Prospect Medical Systems Faces Layoffs Amid Bankruptcy and Asset Sales

Prospect Medical Systems, a management services organization owned by Prospect Medical Holdings, is set to lay off 125 administrative workers in California effective July 1, according to recent filings with state regulators. This development comes as part of a larger restructuring effort following Prospect Medical Holdings' Chapter 11 bankruptcy filing in January.

Layoffs and Asset Sales

The layoffs will impact employees of Prospect's management services organization, which is responsible for the care of 600,000 members across 28 owned or managed networks in five states. Concurrently, Prospect Medical Holdings is working to sell Prospect Medical Systems, along with its pharmacy business, health plan, medical groups, and a medical center, to California-based Astrana Health for $745 million.

These moves are part of Prospect's ongoing efforts to shed assets since declaring bankruptcy at the start of the year, disclosing billions in liabilities. In February, the company struck a deal to sell its two hospitals in Rhode Island to the Centurion Foundation, a nonprofit healthcare operator based in Georgia, for $160 million.

Hospital Closures and Legal Challenges

Prospect's financial struggles have led to significant consequences beyond layoffs and asset sales. In May, the company closed two Pennsylvania-based hospitals - Crozer-Chester Medical Center and Taylor Hospital - citing a lack of cash to maintain operations without a buyer. These closures have sparked outrage and prompted local lawmakers to push for increased oversight of corporate ownership in healthcare.

The company also remains embroiled in litigation with Yale New Haven Health over a protracted effort to sell three of its hospitals. Yale New Haven has sought to exit the deal for over a year, alleging that Prospect's poor financial management and neglect of the facilities have made the sale untenable.

Private Equity Influence and Political Scrutiny

Critics attribute many of Prospect's problems to its former relationship with private equity firm Leonard Green & Partners. A bipartisan Senate report found that the private equity firm pushed Prospect to take on excessive debt and employ "profit maximization tactics" at the expense of patient care. During Leonard Green's management, Prospect paid out $645 million in dividends and preferred stock redemption to investors, with $424 million going directly to Leonard Green investors, while hospital quality reportedly deteriorated.

This situation has drawn political attention, with Sen. Chris Murphy, D-Conn., launching a campaign to gather stories from Connecticut residents about how Prospect Medical Holdings' mismanagement has impacted their access to care. Murphy, along with other lawmakers like Pennsylvania Gov. Josh Shapiro, has called for increased regulation of private equity in healthcare, stating, "It was a mistake to let private equity control so much of our health care system, but it's not too late for us to change course."