Dive Brief:
A federal bankruptcy judge agreed to a deal on Thursday that places Prospect Medical’s struggling health system Crozer Health into a 30-day receivership.
Under the terms, Pennsylvania regulators will provide Washington, D.C.-based FTI Consulting $20 million to act as an independent monitor and manager of Crozer while Prospect continues to search for a permanent buyer for the four-hospital health system.
The deal isn’t the one Prospect originally intended to present before the Texas court. However, it will keep the lights on at Crozer for at least another 30 days.
Dive Insight:
When Prospect filed for bankruptcy last month, court documents revealed the system had staggering debts, with nearly $2.3 billion in outstanding obligations. The health system has blamed its East Coast portfolio in part for its lack of profitability.
Crozer hospitals — which operate in Delaware County, Pennsylvania — currently lose approximately $12 million per month, Prospect attorneys said during a hearing before the Northern District of Texas’ bankruptcy court on Thursday.
Just last week, Prospect said it had a buyer for Crozer: an unnamed “consortium” of nonprofit health systems. However, attorneys said they “found holes” as they began to conduct diligence on the potential buyers, causing the deal to fall apart over the weekend.
Prospect’s legal team said they’re hopeful the deal could still be viable with more time, but the parties were not ready to present sales terms on Thursday.
The receivership is the product of “unorthodox” negotiations between Prospect, the Pennsylvania attorney general’s office and the health system’s creditors, attorneys for Prospect and the state told the court.
All parties wanted to keep the hospitals open. However, Prospect’s creditors are wary about offering the bankrupt health system more cash to manage.
“In order to get all of the parties comfortable, we needed to find a mechanism so that the hospitals would still operate, but that there was funding and it wasn’t going to the debtors,” an attorney representing Pennsylvania told the court, adding the deal was the “best case scenario.”
Judge Stacey Jernigan agreed the deal was unorthodox but said it was necessary to “avoid immediate and irreparable harm.”
FTI Consulting has been floated as a potential independent monitor for the facilities before.
Prior to Prospect declaring bankruptcy, the Pennsylvania attorney general sued the health system over its management of Crozer, filing the first lawsuit in 2023 and resuming litigation after a stay in 2024.
In October, then-Attorney General Michelle Henry petitioned the court to have FTI take over as an independent monitor of Crozer. Litigation over the matter was ongoing prior to Prospect’s bankruptcy filing.
The consulting firm could take over operations of the troubled hospitals as soon as this weekend.
