Prospect Medical Holdings Agrees to Sell Struggling Crozer Health System Following Legal Dispute

Prospect Medical Holdings, a private equity firm that operates multiple healthcare facilities across the United States, has entered into a new agreement with the Pennsylvania Attorney General’s Office and a local nonprofit regarding the sale of its four-hospital system, Crozer Health. The agreement comes after a tumultuous period for Crozer Health, marked by a controversial hospital closure and legal disputes. 

In 2016, Prospect Medical Holdings acquired the Crozer Health system. However, recent developments led to a contentious situation. The healthcare provider aimed to close Delaware County Memorial Hospital and convert it into a behavioral health facility after the planned sale of the entire Crozer Health system to ChristianaCare Health System fell through in August 2022. This decision triggered a backlash, including litigation from the Foundation for Delaware County and the Pennsylvania Attorney General, Michelle Henry, who contended that Prospect was obligated to keep the hospital operational until at least 2026, per the original asset purchase agreement.

Late last year, as a result of staffing shortages the Pennsylvania Department of Health closed Delaware County Memorial Hospital. Additionally, Crozer Health’s Springfield Hospital suspended its inpatient and emergency services in 2021, announcing its transition into an outpatient facility. These challenges prompted Prospect Medical Holdings to reevaluate its position.

Under the newly struck agreement, the Pennsylvania Attorney General’s Office and the Foundation for Delaware County will suspend their litigation against Prospect for a period of 270 days from the date of signing. This temporary halt to legal proceedings can be extended if necessary. During this time, Prospect will explore potential avenues to sell the Crozer Health system, aligning with the original sales agreement’s commitment to maintaining the system as a hub of care in the community.

Pennsylvania Attorney General Michelle Henry expressed her commitment to ensuring accessible and affordable healthcare for all Pennsylvanians, emphasizing the importance of upholding the sales agreement’s promises. In contrast, Prospect Medical Holdings continued to deny allegations of violating the purchase agreement or engaging in unlawful conduct.

Prospect Medical Holdings faced substantial financial challenges in operating Crozer Health. Before the decision to close Delaware County Memorial Hospital, Crozer was reportedly losing around $12 million per month, a figure that had decreased to $7 million per month as of March. In response, the private equity firm initiated a restructuring that resulted in the layoff of over 200 Crozer employees.

Prospect is eager to proceed with the sale of the Crozer Health System, having enlisted the services of the Morgan Stanley group to guide the process, expecting it to be completed in 60 days. However, it’s important to note that the sale’s success will depend on finding a suitable buyer who can navigate the challenges that Crozer Health has faced.