Eventually, word of Prospects practices spread, causing alarm when the company sought to acquire new hospitals in other states. After that is accomplished, firms then usually resell the operation to another buyer within five years. As a result, Prospect was unable to complete its Securities and Exchange Commission filings, forced to cancel its annual shareholder meeting, delisted from the American Stock Exchange and defaulted on its loans, triggering millions in lender penalties. Chris Callaci, general counsel for the Fatima hospital union, said his group is also considering running a radio ad to boost public opposition to the sale. He had our partners convinced I was being too conservative, said Bogert, now executive vice president for corporate finance at Prime Healthcare, a Prospect rival. The settlement, subject to multiple court approvals that will take several months, will end the receivers public opposition to Prospects pending sale. Prospect Medical Holdings, a for-profit company based in California, has had a majority stake in the two hospitals since 2014. WebLeonard Green & Partners, through its fund Green Equity Investors V, acquired Southern California-based Prospect Medical Holdings in December 2010 in a $363 million leveraged buyout, including the assumption of $158 million in debt.6 Leonard Green owns a 61.3% stake in Prospect. We were probably about three weeks behind every other hospital in getting just the basics, said Fatima RN Lynn Blais. Prospects business, which involved spending as little as possible and squeezing profits out of Medicare and Medicaid reimbursements, while using Prospects physician groups to generate patients, didnt fit the pattern. Leonard Green defended the transaction to state officials and a Rhode Island congressman, writing that the sale price reflects Prospects future obligations and was agreed to by sophisticated investors who wanted to not burden the company with additional debt. The firm added: We reject any implication that we have managed Prospect in a financially irresponsible fashion or that we have put our own financial interests ahead of the interests of the hospital system. Prospect is lying in claiming that theyve complied with the order, union general counsel Chris Callaci said. Lee was demanding and unrelenting, according to people who worked for him. Leonard Green struck a deal that aligned Lees financial interests with its own. Roughly $386 million had gone to Leonard Greens investors and the firm (which gets 20% of all fund profits); $128 million to Lee; $94 million to Topper; and the remaining $37 million was divided among other Prospect executives. (Prospect denies any improper billing and says Harpers job was eliminated because of diminished demand for respiratory services. He would just not pay people as a way to negotiate. Prospect Medical, which mostly serves low-income patients, has suffered a litany of problems: broken elevators, dirty surgical gear, bedbugs and more. Based on our communications with RI regulators, they stated, we expect to complete the transaction in the coming months.. In Rhode Island, for a time in March, hospital employees at Our Lady of Fatima were threatened with discipline for wearing their own masks, even though the hospital didnt have enough to give them. A drag-along provision of the agreement would force all shareholders to sell immediately, rather than wait and hope for a better price. One day youre like a superstar and the future of the company, said Steve Aleman, who became Prospects CFO in 2013. All of a sudden COVID comes in, everybody should have surgical masks, and we dont have two days worth of surgical masks, much less two months of surgical masks. Please contact. WebWelcome to Prospect Medical Holdings Locations We are hospitals and affiliated medical groups working for the benefit of every person who comes to us for care. (Another $14 million in fees went to the private equity fund. In October, the private equity firm agreed to sell the firms 60% stake to Lee and Topper for $12 million in cash plus the assumption of $1.3 billion in lease obligations. When Prospect then missed the escrow deadline, the foundation began garnishing the companys accounts and sought to have a receiver appointed over all its financial transactions. But Brotman has continued to deteriorate. It made other promises as part of the deal: to spend an additional $200 million in capital improvements within five years; to keep all the hospitals open for a decade; to fund $171 million in pension benefits within five years; and to endow a community health care foundation for $53 million. It had effectively replaced its debt payments with rent payments. Always eager to delay and reduce a big outlay, Prospect deferred $21.5 million of the foundation funding for 90 days and then refused to make the payment altogether, challenging how much it owed. (To inquire about syndication or licensing opportunities, contact. Prospects own consultant, Alvarez & Marsal, largely confirmed Inter Valleys findings in September 2016 in a confidential draft document reviewed by ProPublica. In Culver City, nurses unable to get proper protective gear for a time donned plastic garbage bags. Inter Valleys CEO and its chief compliance officer then sent a letter detailing their findings to the Centers for Medicare and Medicaid Services in August 2016. When you looked on paper, it was a beautiful turnaround, said Jack Lahidjani, who was Altas CFO from 2003 to 2006. (CMS did not respond to requests for comment.). Leonard Green, which owns about 60% of the hospital chain, announced plans in October 2019 to sell its