Prospect Medical Holdings Reveals DOJ Investigation

An article from

Dive Brief:

• Prospect Medical Holdings, a financially troubled hospital chain, disclosed in court documents last week that it is under investigation by the Department of Justice.
• The Los Angeles-based provider disclosed few details about the probe, but said it received a civil investigative demand from the agency on Nov. 3.
• The federal investigation follows multiple state inquiries into Prospect’s business practices last year. The Rhode Island attorney general sued Prospect over alleged mismanagement at its hospitals, including failure to provide timely notice of regulatory investigations. The Connecticut attorney general later issued its own civil investigative demand, probing Prospect’s funding practices, according to court filings.

Dive Insight:

Prospect revealed the federal probe in response to a lawsuit filed against the 16-hospital system by Yale New Haven Health.

Yale New Haven sued Prospect in May to get out of a 2022 deal to buy three Connecticut-based hospitals from Prospect, claiming Prospect had violated the deal terms by mismanaging facilities, not paying staff and vendors, and failing to implement basic cybersecurity protections.

In the complaint, Yale also alleged the health system violated state and federal laws and did not resolve “government investigations into Defendants’ operation of the Businesses.”

Civil investigative demands grant the Justice Department broad access to documents and testimony at early stages of fraud investigations, according to Bloomberg Law. In 2023, the DOJ issued more than 1,500 civil investigative demands, in a record for the department.

While Prospect acknowledges the federal and state investigations, the health system said in its own counter lawsuit the investigations were “past and isolated incidents” that shouldn’t invalidate the deal with Yale New Haven.

“Moreover, these are the types of regulatory violations hospitals of this size and type receive and remedy regularly,” Prospect argued in its lawsuit.

Cash-strapped Prospect wants Yale to be held to its purchase agreement. The health system, which was previously backed by private equity firm Leonard Green, is at least several months behind on rent, according to the most recent financial update from its landlord, Medical Properties Trust, and has been moved to a cash-accounting basis.

The sale, should it go through, could hand Prospect $435 million.

Prospect and Yale New Haven did not respond for requests for comment.