Pennsylvania Attorney General Michelle Henry has sued Prospect Medical Holdings for years of "mismanagement and neglect" of Upland, Pa.-based Crozer Health, which has disrupted healthcare services and resulted in various facility closures, according to an Oct. 29 news release.
The lawsuit alleges Los Angeles-based Prospect, a private-equity-backed company, broke an asset purchase agreement by cutting services and closing facilities while diverting funds to private shareholders and investors.
The office of attorney general filed a civil complaint Oct. 29 to redress Prospect's management and require the company to fund operating costs until Crozer has a new owner. The suit also wants a preliminary injunction to preserve existing service lines and to appoint a receiver to manage Crozer for the immediate future to avoid more closures and cuts.
"We are taking legal action against a company which agreed to prioritize affordable, accessible healthcare — but instead broke their promise with years of neglectful, self-serving practices that have put lives at risk," Ms. Henry said. "My office is the last line of defense for Pennsylvanians who are losing quality, convenient healthcare due to corporate greed. We had no choice but to file suit as Prospect Medical's conduct will almost certainly result in future closures that will force patients to travel distances for emergency care."
The purchase agreements included keeping all acute care hospitals open for at least 10 years.
Prospect's diversion of more than $450 million to private investors — through sophisticated financial transactions like real estate sale-lease agreements of hospital assets — resulted in an additional annual lease liability of $35 million to operate the facilities, according to the lawsuit. Prospect also allegedly failed to fully fund the pension accounts for Crozer Keystone retirees.
The lawsuit comes shortly after it was reported that CHA Partners' plan to acquire Crozer collapsed. CHA, which owns five hospitals in New Jersey, signed a letter of intent in August to acquire Crozer. The proposed deal would have involved transitioning Crozer's four hospitals back to nonprofit status, but the organizations failed to reach a definitive agreement for the deal.
A spokesperson for Prospect told Becker's CHA has not withdrawn from the acquisition process and the health system has been working toward an agreement for the state to provide additional funding to help Crozer maintain services while the sale process continues.
CHA did not respond to Becker's request for comment.
The office of the attorney general alleges that Prospect's mismanagement led to the closures of Crozer's Delaware County Memorial Hospital in Drexel Hill and Springfield Hospital. Chester Medical Center and Taylor Hospital remain open, but Prospect recently anticipated suspensions of trauma, burn maternal child services and women's health services at Chester Hospital, according to the report.
"The closures and suspensions violate the obligations of Prospect Medical, under the 2016 asset purchase agreement," according to the office of attorney general's complaint. "The civil complaint seeks payment of costs to keep the two hospitals open at full service, as a receiver is put in place until an approved acquisition of the health system."
The office of attorney general is seeking the injunction and court appointed receiver as soon as possible.
Prospect argues that the "hasty" and "unnecessary" lawsuit will further harm Crozer and reduce access to care for patients.
"We have repeatedly made our chief financial officer available to the AG's office and produced a significant number of financial documents to help it understand our financial situation and where we stand in the sale process, but the AG's office has not responded to our invitation or to our production of documents," Prospect said in a statement shared with Becker's.
The health system also said it is "perplexed" that the AG references FTI as the potential receiver. Since Crozer already employs FTI on several projects, Prospect argues that this would represent a significant conflict of interest.
Despite the lawsuit filed by the office of the attorney general, Prospect said it has no plans to close Crozer.