stake to Prospect CEO Sam Lee and his longtime business partner for $12 million plus the assumption of $1.3 billion in lease obligations. He says this routinely resulted in a handful of patients being held for days in a crowded ER overflow area with no beds or privacy just chairs and a single bathroom serving as a sort of bootleg inpatient psychiatric unit. A few years before Andrews got there, one 79-year-old man suffering from dementia disappeared after being left unattended in the overflow area, according to a state inspection report and a lawsuit by his family. But a Jan. 29 deadline for the state to approve the deal has been extended indefinitely and other obstacles remain. Dozens of lenders, executives, doctors, staffing agencies and hospital vendors filed lawsuits and court claims over unpaid debts and broken agreements. The ProPublica report details how the transaction would hobble Leonard Green and the hospital chain, Prospect Medical Holdings, were the subject of a ProPublica investigation in September that explored Prospects history of patient-care violations including some that posed immediate jeopardy to patients, according to multiple government findings along with complaints about deteriorating facilities, broken financial commitments and allegations of Medicare fraud surrounding the company. According to her suit, these patients were brought from nursing homes and other senior facilities, many well over 100 miles away, when their Medicare benefits there, capped at 100 days, were about to expire. You cant republish our material wholesale, or automatically; you need to select stories to be republished individually. For more information about canonical metadata, You cant edit our material, except to reflect relative changes in time, location and editorial style. The Rhode Island officials have subjected the transaction to a high level of scrutiny. In 1998, most private equity firms avoided health care. The business model for private equity firms like Leonard Green involves stripping cash out of the organization, loading down operations with debt and reducing every conceivable expense. In 2017, the system was declared insolvent and placed in receivership. Therein, MPT disclosed an impairment of about $171 million on four properties leased to Prospect as well as a write off of about $112 million in unbilled rent for the same client. And opponents there are making a stand. In the latest skirmish between Prospect Medical Holdings and Rhode Island Attorney General Peter Neronha, Prospect announced Friday it is withdrawing from the state process for changing its ownership. But Leonard Green viewed Prospects approach as one that could be applied widely and used to acquire more hospitals and reap more profit. The sale of the two Rhode Island hospitals and thus the entire deal requires approval from the states health department and attorney general, which first must conduct a review process to assure the transaction meets nine statutory criteria. Prospect CEO Sam Lee, who owns about 20% of the chain, made $128 million while expanding the company from five hospitals in California to 17 across the country. They include United Nurses & Allied Professionals, the union for hospital workers at Our Lady of Fatima; elected officials, including five Democratic members of the U.S. Congress, Rhode Islands state treasurer and its senate majority leader; and the Private Equity Stakeholder Project, a union-backed research group that has produced critical reports about Leonard Greens conduct and lobbied the firms public pension fund investors. The question of whether profits and good medical care can coexist is not a new one in the United States. WebAt Prospect Medical Holdings, we are dedicated to delivering quality, compassionate, accessible healthcare to the patients in the communities we serve in California, Connecticut, New Jersey, Pennsylvania and Rhode Island. (To inquire about syndication or licensing opportunities, contact. Prospect asserts that it promptly addressed the consultants concerns about dirty and damaged surgical instruments, but that it viewed the report as proprietary and thus availed itself of the court system. The company added: As we recently received a ruling from the Federal Court to produce the document, we have complied with the order., Prospect has yet to hand over any documents, according to the union. WebWe are hospitals and affiliated medical groups working for the benefit of every person who comes to us for care. The company sold Nixs downtown building to a hotel chain and exited with a big loss. The company denied the claims, pointing out that its 2014 purchase of the hospitals included contract language absolving it of any future liability for the retirement plan. The private equity board members focused on profits and wasted little time in beginning to reap returns. He relented only after a bit of salesmanship: Topper surprised him by turning up at a dinner meeting with 15 doctors who promised to send patients to Altas hospitals. Instead, retirees nervous about Prospects purchase were shown a PowerPoint presentation stating that Prospects one-time contribution would stabilize plan assets. Lee attested in writing that the payment would assure that the pensions and retirement of many former employees, who reside in the community, are protected. Prospect told the attorney general that any necessary future payments would be made based on recommended annual contribution amounts as provided by the Plans actuarial advisors. Remarkably, no one addressed who would actually make such payments. When it rains in Culver City, water drips from