Rich Investors Stripped Millions From a Hospital Chain and Want to Leave It Behind. A Tiny State

Rich Investors Stripped Millions From a Hospital Chain and Want to Leave It Behind. A Tiny State Stands in Their Way.


In a David-and-Goliath battle, a group of Rhode Island officials and a union for hospital workers have so far stymied a multi-billion-dollar private equity fund’s attempt to unload its controlling stake in a national for-profit hospital chain. Investors led by the private equity firm, Leonard Green & Partners, previously extracted $645 million in dividends from the investment, and the firm now seeks to leave behind another $1.3 billion in financial obligations at the chain. In the face of more than a year of often-vehement public opposition in Rhode Island, the hospital chain suddenly agreed in the final days of December to pay $27.25 million to resolve a group of lawsuits they had previously refused to settle. But a Jan. 29 deadline for the state to approve the deal has been extended indefinitely and other obstacles remain.

Leonard Green and the hospital chain, Prospect Medical Holdings, were the subject of a ProPublica investigation in September that explored Prospect’s history of patient-care violations — including some that posed “immediate jeopardy” to patients, according to multiple government findings — along with complaints about deteriorating facilities, broken financial commitments and allegations of Medicare fraud surrounding the company. These problems surfaced over the past decade, after the private equity firm purchased the company in 2010. Prospect has defended its quality of care and denied any improprieties.

Leonard Green, which owns about 60% of the hospital chain, announced plans in October 2019 to sell its stake to Prospect CEO Sam Lee and his longtime business partner for $12 million plus the assumption of $1.3 billion in lease obligations. The $12 million is to be paid by the company, not the two executives. As Prospect previously told ProPublica, “In effect, the company’s money is their money.” At the time the deal was announced, Prospect said it expected the sale to close by the spring of 2020.

The transaction breezed past regulators in four states where Prospect owns a total of 15 hospitals. But not so in Rhode Island, where Prospect owns its other two hospitals. The sale of the two Rhode Island hospitals — and thus the entire deal — requires approval from the state’s health department and attorney general, which first must conduct a review process to assure the transaction meets nine statutory criteria.

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