Private Equity Took Over a Hospital. Then It Shuttered.

0:28Hey, it's Ryan. Eastern at bit.ly slash journal live 25. You can find the link in our show notes. Again, we'll be at the Gramercy Theater in New York City on Tuesday, October 7th, and tickets go on sale this Friday, September 5th. Go to bit.ly slash journal live 25 to get your tickets. We hope to see you there.

0:55The city of Chester, Pennsylvania is the oldest city in the state. It's nestled on the Delaware River, about half an hour from Philadelphia. And for years, the community there has struggled with socioeconomic issues. Half the population lives at or below the poverty line. An incredible number, I think 38 percent or so of people are on Medicaid. That's Shane Wheeler, who runs VSMC Emergency Medical Services, a nonprofit in the area. The disease rate there is insane, you know. It's a really, really bad place with regards to health care. Things got even worse in May, when the last local hospital shut its doors.

1:37The closure set off a series of events that made it even harder for Chester residents to get access to health care. They lost their hospital, but they also lost their doctors. There's a total collapse of preventative care. They've lost their primary care physicians, their asthma doctors. or they were really invested in the health system that collapsed.

2:01The healthcare crisis in Chester is the latest development in a years-long saga. A private equity firm had bought up a string of struggling local hospitals in an effort to make them profitable. It's a strategy that private equity firms have employed across the country. And it's one that's left hospitals and the communities they serve short of crucial medical services and deep in debt. Private equity investors are siphoning millions of dollars away from community hospitals. When the Private Equity Back Network filed for bankruptcy last year, it devastated providers and patients. And for Chester City, the impact has been monumental.

2:42Welcome to The Journal, our show about money, business, and power. I'm Jessica Mendoza. It's Thursday, September 4th.

2:55Coming up on the show, private equity's lucrative venture into health care and the dire consequences for one community.

3:17The events that led to the health care crisis in Chester, Pennsylvania, began in 2016. That year, the local hospital was acquired by a company called Prospect Medical Holdings. Prospect Medical is a chain of hospitals, 16 hospitals, that was put together by Leonard Green and Partners, a private equity firm in Los Angeles. That's our colleague Soma Biswas, who covers bankruptcies. She says that private equity firms like Leonard Green try to get the hospitals running more efficiently and make them more profitable. What private equity did here, and it's pretty typical, is that they saw the opportunity to buy some hospitals in certain areas.

4:00These were nonprofit hospitals that were not doing well. And they promised to make investments. And then what they do, which is also typical of private equity, is they went and they borrowed money in the debt markets to buy more hospitals. and they strung them together into this chain. And that became Prospect Medical. With all the hospitals under one holding company, Leonard Green was able to start taking dividends for investors. And those dividends paid out. Between 2012 and 2018, Leonard Green's shareholders made$654 million in dividends in share sales from hospitals under Prospect Medical.

4:47But none of that money was making it to the hospitals themselves. A bipartisan congressional committee would later find that far from the turnaround the firm promised, the hospitals were practically insolvent. At the hospital in Chester, Soma talked to nurses who said basic upkeep had become a challenge. At one point, parts of the facility were shut down because of a mold infestation. And the hospital stopped paying for some supplies and service providers. That made it hard to keep up with patient care. To make ends meet, Prospect sold the land the hospital was built on. What they did is they reached a deal with a publicly traded real estate company.

5:28And these are fairly common for a lot of different kinds of companies where the real estate company comes in and they buy your building, all the land that your facilities sit on. The real estate deal, which took place in 2019, gave Prospect the cash it desperately needed. But the deal meant that hospitals like the one in Chester were suddenly on the hook for millions of dollars in annual rent payments to the new landowners. And they were locked into those leases for more than a decade. Meanwhile, having made millions, Leonard Green decided to move on. In 2021, the private equity firm sold its controlling stake in Prospect Medical Holdings.

6:15What Leonard Green will say is that, and they've said this, that everything was great until the COVID-19 pandemic hit. And the pandemic meant that basically, you know, hospitals couldn't have surgeries. They could only take patients that were in emergency situations. So, like, all of the elective stuff was shut down, and that that was the reason why they got into financial distress. Representatives for Leonard Green also said that their buyout of Prospect helped save hospitals that otherwise would have closed. Over the next five years, Prospect continued to struggle. It fell behind on bills and pension contributions, according to court records.