ceilings throughout the hospitals two buildings, forcing staff to relocate patients and plant orange buckets in the hallways. In one case, staff returned a belt to an actively suicidal psychiatric patient who then used it to hang himself in his hospital bathroom. Indeed, the trail of litigation, unpaid bills and accusations was already lengthy. The effects were felt almost immediately. WebWelcome to Prospect Medical Group, an independent physician association (IPA) supporting residents of Southern California. It found that Prospect had submitted an estimated $22.6 million in potentially improper charges, which the federal government had already paid. The court-appointed receiver has filed multiple lawsuits accusing Prospect and the diocese of omissions and half-truths actionable as fraud, demanding that they help make the pension whole. The sale of the land and buildings brought in much needed cash and stabilized the company. The biggest corporations still own more hospitals than private equity firms: HCA, for example, owns about 180; Apollo claims 89 and Cerberus had 37 at its peak, before selling this year. It was too late. In the face of more than a year of often-vehement public opposition in Rhode Island, the hospital chain suddenly agreed in the final days of December to pay $27.25 million to resolve a group of lawsuits they had previously refused to settle. A Prospect lawyer also wrote Aleman, accusing him of making false and defamatory statements to ProPublica. In October 2015, the firm hired Morgan Stanley to find a new private equity buyer for Prospect. The exodus isnt necessarily good news, according to Batt and other experts. Lees first out-of-state acquisition would erase that claim. Meanwhile Prospect sought to cut costs by reducing the workforce, trimming benefits and tightly monitoring each hospitals patient count throughout the day from its LA headquarters, sending nurses and aides home whenever possible in mid-shift. Nelson said the three parties set aside a combined $22 million to cover the reimbursements while CMS completed its still-unfinished audit of how much is due. Creditors would not come in to fix things because the hospital owed them money, she said. Investors led by the private equity firm, Leonard Green & Partners, previously extracted $645 million in dividends from the investment, and the firm now seeks to leave behind another $1.3 billion in financial obligations at the chain. The letter, obtained by ProPublica, reported that Prospect had submitted thousands of claims dating back to 2013 that were not supported by audited medical charts. It added: In many instances, diagnosis codes were submitted for dates of service for which there was no evidence in a medical chart confirming that the [Prospect physician] had a face-to-face visit with the beneficiary. Most of this upcoding involved claims that individual patients had made two visits to Prospect doctors on the same day. According to the report, this resulted in the dispensing of about 21,000 doses of adulterated dangerous drugs to patients over a nine-month period. Other Prospect critics remain undeterred. Before his death, the physician told a friend hed become sick after being forced to reuse a single mask for four days. The foundation sued, eventually extracting Prospects agreement to submit the matter to arbitration while putting the money into escrow. In March, Moodys downgraded Prospects debt a notch deeper into junk territory, citing the companys very high financial leverage, shareholder-friendly financial policies, and a history of failing to meet projections.. But that tension is particularly acute in the case of Leonard Green and Prospect, where private equity has extracted hefty profits from a business that acquires struggling hospitals and relies on Medicaid and other government programs to pay the bills for its impoverished patients. The receiver demanded that Prospect help make the fund whole. The $12 million is to be paid by the company, not the two executives. Private equity really wants to see growth fast and get out, Phillips said. We do not generally permit translation of our stories into another language. Detailed management presentations to the two 2015 finalists were followed by dinners in Beverly Hills, leading to informal discussions with CVC, which was contemplating a considerably richer offer this time, according to Aleman. Kline was skeptical. Prospect Medical Holdings, Inc. ("Prospect") leases and operates 13 of MPT's facilities. The lawsuit was filed in the United States District Court for the Northern District of Alabama and alleges violations of the Securities Exchange Act of 1934. The Justice Didnt Disclose the Deal. As Connecticut in 2016 weighed whether to approve Prospects purchase of three hospitals, the state sent a team to California to investigate five recent immediate jeopardy findings, which had placed one Prospect hospital license on a termination track for cutoff of Medicare and Medicaid funding. But Prospects penchant for scrimping on staff and medical supplies left its hospitals with little margin for error. In September 2019, Californias attorney general formally charged Prospect executives, including Lee, the hospital and its supervising pharmacists, with gross negligence, initiating proceedings to revoke or suspend the hospitals pharmacy permit. Christina DeMauro, an emergency room nurse at Culver City for six years, asserted that a special team of hospital marketers generated a stream of about 20 elderly patients a day, most suffering from chronic dementia, who were admitted through the ER despite having no problems that