The Journal. - Private Equity Took Over a Hospital. Then It Shuttered.

Episode Date: September 4, 2025

Get more information about our first-ever live show here! Tickets go on sale Friday, September 5 at 10am ET. A hospital in Chester, Pennsylvania was acquired by a private equity firm that leveraged it to make shareholders millions. Now the facility has had to close its doors, leaving the community reeling. WSJ's Soma Biswas takes us inside the hospital’s bankruptcy and Jessica Mendoza speaks to a local emergency services executive about the impact on the local community in Chester.  Further Listening:  - Why Private Equity Is Buying Up Car Washes - The Private Equity Lobby Wins Again Sign up for WSJ’s free What’s News newsletter.  Learn more about your ad choices. Visit megaphone.fm/adchoices

Hey, it's Ryan. And Jess. Before we get into today's show, we have something exciting to announce. We are hosting our first ever live show in New York City. We'll be at the Grand Mercy Theater on Tuesday, October 7th, and we want you to be there. We'll have special guests, and I can promise you it'll be a fun night full of lively conversations about money, business, and power. And Jess and I will hang out after the show to mingle and meet people. It's going to be a great time.

Tickets go on sale this Friday, September 5th, at 10 a.m. Eastern at bit.L.L.Y. slash Journal Live 2.5. You can find the link in our show notes. Again, we'll be the Gramercy Theater in New York City on Tuesday, October 7th, and tickets go on sale this Friday, September 5th. Go to bit.ly slash journal live 25 to get your tickets. We hope to see you there. The city of Chester, Pennsylvania is the oldest city in the state. It's nestled on the Delaware River, about half an hour from Philadelphia. And for years, the community there has struggled with socioeconomic issues. Half the population lives at or below the poverty line.

An incredible number, I think 38% or so, people are on Medicaid. That's Shane Wheeler, who runs VSM Emergency Medical Services, a non-profit in the area. The disease rate there is insane, you know. It's just, it's a rough, it's a really, really bad place with regard. to health care. Things got even worse in May when the last local hospital shut its doors. The closure set off a series of events

that made it even harder for Chester residents to get access to health care. They lost their hospital, but they also lost their doctors. There's a total collapse of preventative care. They've lost their primary care physicians, their asthma doctors. They were really invested in the health system that collapsed. The health care crisis in Chester is the latest development in a years-long saga.

A private equity firm had bought up a string of struggling local hospitals in an effort to make them profitable. It's a strategy that private equity firms have employed across the country. And it's one that's left hospitals and the communities they serve, short of crucial medical services and deep in debt. Private equity investors are siphoning millions of dollars away from community hospitals. When the private equity-backed network filed for bankruptcy last year, it devastated providers and patients. And for Chester City, the impact has been monumental.

Welcome to The Journal, our show about money, business, and power. I'm Jessica Mendoza. It's Thursday, September 4th. Coming up on the show, private equity's lucrative venture into health care, and the dire consequences for one community. When you're with Annex Platinum, you get access to exclusive dining experiences and an annual travel credit. So the best hapice in town might be in a new town altogether. that's the powerful backing of Amex

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Because the only thing better than a great playlist, is a great trip. Life's the trip. Make the most of it at Best Western. Book direct and save at bestwestern.com. The events that led to the health care crisis in Chester, Pennsylvania, began in 2016. That year, the local hospital was acquired by a company called Prospect Medical Holdings. Prospect Medical is a chain of hospitals, 16 hospitals that was put together by Leonard Green and Partners, private equity firm in Los Angeles.

That's our colleague Soma Biswas, who covers bankruptcies. She says that private equity firms, like Leonard Green, try to get the hospitals running more efficiently and make them more profitable. What private equity did here, and it's pretty typical, is that they saw the opportunity to buy some hospitals, in certain areas. These were non-profit hospitals that were not doing well. And they promised to make investments and then what they do,

which is also typical of private equity, is they went and they borrowed money in the debt markets to buy more hospitals. And they strung them together into this chain. And that became Prospect Medical. With all the hospitals under one hold, company, Leonard Green was able to start taking dividends for investors. And those dividends paid out. Between 2012 and 2018, Leonard Green shareholders made $654 million in dividends and share

sales from hospitals under Prospect Medical. But none of that money was making it to the hospitals themselves. A bipartisan congressional committee would later find that far from the turnaround, the firm promised, the hospitals were practically insolvent. At the hospital in Chester, Soma talked to nurses who said basic upkeep had become a challenge. At one point, parts of the facility were shut down because of a mold infestation.

And the hospital stopped paying for some supplies and service providers. That made it hard to keep up with patient care. To make ends meet, prospect sold the land the hospital was built on. What they did is they reached, to deal with a publicly traded real estate company. And these are fairly common for a lot of different kinds of companies where the real estate company comes in and they buy your building

all the land that your facilities sit on. The real estate deal, which took place in 2019, gave prospect the cash it desperately needed. But the deal meant that hospitals like the one in Chester, were suddenly on the hook for millions of dollars in annual rent payments to the new landowners. And they were locked into those leases for more than a decade. Meanwhile, having made millions, Leonard Green decided to move on.

