Crozer Health may be placed into state control, an unprecedented move after years of financial turmoil

Pennsylvania’s attorney general has taken the unprecedented move of petitioning a Delaware County court to give the state control of the financially beleaguered Crozer Health, filings in the Court of Common Pleas show.

Crozer’s owner, Prospect Medical Holdings Inc., notified state officials recently that they intend to close key service lines ― trauma, maternity, and the burn unit — after Nov. 20 at Crozer-Chester Medical Center. Without those services, the hospital was not likely to survive, the complaint said.

The lawsuit aims to hold Prospect and other financial stakeholders accountable “for years of mismanagement, corporate looting, and neglect of the hospital system,” Attorney General Michelle Henry said during a news conference Tuesday outside the Delaware County Courthouse.

“Corporate greed has severely harmed Delaware County’s largest health-care provider, its patients, its staff, and the community,” she said.

The legal action follows years of turmoil for the county’s largest health-care provider. Crozer Health has been under for-profit ownership since 2016, including several years under the control of a Los Angeles private equity firm. In that time, two of Crozer’s four hospitals have closed, and the system has endured numerous rounds of layoffs. State hospital inspectors get called to Crozer facilities for safety problems and complaints almost twice as often as to other area hospitals.

A Prospect representative called the lawsuit “hasty, ill-considered, and completely unnecessary,” noting in an e-mailed statement that it “will only serve to harm Crozer Health and reduce health-care access for patients in the communities we serve.”

The attorney general is exercising her legal authority to intervene to protect health-care assets — in Crozer’s case, to preserve access to health-care services in an area without other nearby hospitals and serving a community where many people cannot afford private health-care insurance. Crozer-Chester and its sister facility, Taylor Hospital, treat about 500 patients a day.

If Crozer-Chester, which has the county’s only trauma center, and Taylor Hospital were to close, the closest hospitals would be Riddle Hospital in Media and Mercy Fitzgerald between Darby and Lansdowne. They are close to 10 miles away in parts of the county that are increasingly congested with residential and commercial development.

The next-closest trauma centers are in Philadelphia and Delaware.

“When minutes and seconds are going to save a life, having to travel an extra 30 to 45 minutes to be able to get to a hospital that is equipped is going to make an impact on our community in a negative way,” said Monica Taylor, chair of the Delaware County Council.

Other hospital closures in the region did not leave patients without close options. When Hahnemann University Hospital in Center City and Crozer’s Delaware County Memorial Hospital closed, nearby hospitals were able to serve displaced patients.

Henry intends to appoint a management firm, FTI Consulting, to run Crozer’s facilities, with authority to put Crozer into bankruptcy. In addition to the two hospitals, the firm would manage its outpatient clinics in Broomall and Glen Mills and an outpatient surgery center in Havertown. Crozer also offers outpatient medical services at Springfield Hospital, which no longer admits patients for longer stays.

The attorney general’s long-term goal is to put Crozer back under nonprofit ownership. The filings did not provide a timeline.

» READ MORE: Companies backed by private-equity firms have 900 locations in the Philadelphia region. Crozer Health is the highest-profile case study

The petition to put Crozer in receivership does not solve its financial problems. Crozer-Chester Medical Center is a safety-net provider in Chester, and the health system overall has relatively few patients with private insurance, which pays better rates than the government-funded Medicare and Medicaid programs. That makes it hard for Crozer to be profitable.

A legal filing said the state will provide unspecified financial support to the receiver, but will also attempt to recoup “all of the unlawful dividends received” by Prospect and Leonard Green & Partners, the PE firm that was Prospect’s majority owner until 2019. The estimated $457 million in dividends would be shared proportionately with other states where Prospect owns hospitals.

Crozer’s liabilities include a $155 million mortgage with Medical Properties Trust, its former landlord; a pension liability estimated at $100 million or more; and many millions more are needed to upgrade outdated facilities and equipment. Any organization that took over Crozer would need at least some of those liabilities to be erased.

