Dive Brief:
- Banrkupt Prospect Medical Holdings said Friday it intends to sell Crozer Health, its four-hospital health system based in Pennslyvania, to an unnamed consortium of nonprofit healthcare operators.
- Attorneys for Prospect said the proposed sale is the “only viable alternative to an immediate, forced shutdown of the Pennsylvania Hospitals” in documents filed in federal bankruptcy court on Friday.
- Prospect will appear before the bankruptcy court on Thursday to seek approval for the transaction. As of Monday morning, the hospital operator had yet to file critical details about the sale to the court, including a proposed purchase price or the names of the possible buyers. However, a press release says the deal would include all Crozer hospitals, ambulatory surgery centers, clinics and physician offices.
Dive Insight:
Since Prospect Medical filed for Chapter 11 bankruptcy protections last month, the 16-hospital system has been racing the clock to find buyers for its Northeast hospitals.
The cash-strapped health system, which has nearly $2.3 billion in total outstanding obligations, said it couldn’t afford to keep Crozer open past January. Prospect was preparing to close the system before the tentative deal materialized.
The California-based health system secured some interim funds to finance hospital operations while in bankruptcy from a private investment firm last month. However, Prospect’s attorneys told the court Friday that those funds were set to run out at the end of January.
“Due to the urgent and unsustainable liquidity crisis at these hospitals, the Debtors were preparing in earnest for the potentially unavoidable decision to shut hospital doors and begin turning away patients,” attorneys said in Friday’s filing. The parties struck a deal “merely hours before that decision would have had to be made.”
Prospect attorneys are arguing the health system should be allowed to skip the standard bankruptcy auction process — in which the first offer sets a floor price for other parties to potentially beat — due to its past difficulties selling Crozer.
Prospect has been attempting to sell Crozer for years, after the health system proved to be a burdensome investment following its acquisition in 2016. Attorneys for Prospect said Crozer’s hospitals “suffered significant losses” since 2014, and operations were further pressured by sale-leaseback transactions with its landlord Medical Properties Trust in 2019.
Several sale attempts — including discussions with ChristianaCare in 2022 — have failed.
Absent a buyer, Prospect closed Delaware County Memorial Hospital in 2022, prompting a lawsuit from the Foundation for Delaware County, a nonprofit that represents the Pennsylvania Hospital’s interests.
In an agreement brokered by the state’s attorney general, the litigation was stayed for a year in 2023 to allow Prospect time to find a buyer for Crozer. While Prospect identified an interested candidate during that time, no sale emerged. Litigation resumed in October 2024.
The lawsuit accused Prospect of diverting more than $450 million to private investors, including its former private equity owner, as it downgraded services at Crozer. A recent Senate report put that figure at $424 million.
Attorneys said Prospect does “not have any other actionable offers” for Crozer and the deal on the table is “the highest and best offer” the health system can hope to achieve.
