HomeHealth'What they've done is extremely evil': Pennsylvania hospital closure raises questions about...

‘What they’ve done is extremely evil’: Pennsylvania hospital closure raises questions about private equity in healthcare

After a car accident last month, Latifa Dixon, a mother of two, arrived at the emergency room at Delaware County Memorial Hospital in suburban Philadelphia only to learn that the ER had just closed. Cecilia Vizuete, 28, who was having trouble feeding her 1-year-old daughter due to a breast infection, said a security guard told her to look for another hospital on Google Maps. Shirley Posey arrived there with shortness of breath and a tightness in her chest.

“This was the closest hospital to me and I needed help,” Posey said when CBS News met her outside Delaware County. Posey later recovered, but not until she rushed to an urgent care center, she collapsed and was transported by ambulance to another hospital.

For nearly a century, Delaware County Memorial cared for infants, treated trauma, and cared for the critically ill. That all changed earlier this year when its current owners, a Los Angeles-based for-profit company called Prospect Medical Holdings, began cutting services at the 168-bed hospital in Upper Darby, Pennsylvania. First it was the maternity ward, then the operating rooms and ICU, and then last month the emergency department closed its doors to the community’s nearly 85,000 residents.

The shutdown has raised questions about the role of private capital as it accumulates in the healthcare spaceacquiring everything from local medical offices to specialty clinics, even hospices. According to the consultancy Bain & CompanyPrivate equity firms posted a record year for healthcare turnover in 2021, with the total value of those deals topping $150 billion.

Backed by a private equity investment, Prospect Medical Holdings grew rapidly to own 20 hospitals in six states in 2018. In 2016, it bought Crozer Health, a Pennsylvania nonprofit health system that was in danger of failing.

A CBS News investigation found that of those 20 hospitals owned by Prospect Medical, five have closed. In addition to Delaware County Memorial, Prospect Medical has suspended all services at Springfield, another acute care hospital in the same Pennsylvania health system. It also closed three hospitals in a San Antonio health system it bought in 2012.

In court proceedings, Prospect Medical argues that it is not seeking to close Delaware County Memorial forever. In a statement to CBS News, the company said it is working to transition the hospital into a “100-patient facility for those who need behavioral health and other services.” As part of the plan, the hospital will lose inpatient “acute care services,” which includes the only emergency room in the Upper Darby community.

“There are no resources nearby, so we found that people are waiting longer to go to the hospital,” county official Monica Taylor told CBS News’ chief medical correspondent Dr. Jon LaPook, adding that shutting down what is considered a safety net hospital will affect the area’s low-income population the hardest.

“We wouldn’t see a hospital closing if this was a more prosperous area,” Taylor said. “It leaves a huge void in this community that is going to be very hard and very difficult to fill.”

“What mattered to them was making money”

In a presentation provided to Delaware county officials, Prospect Medical cited difficulties with high labor costs, record inflation for pharmaceutical supplies and products, and the stress of the COVID-19 pandemic in making its decision. Taylor said she believes the company has not been candid and has been reluctant to share its finances with the county.

“I had a feeling they weren’t giving us all the information,” Taylor said.

Prospect Medical has faced scrutiny before. In 2019, Rhode Island Attorney General Peter Neronha’s office investigated a proposed business transaction. Prospect Medical owns two hospitals in the state, which Neronha said were “in real danger of closing” due to the debt Prospect Medical had taken on.

“This had nothing to do with the pandemic,” Neronha told CBS News. “Hospitals across the country were grappling with the pandemic…but the problems here were exacerbated, frankly, by greed.”

Neronha invoked state law to force Prospect Medical to turn over its finances. A ruling by the attorney general’s office found that the company put “all hospitals in its system… at risk of reduction of services, sale or closure.”

“They didn’t care about health care,” Neronha said. “What they cared about was making money for their investors.”

Neronha hired two different outside experts to trace the money and discovered a reason why Prospect Medical was experiencing financial problems. In 2018, the company’s owners borrowed $1.12 billion and used the proceeds to pay themselves and their private equity shareholders a $457 million dividend, according to company financial statements obtained by the company. Neronha’s office in the course of the investigation.