required hospitalization. The company blamed the episode on the vice president who had presided over all reimbursement submissions, who was fired. In 2019, after repeatedly promising to keep at least part of the system open, Prospect shut it all, laying off nearly 1,000 employees. The stringent penny-pinching wasnt enough to generate profits at first. In a letter responding to the company, Alemans lawyer denied that his client made any defamatory statements. (The statement from Green and Lee denies they tried to sell the company in 2018. Responding to questions through an outside spokesman, they said they have no intention of abandoning their plans for the companys sale. It was an absolute disaster., In its responses to ProPublica, Prospect blamed the failure on a catastrophic broken water pipe in 2016 that flooded the entire hospital infrastructure, forcing doctors and patients to go elsewhere for months. Leonard Green was now ready to fully cash in and exit its investment. CASE DETAILS: The filed complaint alleges that defendants made false statements and/or concealed that: (1) Prospect Medical Holdings, Inc. ("Prospect"), Lee became the primary decision-maker. Last year, Prime Healthcare agreed to pay $65 million in penalties to settle a lawsuit brought by the Department of Justice alleging that it filed false claims and made Almost as quickly as it rose, private equity firms ardor for hospitals has substantially cooled in the past few years, said Lisa Phillips, editor of HealthCareMandA.com, which tracks private equity health care deals. ), A second lawsuit filed in federal court claimed the hospital inflated Medicaid revenues at its Miracles detox center by admitting financially needy or homeless patients with no medical reason for being hospitalized for chemical dependency. The plaintiff, a former nurse there who sought whistleblower status for the suit, alleged that some patients were admitted so often, without undergoing standard addiction screenings, that the staff referred to them as frequent fliers. Federal prosecutors ultimately declined to join the case but allowed it to proceed as a private action against Prospect and the hospital under the False Claims Act. Topper received a 14.9% stake, while Leonard Green got 61.3%. The head of the department died. by Ian Donnis. As an organization, we had delegated the role of the quality program to a local level, Senior Vice President Von Crockett testified, without the proper oversight at a corporate level.. (The E&Y senior manager assigned to examine Altas financials told ProPublica the misstatement was very easy to find.) No problem, Prospect responded; it wouldnt pay out any more dividends. They really didnt take us seriously, she said. In a press release announcing the deal, Lee said the company will help ensure the long-term success of Nix.. Another of the Medicare Advantage plans that received payments because of Prospects improper claims, CalOptima, said in a statement that Prospect first informed it in March 2016 of an inadvertent and isolated billing error from a single month in 2015. In April 2008, Alta restated its 2006 revenues, lowering them by about $4 million. Conflict between Prospect and Neronha flared on Thursday when the hospital chain threatened to close the hospitals, and take legal action, if the state Filed: August 10, 2017 2:17-cv-03599-WB. Nursing assistant Doreena Duphily, who worked in the geriatric mental-health ward, where 19 of 21 patients were infected, was out sick for three weeks with COVID-19 herself. Learn More / Map Prospect denied it ever lacked PPE at any of its hospitals. State officials approved the companys acquisitions on a conditional basis in 2016, while imposing a three-year monitoring regime that health department officials describe as unprecedented. Doris Burke is a senior research reporter at ProPublica. Kline assigned Lee, then 32, to oversee the investment. Nix included a 208-bed downtown hospital, an inpatient psychiatric center and multiple outpatient clinics. After his death, the hospital failed to notify police. Various Prospect facilities in California have had bedbugs in patient rooms, rampant water leaks from the ceilings and what one hospital manager acknowledged to a state inspector looks like feces on the wall. Crozer Health, the struggling four-hospital system in Delaware County, and its parent company Prospect Medical Holdings, have at times been unable to pay vendors and contractors who provide vital services to patients at Crozer-Chester Medical Center in Upland, according to staff. After decades of profits, Nix began losing money. ), Michael Terner worked as an executive vice president at Prospect for five years and departed around the same time as his father. As of this year, when the firm hopes to close the sale, Green has retained its Prospect stake for 10 years; indeed, the $5.3 billion fund that holds that and other investments was launched in 2007, making it venerable in private equity years. As it turns out, Prospect hasnt earned stellar grades in Connecticut either. Prospect Medical Holdings, Inc. ("Prospect") leases and operates 13 of MPT's facilities. Theres so many other places to put their money in health care that they can flip faster, Phillips said. He sensed a major opportunity, according to a corporate history his spokesman provided: While the cost of healthcare was growing at three times the rate of the US GDP, hospitals as a group were inefficient in delivering quality care. Lee quit the private equity firm in 2000 and joined Alta full time, becoming its co-president and a 50-50 partner with Topper. The Baumers live about 30 