7:01In 2024, the Pennsylvania Attorney General sued Prospect over conditions at its hospitals in the state. The company has disputed the allegations. Near the end of the year, Prospect's finances were so bad, the hospital in Chester couldn't make its rent payment. And this past January, Prospect filed for Chapter 11 bankruptcy. The goal of any bankruptcy, including this one, is to figure out a way to pay all the creditors. You know, when a company files for bankruptcy, Typically, they don't have enough money to pay all of their bills. Typically, companies look to find buyers. They spent weeks looking for buyers, and they couldn't find anyone.

7:45Without a buyer, there was no one to pay prospects debts, including back taxes. And that was a big problem for the county where Chester City is located, which had to raise taxes to cover the loss. Prospect Medical Holdings, they owe the county and some of the school districts in the county$20 million. And these are back taxes that they haven't paid for a couple of years. So as a result, the county and one particular school district had to raise taxes on all property owners. So that means homeowners, business owners. it was a particularly sharp increase for one of the school districts in the county.

8:29In other words, the community was left holding the bag.

8:35That's next.

9:01Prospect's bankruptcy led to the closing of Chester's Hospital in May. And the biggest impact of the shutdown was on the local health system. Nearby emergency departments struggled to accommodate the new influx of patients. At the same time, many affiliated doctor's offices shut their doors. Patients found themselves having to wait over a year for routine appointments. That's where Shane Wheeler comes in. He's the guy who runs VSMC, the nonprofit emergency medical service. How did you end up servicing the community in Chester City? I always tell people I did not have Chester City on our bingo card, right?

9:37And, you know, it's a little bit out of the way from our Philadelphia operation. But there was this gap with prospect holdings bankruptcy. And they needed care. And that's why we're there. But the work is tough. One big issue is that a lot of the calls Shane's team gets aren't for emergencies. Instead, they're getting called in to respond to things like cuts and scrapes, coughs and colds. Sometimes, Shane says, his team responds to patients trying to get their prescriptions refilled.

10:15in most communities similar to chester city where there's a high dependency on a hospital er they would get their preventative care at the emergency room well without the emergency room in the hospital there we're now starting to feel some of this stuff so i'm having problems with my blood pressure you know or i can't get a doctor's appointment for a year wow right literally am i taking my medication correctly? You know, these kind of conversations that they should be having with their primary care physician, they're now trying to have that conversation with our emergency medical technicians and paramedics.

10:51And that's not really what Shane's team is supposed to be doing. VSMC is an emergency medical service, which means the staff is trained to respond to immediate medical crises and then take patients to an ER for further care. We're not physicians, right? And And we're not necessarily trained in a space of being experts in family medicine or what primary care physicians and PAs and nurse practitioners do, right? We stop the bleeding. You know, we start the heart again. We breathe for the patient kind of things, right? All these non-emergency calls also means the team gets tied up. And it makes it harder to respond quickly to actual emergencies.

11:35And because the team only makes money when they transport patients to a hospital, non-emergency calls mean they don't get paid. Over 45 % of our responses are resulting in no transports, which means it's uncompensated care because we don't transport the patients and very few insurances will pay for treatment in place. Medicaid and Medicare pay a base rate, which is the load fee, and then they pay a per mile rate as opposed to bill for, like, clinical services. So if we don't load the patient and transport them, we don't get compensated. Shane's team is having to fill gaps that the hospital closure left behind.

12:17But there are other strains on Chester, too. With thousands of former hospital employees out of work and the whole community scrambling for health services, the state has decided to step in. I'm deeply concerned about this community. I'm deeply concerned about the rural communities that have suffered at the hands of private equity. We're going to continue to do everything in our power to address it. Governor Shapiro had made a big effort to pass a law that would make it harder for private equity firms to buy hospitals and other kinds of health care facilities and perhaps just have more scrutiny.

12:55So when a private equity firm comes in and wants to buy a hospital system or certain other types of healthcare businesses, it'll require the attorney general to take into account the impact on the community and patient care and not just look at the dollars and cents.

13:17Pennsylvania is trying to come up with a long-term solution for Chester and other communities in the state. Until then, Shane says he and his team will try to keep things afloat. What do you need to keep this going? Are you in any way worried that you won't be able to continue to provide the services that you provide? Is this going to stretch you too thin? Yeah, we're worried. Everybody's worried. I think our staff is worried. I think the community is worried, right? They were just let down by a health system, right? And, you know, that the unthinkable happened. So, yeah, we're worried. I think that we have a really great relationship with the community, and I'm confident that we're going to be able to sustain the operation.

14:04But, you know, there's a lot of things that are threatening that.

14:20That's all for today, Thursday, September 4th. The Journal is a co-production of Spotify and The Wall Street Journal. Additional reporting in this episode by Alexander Gladstone.

14:35Thanks for listening. See you tomorrow.