“It would be like a homeowner going to a bank, taking out a $100,000 loan, and instead of using it to invest in their property or pay for their kids’ college, they basically put it in their pockets as cash.” Neronha told CBS News.

The company’s financial statements revealed that to repay that $1.12 billion loan, Prospect Medical sold the land and hospital buildings it owned in California, Connecticut and Pennsylvania to a real estate investment trust for $1.386 billion. . The documents show that Prospect Medical then leased those hospitals to the real estate investment trust.

“So now you are in an even worse position because you no longer have capital,” Neronha said. “You don’t own anything that you can then go to the bank and use as collateral to raise more money when you need it.”

In Delaware County, that lease agreement meant the healthcare system was saddled with $35 million a year in rent.

Delaware County Memorial Hospital in Upper Darby, Pennsylvania was closed in November 2022 after being purchased by a private equity firm, Prospect Medical Holdings.

CBS News

CBS News sent detailed questions to Prospect Medical about these financial decisions, including the $457 million dividend and lease-back agreement. The company, through a spokesperson, declined to answer those questions.

“They are extracting value from these hospitals like they would extract money from a piggy bank,” said Eileen O’Grady, campaign manager for the Private Equity Stakeholder Project, a nonprofit organization that has raised concerns about Prospect Medical with attorneys general in the six states where the company owned hospitals. “Meanwhile, the owners of the company have kissed like bandits.”

Neronha’s office confirmed to CBS News that the Prospect Medical CEO’s personal share of the $457 million dividend was about $90 million.

“What they have done is extremely bad”

An early investor in Prospect Medical’s 2016 purchase of Pennsylvania’s healthcare system told CBS News the company entered the deal as the only bidder and “the last hope for these failing hospitals.” When the purchase was announced, local officials said it came with a promise: to invest $200 million to “drastically increase … service to the community.”

“They tried to tell us that they were going to execute us the same way,” said ER nurse Angela Neopolitano, who worked at Delaware County Memorial for 41 years. Instead, Neopolitano, who was president of the local nurses union, says Prospect Medical dismantled the hospital piece by piece, leading to longer waits in the ER and forcing staff to transfer more patients to other hospitals.

“They kept cutting services,” Neopolitano said. “Things weren’t working out. Our elevator in the back of the ER had been out for over a year. When the ICU closed, that was the knife in my heart.”

Neopolitano said that at one point, the credit cards used by paramedics within the health system to fill their ambulances with fuel were deactivated because Prospect Medical “did not pay their bill.”

The company did not respond to questions about its specific investments in Delaware County Memorial, but in an annual report said it had fulfilled its commitment to invest $200 million in Crozer Health.

The company did not respond to a question about whether it did not pay ambulance fuel bills, which was first reported in an investigation of the company by ProPublica. The company told ProPublica that a company credit card was declined because it had a charge limit as a security measure, and increased the limit when informed to ensure there was no interruption in services.

Now the company has moved on to a plan to convert Delaware County Memorial into a behavioral health center. An executive with the hospital. told the Philadelphia Inquirer last week that the new incarnation would not be “a source of income…but we went from losing $18 million a year to making $3 million and providing necessary services to the community.”

The closure of the Delaware County memorial in September sparked a legal battle that brought in Pennsylvania Attorney General and Governor-elect Josh Shapiro.

In October, a judge granted an emergency injunction to keep the hospital open. However, weeks later, the state health department shut it down anyway, after Prospect Medical notified the department of staffing issues.

In a statement to CBS News, Prospect Medical said the ongoing litigation limits what it can say, but the company is reaching out to state health officials about its “multiple efforts to address those staffing issues.” The company vowed to save the facility by turning it into a “desperately needed 100-patient facility for those in need of behavioral health and other services.”

Next week, a judge will hear arguments on whether to require Prospect Medical to find a way to reopen the hospital’s doors. Shapiro’s office has asked the judge to hold Prospect Medical in contempt and fine him $100,000 for each day he fails to resolve the personnel issues.

Neopolitano told CBS News that he believes the $457 million dividend that Prospect Medical owners and private equity investors paid each other should have gone back to hospitals and the community.

“What they have done is extremely bad, in my words,” said Neopolitano of Prospect Medical. “To earn a dollar, maybe you destroyed lives, maybe even ended lives, because they can’t get the help they need.”

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