The Pension Benefit Guaranty Corp., a federal agency that takes over failed pensions, last month filed a $12 million lien against Prospect and Crozer for failure to make required pension payments. Crozer facilities have often been short on supplies because its corporate offices don’t pay suppliers, Henry said.

Given Crozer’s financial woes, previous attempts to sell the system have failed. ChristianaCare backed out of a preliminary deal in 2022. Prospect announced a preliminary agreement in August to sell Crozer to CHA Partners LLC, a New Jersey real estate company that specializes in buying hospital properties and redeveloping them into mixed-use medical facilities. Those negotiations appeared to gain little traction.

If the court approves the appointment of a receiver, the University of Pennsylvania Health System will be on tap to help. PJ Brennan, Penn’s chief medical officer, attended the event Tuesday as a sign of Penn’s support. The attorney general’s office has asked Penn to help oversee a review of Crozer’s financials and performance, and “try to get things headed in the right direction,” Brennan said.

Amid its financial hardship, Crozer has struggled to meet state and federal standards for quality and safety.

Crozer-Chester and Taylor were the only Philadelphia-area hospitals to receive a D-rating from the national hospital safety ranking organization Leapfrog last year. The rating was based on data from 2021 and 2022, and at the time, Crozer Health CEO Anthony Esposito said it did not reflect improvements to safety protocol.

But inspections reports from the Pennsylvania Department of Health show shortcomings at Crozer have continued to put patients at risk:

Health inspectors visited Crozer-Chester and Taylor hospitals 27 times in 2023 — more than twice as often as any other hospital in the Philadelphia area — to investigate potential safety problems or check on whether the hospitals had fixed past problems. The hospital was cited for biohazard waste bags piled on the loading dock, delaying urgent medications for hours, and allowing a nurse to work without a Pennsylvania license.

This year, inspectors have been to the two hospitals another 23 times as of mid-September, citing problems such as leaving patients in physical restraints for too long, not being able to provide heart attack services because of broken equipment, and failing to monitor heart patients.

Taylor Hospital received one of the state’s most serious warnings in February after a behavioral health patient who was considered a risk to herself left the hospital without her shoes or phone and was missing for several days.

Crozer abruptly shut down its kidney transplant program in January 2023 and has scrambled to secure partnerships with other health systems to continue providing basic hospital services, such as trauma and neurological care.

Crozer-Chester’s trauma center relies on Temple Health for cardiothoracic surgery and Jefferson Health for stroke care.

Crozer endured years of financial struggles and a long period seeking a buyer as the former nonprofit Crozer Keystone Health System. In 2016, its four hospitals were sold to Prospect in a deal valued at $300 million. Los Angeles private-equity firm Leonard Green & Partners was Prospect’s majority owner at the time.

» READ MORE: A timeline: Crozer Health since Prospect acquired it in 2016

During the early years, Prospect’s ownership of Crozer showed some promise of growth with hospital admissions increases and expanded neuroscience services. But during the financial turmoil caused by COVID-19 and thereafter, Crozer’s business declined precipitously.

A series of financial maneuvers added to the financial pressure on Crozer.

Prospect borrowed $1.12 billion in 2018 to pay off debt and issue a $457 million dividend to its owners, Leonard Green & Partners, as well as to individual owners, Prospect executives Sam Lee and David Topper.

Lee and Topper put Prospect into an even deeper financial hole the next year when they sold most of the company’s real estate to an Alabama real estate investment firm, Medical Properties Trust Inc. (MPT), for $1.4 billion.

The terms of the MPT real estate sale, described as a sale-lease-back, required Prospect to pay rent on buildings it used to own.

Crozer’s properties were valued at $420 million and required the health system to pay $35 million in annual rent, which it couldn’t afford after the pandemic hammered health systems’ finances by reducing demand for profitable services, such as nonemergency services, and raised costs.

MPT now values the Crozer properties at $155 million — about a third of what it paid.

This story has been updated to include detail on the lawsuit and comments from the Pennsylvania attorney general, Prospect, and others at the news conference.