minutes from the firms Santa Monica offices in a large oceanfront property on Manhattan Beach, purchased, through a corporate entity he set up, for $18.4 million. Get our investigations delivered to your inbox with the Big Story newsletter. Alta borrowed the rest. You are are free to republish it so long as you do the following: Copy and paste the following into your page to republish: (Courtesy of California Nurses Association), New Law Aims to Save Oysters on the Mississippi Coast, In Secret Recording, a Top City Library Official Calls Alaska Natives Woke and Racists. They maintain that theyve kept their commitments, abided by the law, provided good patient care and invested hundreds of millions of dollars, saving many failing hospitals and preserving thousands of jobs. As Mississippis oyster population continues its freefall, state leaders turn to a model that has helped in Louisiana. Then we suffer and the patients suffer., Paramedics have repeatedly gone to fuel up ambulances using a hospital credit card, only to have it rejected, according to Larry Worrilow, assistant chief for the Crozer-Keystone EMS system. Prospect Medical Holdings, the California-based hospital chain, finally got what it wanted when Attorney General Peter Neronha this week approved its long-sought ownership change involving two Rhode Island hospitals. The move, made to qualify for extra government subsidies for treating low-income patients, helped Brotman generate profits. Two former senior executives at Alta claimed that Lee and his longtime partner had cheated them out of a promised equity stake. Lee would make executives cry, recalled former Alta CFO Lahidjani, who counted himself in that category. Thats when it reached agreements to spend more than $500 million to buy hospital systems in three states: East Orange General, in New Jersey; three community hospitals in Connecticut; and a four-hospital system in suburban Delaware County, Pennsylvania, west of Philadelphia. Born in South Korea and raised in Tampa, Florida, he was an industrial engineering graduate of Georgia Tech. As criticism of Prospect grew during 2020, Rhode Island officials first delayed their decision on the sale to November, citing missing documents and unanswered questions, then extended it again to the end of January 2021. The response was: We do this all the time. Lee disputed some of Whites claims, but acknowledged in the companys written responses that this was a difficult time, resulting in some bounced checks and some payables being missed. He insisted that ultimately, all the vendors were paid., Shedding those money-hemorrhaging operations helped Alta turn a financial corner. Aleman is now CFO of Prime Healthcare. The transaction breezed past regulators in four states where Prospect owns a total of 15 hospitals. How Cigna Saves Millions by Having Its Doctors Reject Claims Without Reading Them, If youre republishing online, you must link to the URL of this story on propublica.org, include all of the links from our story, including our newsletter sign up language and link, and use our. Prospects story is also a bleak omen for the future of Americas health care system and a particularly telling one because the company is effectively on its second tour through the private equity system. As of December 31, 2021 , Prospect was MPT's third largest tenant, The plan was declared insolvent and placed in receivership in 2017. This same hospital, the companys largest, is also the most visible monument to Prospects neglect. Say we need 4x4 sponges, dressing for a patient, IV fluids, said Leslie Heygood, a veteran registered nurse at one of Prospects Pennsylvania hospitals, we might not have it on the shelf because its on credit hold because they havent paid their creditors.. It said it is working with state and local officials to expedite the broken elevators replacement. The cases are all pending. On February 11, 2021, Plaintiff Godofredo Solsona filed this employment action against Defendant Prospect Medical Holdings, Inc. asserting five causes of action under FEHA and a Tameny claim. If you share republished stories on social media, wed appreciate being tagged in your posts. Prospect vowed to spend $52 million on capital improvements and keep the hospital open for no less than five years. Three years into that vow, with losses still running about $1 million a month, Prospects warnings that it wanted to sell or close the hospital spurred state lawmakers to hand the company an emergency $15 million grant. It has lobbied public-pension investors and members of Congress to press the firm to return its dividends to the company, saying its profiteering has put Prospects safety-net hospitals at risk. This includes publishing or syndicating our work on platforms or apps such as Apple News, Google News, etc. Alvarez & Marsal was also concerned the problem extended far beyond what Inter Valley had discovered: that Prospect had submitted bogus claims for more than 20 other Medicare Advantage plans, including United Healthcare and Blue Shield. Moodys, the ratings agency, was dismayed by Prospects soaring debt. As always, the plan envisioned funding that payment through debt. Kline picked a British-sounding name to add a dash of gravitas. Nobody has questioned it. Thats when I went back to our CEO and said, Theres a problem here.. Please contact. You cant sell our material separately or syndicate it. The receiver then sued the company, asserting that Prospect had misled the public and 2,700 current and past hospital employees about the pension funds financial health.

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