that shift,” said state Rep. Leanne Krueger, D-161, Swarthmore.
She noted visiting Senior Judge Cheryl Austin of Montgomery County granted a motion from the attorney general’s office to reconsider suspending litigation surrounding Delaware County Memorial Hospital for 270 days while Prospect sought a new buyer in February. The clock on that suspension ended Monday.
“And now we stand before this courthouse because litigation is the only way left to hold them accountable,” Kruger said. “… Prospect has had eight long years to do the right thing, make the necessary infrastructure investments, pay their bills and treat their employees with respect. I have learned that private equity should not be allowed to own hospitals.”
State Sen. Tim Kearney, D-8, Swarthmore, said the Delaware County legislative delegation has pushed for accountability from Prospect for years, and this complaint brings that one step closer.
He said this suit addresses the “original sin” that hastened the hospital system’s decline in 2018, when Leonard Green and Partners loaded Prospect with hundreds of millions of dollars of debt in exchange for a massive stakeholder dividend, weakening the system financially and turning it into a house of cards.
The ripple effects hurt everyone from doctors to patients left in the wake of this “Wall Street-style raid,” Kearney said.
“Prospect Medical Holdings has demonstrated that it is an irresponsible owner of our hospitals and it is our duty to ensure that what happens next with Crozer happens with the community’s needs put first,” he said. “Placing Crozer under the management of a receiver will provide greater transparency and accountability in the process of moving Crozer into the hands of a responsible nonprofit.”
Other support for suit
Frances M. Sheehan, president of the Foundation for Delaware County, which previously sued Crozer in 2022 for violating the original contract of purchase for Crozer Health, said the foundation appreciates the attorney general’s efforts and is encouraged by a decision to explore new solutions.
“As community advocates, we stand firm in support of a buyer dedicated to meeting Delaware County’s long-term health care needs, especially for our most vulnerable populations,” she said in a statement. “We stand ready to work with stakeholders, potential buyers, and officials to expedite a responsible and beneficial solution that prioritizes the health and well-being of our community.”
“We are glad to see them go,” read a release from the Pennsylvania Association of Staff Nurses & Allied Professionals, representing some 900 Crozer Health nurses, techs, medical professionals and paramedics.
“On behalf of our patients and the frontline health care workers in Delaware County — both within the Crozer system and those who work in nearby hospitals dangerously swamped by Prospect’s serial service cuts and hospital closures — we are supportive of the Governor’s guidance and the state’s intervention, and look forward to the restoration of the health system and to a return to the prioritization of patients over profits once again in Delaware County,” the release read.
“Since purchasing Crozer in 2016 and turning it into a for-profit business, Prospect Medical Holdings has cut services and gutted the hospital system, lining their own pockets while Delaware County residents are left with less access to critical health care services,” said Gov. Josh Shapiro in an emailed statement. “My administration has been working closely with Attorney General Michelle Henry, members of the General Assembly, and local leaders to transition Crozer Health back to not-for-profit status to preserve the vital health care services it provides while also ensuring that those who provide this critical care are treated fairly. The lawsuit filed by Attorney General Henry today preserves access to health care, protects our health care workers’ jobs, and gets us closer to a sustainable long-term solution.”
Prospect’s response
Bookbinder said Prospect has been at work trying to sell Crozer Health.
“We have been working diligently over the past several months to transfer Crozer Health to a not-for-profit owner,” the statement from Prospect said. “Contrary to recent published reports, this potential new owner has not withdrawn from the acquisition process, but remains committed to completing the transaction per the signed letter of intent, which is in place. In addition, we have been working toward an agreement with the governor’s office for the state to provide some additional stabilization funding to help Crozer Health maintain services in the short term while the sale process continues.”
The statement said Prospect has “repeatedly” made its chief financial officer available to the attorney general’s office, and offered to produce “a significant number of financial documents” to help the AG better understand its financial situation and where it stands in the sale process, without response.
The statement added that Crozer has made more than $200 million in capital expenditures to upgrade facilities and acquire medical equipment while spending $657 million in charity and other uncompensated care provided to patients who were unable to pay their bills, and has made another $200 million in contributions to the pension fund.
“It is important to stress that Crozer Health’s facilities and services remain open, with no changes to services, and its outstanding clinical teams are continuing to provide safe, quality care to those Delaware County residents who depend upon the health system for their health care,” the statement said. “Despite this action by the AG’s office, we have no plans to close.”
Henry said no court dates have been set, but she does anticipate the courts moving quickly to address the claims in the complaint.
Receivers are sought for financially distressed entities and in Delaware already are in place in Chester and in Chester Upland School District.
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