PROVIDENCE — Prospect Medical Holdings, the health care operator that owns two ailing hospitals in Rhode Island and three in Connecticut, is working with restructuring advisers to explore options to address its financial challenges.
Prospect, which is headquartered in California and holds other facilities in Pennsylvania, has struggled for years and owes rent payments to landlord Medical Properties Trust, which is a national publicly traded health care real estate investment trust. Regulators in several states, including in Rhode Island, have been putting pressure on the hospital owner for its troubled finances and deteriorating conditions at its facilities.
The Wall Street Journal reported on Wednesday that the company is working with law firm Sidley Austin and turnaround consulting firm Alvarez & Marsal to explore options that could include a possible restructuring for the company.
In Rhode Island, Prospect owns Roger Williams Medical Center in Providence and Our Lady of Fatima Hospital in North Providence. For months, Prospect has been trying to sell the two hospitals to The Centurion Foundation, a Georgia-based nonprofit, in a deal that was approved by state regulators with dozens of conditions. It’s unclear if restructuring Prospect would impact the sale.
Otis Brown, a Prospect spokesperson for the two Rhode Island hospitals, could not be immediately reached for comment. Gary Hopkins of Blanco + Hopkins & Associates LLC, a California public affairs firm that regularly represents Prospect, also did not respond to the Globe’s request for comment.
In October, a spokesman told the Globe: “Prospect has no plans to file for bankruptcy” within the next year.
Restructuring and filing for bankruptcy are not the same. Both can help a company manage its debt and reorganize its finances, but restructuring is typically done outside of the court system by negotiating directly with creditors. Filing for bankruptcy begins a legal process that involves court oversight and can lead to a liquidation of assets.
Rhode Island Attorney General Peter F. Neronha sued Prospect in 2023 over the conditions at Roger Williams and Lady Fatima, both of which are for-profit, safety net hospitals.
“For the past year, we have been preparing for the possibility of this exact scenario,” Neronha said in a statement about Prospect’s financial restructuring and the possibility of them filing for bankruptcy. “But know that we are well-prepared for this moment and laser-focused on ensuring our hospitals stay open and thriving.”
In the summer of 2024, inspectors found that Fatima Hospital was riddled with hazards, including bedbug infestations, cockroaches, mice, and other problems that put patients at “immediate” risk, according to court documents obtained by the Globe.
Both Fatima and Roger Williams Medical Center treat a large number of patients from low-income and underserved communities who rely on Medicaid. In June 2024, state Superior Court Judge Brian Stern released a 45-page decision ordering Prospect to pay $17 million in unpaid bills within 10 days, following a lawsuit filed against the Los Angeles-based hospital owner by Neronha. Neronha also outlined a series of violations in a 106-page petition that he said raised “significant concerns” about the financial viability of the hospitals.
Prospect has “created a situation of great urgency” at the hospitals, Stern wrote in his decision at the time.
On Tuesday, US Senator Chuck Grassley, an Iowa Republican, and US Senator Sheldon Whitehouse, a Rhode Island Democrat, released a bipartisan staff report on the findings of their year-long investigation into the ways in which private equity investment in health care has negative consequences for patients and providers. The committee’s work also focused on Prospect Medical Holdings, which was owned by private equity firm Leonard Green & Partners until 2021.
Leonard Green took $658 million in dividends and fees from troubled Prospect Medical Holdings. The company’s liabilities have exceeded its assets by more than $2 billion as of 2023, which has put operations at risk, according to Neronha.
Since 2022, Prospect has shut down one of its Pennsylvania hospitals and ceased to provide some critical services. Prospect is now also being sued by Pennsylvania’s attorney general for “corporate looting.”
“Documents we obtained show they spent board meetings discussing profit maximization tactics — cost cutting, increasing patient volume, and managing labor expenses — with little to no discussion of patient outcomes or quality of care at their hospitals,” Whitehouse said in a statement. “And while Prospect Medical Holdings paid out $645 million in dividends and preferred stock redemption to its investors — $424 million of which went to Leonard Green shareholders — it took out hundreds of millions in loans that it eventually defaulted on.
“Private equity investors have pocketed millions while driving hospitals into the ground and then selling them off, leaving towns and communities to pick up the pieces,” Whitehouse added.
Prospect also owns three hospitals in Connecticut, which it has been trying to sell to Yale New Haven Health. That transaction stalled after Yale New Haven Health filed litigation seeking to back out of its purchase agreement, citing decaying conditions at the hospitals.
Prospect has also previously fallen behind on property taxes in Connecticut and vendor bills at many of its hospitals, including those in Rhode Island. In 2023, the company received a civil investigative demand from the Justice Department.
Neronha, who has been highly critical of Prospect, previously told the Globe that Prospect uses the hospitals “as a private bank” and treats accounts payable “as a credit facility loan.”
Alexa Gagosz can be reached at alexa.gagosz@globe.com. Follow her @alexagagosz and on Instagram @AlexaGagosz.