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California system plans to sell 10 hospitals

Prospect Medical Holdings, a for-profit health system headquartered in Los Angeles, plans to sell 10 of its 16 hospitals amid financial challenges and an ongoing investigation by the Justice Department.

The private equity-backed system operates seven hospitals in California, three in Connecticut, two in Rhode Island and four in Pennsylvania. The deals Prospect has in the works would see it exit the hospital markets in Connecticut, Rhode Island and Pennsylvania, focusing solely on California. 

Some of its hospital sales have been on hold for months after complications including unpaid bills to vendors in one state and allegations of allowing hospitals to deteriorate in another state. 

Prospect denies such allegations as well as those levied by the Justice Department, which is investigating the health system for alleged violations of the False Claims Act "by upcoding certain secondary diagnoses on claims for patient care that were submitted to federal healthcare programs."

A spokesperson for Prospect told Becker's Aug. 14 that the system is cooperating with the investigation, but believes that the allegations have no merit. However, this represents another legal challenge for Prospect as it tries to push multiple hospital sales over the line. 

Here are 10 hospital sales Prospect has in the works: 

1. In November, Prospect signed a definitive agreement with Alhambra, Calif.-based Astrana Health to sell multiple assets for $745 million. The proposed transaction includes one hospital (Tustin, Calif.-based Foothill Regional Medical Center) as well as Prospect Health Plan, Prospect Medical Groups, Prospect Medical Systems and RightRx. The deal is subject to regulatory approval and closing conditions. 

"We are excited at the opportunity to partner with Astrana to build a larger, stronger, and more coordinated care delivery network which we expect will benefit our communities by increasing access, quality, value and efficiency," Prospect CEO Jim Brown said. "We believe the strong cultural alignment, cohesive missions, and clear financial and operational synergies between our companies make Astrana the ideal partner for us."

2-5. Prospect and CHA Partners signed a letter of intent in August for CHA to acquire Upland, Pa.-based Crozer Health, a four-hospital system. 

CHA, which owns five hospitals in New Jersey, is working to reach a definitive agreement for the acquisition of Crozer, despite reports that it pulled out of the deal, a spokesperson for Prospect told Becker's. The transaction would see Crozer's four hospitals back to nonprofit status.

"We believe this is a positive step for our physicians, employees and the communities we serve, and will help secure Crozer Health's future as a critical healthcare provider in Delaware County," Crozer CEO Tony Esposito said in a statement shared with Becker's. "Because this is very early in the process and the negotiations are confidential, we are unable to provide any additional information at this time."

6-7. In June, Prospect received conditional approval from the Rhode Island Attorney General to sell its two safety-net hospitals (Providence-based Our Lady of Fatima Hospital and Roger Williams Medical Center) to the Centurion Foundation, an Atlanta-based nonprofit. 

The state attorney general filed a motion in mid-July for Prospect to be held in contempt for refusal to comply with a court order to pay $17 million to hospital vendors in unpaid bills, but later canceled the motion because of Prospect's compliance.

The two hospitals are owned and operated by Prospect's CharterCare Health Partners, and a final decision has yet to be made on their sale. 

8-10. Yale New Haven (Conn.) Health had planned to buy three Connecticut hospitals for $435 million from Prospect, but sued to get out of the deal in May. The hospitals include: 

  • Waterbury Hospital
  • Manchester Memorial Hospital
  • Rockville General Hospital (Vernon)

Yale New Haven alleges Prospect engaged in irresponsible financial practices and breached its contract by not paying rent and taxes on time, letting the three hospitals deteriorate. Prospect denies the allegations and filed a countersuit alleging Yale New Haven breached its acquisition agreement by failing to deliver the agreed-upon purchase price and by not making reasonable best efforts to complete the transaction.

Prospect told Becker's it has made several concessions to try to move the deal forward and stands ready to close the transaction. 

Without revised terms, however, Yale New Haven said it does not "see a path forward that would allow it to "make the necessary investments in these facilities without jeopardizing our system's financial sustainability" and upholding its commitment to the communities it currently serves, according to a statement shared with Becker's.

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