In 2021, the private equity firm sold its controlling stake in prospect medical holdings. What Leonard Green will say is that, and they've said this, that everything was great until the COVID-19 pandemic hit. And the pandemic meant that basically, you know, hospitals couldn't have surgeries. They could only take patients that were in emergency situations. So like all of the elective stuff was shut down and that that was the reason why they got into financial distress.

Representatives for Leonard Green also said that their buyout of prospect help save hospitals that otherwise would have closed. Over the next five years, Prospect continued to struggle. It fell behind on bills and pension contributions, according to court records. In 2024, the Pennsylvania Attorney General sued Prospect over conditions at its hospitals in the state. The company has disputed the allegations. Near the end of the year, Prospect's finances were so bad, the hospital in Chester couldn't make its rent payment. And this past January, Prospect filed for Chapter 11 bankruptcy. The goal of any bankruptcy, including this one, is to figure out a way to pay all the creditors.

You know, when a company files for bankruptcy, typically, they don't have enough money to pay all of their bills. Typically, companies look to find buyers. They spent weeks looking for buyers, and they couldn't find anyone. Without a buyer, there was no one to pay prospects' debts, including back taxes. And that was a big problem for the county where Chester City is located, which had to raise taxes to cover the loss. Prospect medical holdings, they owe the county and some of the school districts in the county $20 million.

And these are back taxes that they haven't paid for a couple of years. So as a result, the county and one particular school district had to raise taxes on all property. owners. So that means homeowners, business owners. It was particularly sharp increase for one of the school districts in the county. In other words, the community was left holding the bag. That's next. You can get protein at home or a protein latte at Tim's. No powders, no blenders, no shakers.

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Alcohol and select markets. Product availability may vary by Regency app for details. Prospect's bankruptcy led to the closing of Chester's hospital in May. And the biggest impact of the shutdown was on the local health system. Nearby emergency departments struggled to accommodate the new influx of patients. At the same time, many affiliated doctor's offices shut their doors. Patients found themselves having to wait over a year for routine appointments. That's where Shane Wheeler comes in.

He's the guy who runs VSM, the nonprofit emergency medical service. How did you end up servicing the community in Chester City? I always tell people I did not have Chester City on our bingo card, right? And, you know, it's a little bit out of the way from our Philadelphia operation. But there was this gap with prospect holdings bankruptcy. And they needed to care. And we wanted it. That's why we're there.

But the work is tough. One big issue is that a lot of the calls Shane's team gets aren't for emergencies. Instead, they're getting called in to respond to things. things like cuts and scrapes, coughs and colds. Sometimes, Shane says, his team responds to patients trying to get their prescriptions refilled. In most communities, similar to Chester City, where there's a high dependency on a hospital ER, they would get their preventative care at the emergency room.

Well, without the emergency room in the hospital there, we're now starting to feel some of the stuff. So I'm having problems with my blood pressure, you know, or I can't get a doctor's appointment for a year, right? Literally. Am I taking my medication correctly? You know, these kind of, these kind of conversations that they should be having with their primary care physician, they're now trying to have that conversation with our emergency medical technicians and paramedics. And that's not really what Shane's team is supposed to be doing. VSMC is an emergency medical service, which means the staff is trained to respond to immediate medical crises and then take patients to an ER for further care. We're not physicians, right? And we're not necessarily

trained in a space of being a, you know, experts in family medicine or what primary care physicians and PAs and nurse practitioners do, right? We stop the bleeding, you know, we start the heart again, we breathe for the patient kind of things, right? All these non-emergency calls also means the team gets tied up and it makes it harder to respond quickly to actual emergencies. And because the team only makes money

when they transport patients to a hospital, non-emergency calls mean they don't get paid. Over 45% of our responses are resulting in no transports, which means it's uncompensated care because we don't transport the patients and very few insurances will will pay for treatment in place.

Medicaid-to-Medicare pay a base rate, which is the load fee, and then they pay a per-mile rate as opposed to bill for, like, clinical services. So if we don't load the patient and transport them, we don't get compensated. Shane's team is having to fill gaps that the hospital closure left behind.

But there are other strains on Chester, too. With thousands of former hospital employees out of work, and the whole community scrambling for health, health services, the state has decided to step in. I'm deeply concerned about this community. I'm deeply concerned about the rural communities that have suffered at the hands of private equity. We're going to continue to do everything in our power to address it.

Governor Shapiro had made a big effort to pass a law that would make it harder for private equity firms to buy hospitals and other kinds of health care facilities and perhaps just have more scrutiny. So when a private equity firm comes in and wants to buy a hospital system or certain other types of health care businesses, you know, it'll require the attorney general to take into account the impact on the community and patient care, not just look at the dollars and cents. Pennsylvania is trying to come up with a long-term solution for Chester and other communities in the state.

Until then, Shane says he and his team will try to keep things afloat. What do you need to keep this going? Are you in any way worried that you won't be able to continue to provide the services that you provide? Is this going to stretch you too thin? Yeah, we're worried. Everybody's worried. I think our staff is worried. I think the community is worried, right?

They were just let down by a health system, right? and, you know, that the unthinkable happen. So, yeah, we're worried. I think we have a really great relationship with the community, and I'm confident that we're going to be able to sustain the operation. But, you know, there's a lot of things that are threatening that. That's all for today, Thursday, September 4th. The Journal is a co-production of Spotify and the Wall Street Journal.

Additional reporting in this episode by Alexander Gladstone. Thanks for listening. See you tomorrow.