Dive Brief:
Hospital landlord Medical Properties Trust is wresting control of three Southern California properties from Prospect Medical Holdings after the struggling operator failed to pay rent, a spokesperson for MPT confirmed Wednesday.
MPT blamed Prospect’s stalled East Coast hospital sales — including planned divestitures in Pennsylvania, Rhode Island and Connecticut — for the health system’s liquidity troubles and missed third-quarter rent payments.
The landlord said it plans to appoint new independent directors to the board of the California facilities to oversee operations. The directors will come from outside MPT, and the landlord itself will continue to have “no involvement” in hospital operations, the spokesperson said.
Dive Insight:
Prospect has been missing or making rent only on a cash basis for over a year, according to MPT. However, the system’s financial and operational troubles extend almost to the beginning of its relationship with the hospital landlord.
MPT became involved with the California-based healthcare operator in 2019, when Prospect sold 14 of its acute hospitals and two behavioral health facilities in three states to the real estate investment trust for approximately $1.5 billion in a sale-leaseback transaction.
Prospect was then owned by private equity firm Leonard Green and Partners. Under Leonard Green, Prospect was not financially healthy, according to research from the Center for Economic and Policy Research. While the firm owned Prospect, the system saw declining revenues and high debt levels, the study found.
Hospital quality also dropped across Prospect’s portfolio. The CMS’ annual quality of care rankings placed all but one of Prospect’s hospitals in the bottom 17% of U.S. hospitals in 2020, and several Prospect facilities received “immediate jeopardy” citations from the federal agency.
Prospect’s troubles worsened during the COVID-19 pandemic, and Prospect began to default on rent in the fourth quarter of 2022, according to MPT’s third-quarter securities filing.
After Prospect missed months of rent, MPT restructured its agreement with Prospect in an attempt to boost the system’s liquidity. However, Prospect still owes hundreds of millions to MPT as well as other lenders, according to both MPT and court filings related to Prospect’s stalled East Coast sales.
Prospect has also been trying to sell several hospitals across the East Coast to generate cash. But when would-be buyers look under the hood of the hospitals, they’ve backed out, citing concerns about Prospect’s financial and operational health.
In Pennsylvania, Prospect has had at least two possible deals fall apart to sell Crozer Health, despite a lawsuit from the state attorney general demanding Prospect find a buyer to keep services open.
In Connecticut, Yale New Haven Health has sued Prospect to get out of a binding deal to buy three hospitals, alleging Prospect allowed government citations for patient safety violations to rack up and let the facilities deteriorate.
The attorney general in Rhode Island also filed a suit to hold Prospect accountable for unpaid hospital bills in his state.
This is not the first time MPT has had a tenant showing signs of financial trouble. Months before Steward Health Care declared bankruptcy, the health system missed rent and closed hospitals, citing liquidity concerns.
“Although we believe our remaining real estate and asset-backed loan investments are recoverable at September 30, 2024, no assurances can be given that a future impairment will not be needed, particularly if Prospect’s east coast operations do not improve or are not sold timely and they continue to miss scheduled rent and interest payments,” MPT said in its third-quarter securities filing.
