Los Angeles-based Prospect Medical Holdings, a private equity-backed hospital chain that filed for bankruptcy in 2025, promised malpractice coverage to its hospitals and employed physicians but set aside no money to pay claims — leaving hundreds of patients with potentially no path to compensation, ProPublica reported April 9.
Seven things to know:
1. Prospect chose to self-insure in malpractice cases to avoid paying premiums, agreeing to cover legal defense and payouts directly, in some cases up to $7.5 million per claim.
2. Unlike with commercial insurers, states have little authority to verify whether self-insuring health systems actually have the money to back those promises. Insurance regulators in Connecticut, Rhode Island and Pennsylvania told ProPublica they have limited oversight authority.
3. Prospect’s January 2025 bankruptcy filing placed an automatic hold on more than 300 lawsuits filed against the company, which are collectively seeking more than $800 million in damages, according to the report. Some of the cases were near settlements or were scheduled to go to trial when the hold began.
4. Physicians working for Prospect were promised malpractice coverage, but many have now learned that they are personally liable. One Rhode Island family physician, who worked for Prospect from 2016 to 2022, was told in December that the company was refusing to defend him or pay any of his costs. The physician and his wife have met with a bankruptcy attorney.
5. Private insurers that are supposed to cover claims above Prospect’s self-insured threshold are refusing to provide funds for mediated settlements, arguing that their reinsurance contracts require them to pay only in cases where Prospect has already paid its entire share, according to the report.
6. Even those who win court awards or settlements against the company are likely to receive just pennies on the dollar, according to the report. Some attorneys who get paid on a contingency basis told ProPublica they are declining to take on new malpractice cases involving Prospect.
7. The issues are not unique to Prospect. Dallas-based Steward Health Care, which filed for bankruptcy in 2024, operated a self-insurance subsidiary relocated to Panama with minimal regulatory scrutiny. By the time Steward filed for bankruptcy, the subsidiary had only $3.5 million in its coffers to cover more than 500 pending malpractice lawsuits.
Read the full report here.
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