During the first half of 2024 alone, nine private equity-owned healthcare companies filed for Chapter 11 protection, comprising 23% of all healthcare bankruptcies during that six-month period, according to data from the Private Equity Stakeholder Project. In 2023, private equity-owned companies represented 21% of the 90 largest healthcare companies that filed for bankruptcy.
At least six major private equity-owned companies defaulted on their debt profile but managed to avoid bankruptcy through restructuring efforts and distressed debt exchanges, according to PESP. As of August 2024, private equity owned, or had recently owned, three of the four companies that accounted for the largest healthcare bankruptcies that year, where total liability exceeded $1 billion. This included Dallas-based Steward Healthcare and Maitland, Fla.-based Consulate Health Care. Since then, Becker’s has also reported on the bankruptcy filing of 11,000-physician group Prospect Medical Holdings.
Here is a breakdown of these three major healthcare private equity bankruptcies:
1. Steward Health Care: The group, backed by private equity group Cerberus Capital Management, filed for Chapter 11 bankruptcy in May 2024, which has led to an ongoing saga of hospital sales and closures across the 30-hospital network.
The for-profit system faced financial challenges and liquidity issues in the months leading up to the bankruptcy filing, citing low reimbursement from government payers and increasing costs of labor, materials and operations due to inflation. The system also said it continued to experience negative financial effects from the COVID-19 pandemic.
Federal lawmakers also began investigating Steward’s financial situation over the last several months amid hospital closures and vendor complaints of unpaid bills. In some cases, vendors stopped sending supplies to Steward hospitals with unpaid bills, prompting surgery cancellations and other issues. Steward also fell $50 million behind on rent and took loans from its landlord, Medical Properties Trust.
In April 2024, Massachusetts Sens. Elizabeth Warren and Ed Markey released a statement that accused Cerberus of profiting around $800 million from Steward and allegedly “looting” the health system when it exited in 2020. The statement came after Cerberus shared a Feb. 26 response letter to Massachusetts lawmakers’ request for more information regarding Steward’s financial struggles.
During a May 2024 court hearing in Houston, Steward attorney Ray Schrock told U.S. Bankruptcy Judge Chris Lopez that the health system had placed its 31 U.S. hospitals up for purchase to help offload its $9 billion debt after it filed for bankruptcy.
July 12 bankruptcy court documents obtained by Becker’s revealed that Dr. de la Torre made a gross salary of $3,766,461 from May 8, 2023, to April 11, 2024. The documents also revealed that 14 other Steward executives received at least $1 million in overall compensation just 12 months prior to the health system filing for bankruptcy.
In November 2024, federal officials detained Dr. de la Torre to execute a search warrant and seize his phone as part of an ongoing investigation. They also recently seized the phone of Armin Ernst, head of Steward’s international operations.
Prospect Medical Holdings: The Los Angeles-based group filed for Chapter 11 protection Jan. 11.
The company, which operates facilities in California, Pennsylvania, Rhode Island and Connecticut, stated in a news release that it will continue normal operations despite listing over $400 million in debt.
PMH attributed its financial struggles to a combination of factors. According to a filing by Chief Restructuring Officer Paul Rundell, the company faced reduced revenue and rising costs due to the COVID-19 pandemic. Additionally, supply chain issues, increased expenses and a slower recovery of outpatient visits compared to prepandemic levels exacerbated its financial distress. The filing identified a “loss of liquidity” as the primary driver of the bankruptcy.
According to a report from CBS News, private equity firm Leonard Green & Partners held a majority stake in Prospect Medical from 2010 to 2021. The report highlighted a $457 million dividend issued in 2018, with Prospect’s CEO, Sam Lee, receiving approximately $90 million and Leonard Green shareholders collecting $257 million. A Senate oversight committee then allegedly discovered an “overwhelming evidence of financial mismanagement,” as Leonard Green and Prospect Medical prioritized profits, leading to service cuts or closures at hospitals serving vulnerable communities.
LaVie Care Centers/Consulate Health Care: Atlanta-based LaVie Care Centers — one of the country’s largest operators of skilled nursing facilities — filed for Chapter 11 bankruptcy in June 2024.
The company operates 43 nursing homes across MIssissippi, North Carolina, Pennsylvania, Virginia and Florida. According to PESP, the company is owned by private equity firm Formation capital through a “complex web of dozens of related shell companies.”
This formation has been scrutinized as having constructed the system’s nursing homes in a way that makes centers appear “cash strapped,” according to PESP, so its federal funding remains unaffected, despite quality concerns.
In its filing, LaVie said that the impacts of the COVID-19 pandemic, wage inflation and staffing requirements “caused the debtors to suffer a nearly 25% reduction in their total force in 2021 and they were forced to substantially increase their reliance on staffing agencies to staff their facilities.”
In March 2021, six nursing homes affiliated with Consulate Healthcare filed for bankruptcy after a $258 million False Claims Act settlement. The lawsuit alleged that nursing homes managed by the system upcoded services and provided patients with unnecessary therapies to increase Medicare billings. Those facilities had been sued by 137 plaintiffs in the six years prior with allegations ranging from negligence to wrongful death and Medicare fraud.