On Sept. 30, we published an article examining how Prospect Medical Holdings, a hospital chain, and Leonard Green & Partners, its private equity owner, had extracted hundreds of millions of dollars in profits for investors while patients served by their hospitals suffered from a litany of problems. The article reported that on 14 occasions over a decade, government health inspectors had concluded that Prospect hospitals posed an “immediate jeopardy” to patients, defined by the federal government as problems that have caused, or are likely to cause, “serious injury, harm, impairment or death.” Other pervasive problems included everything from bedbugs and ceiling leaks in hospital buildings, to unpaid gas bills for company ambulances to shortages of medical supplies.
The story was based on five months of reporting, including interviews with 70 sources — current and former employees of Prospect and its hospitals, people who worked with the company, experts and others — and a review of several thousand pages of records from regulatory filings, lawsuits, company documents, financial statements and hospital inspection reports.
Leonard Green and Prospect are currently seeking to close a deal to sell Prospect to two of its executives for $12 million. That sale requires approval by state regulators in Rhode Island, where Prospect operates two hospitals. ProPublica’s article was submitted into the public record for that approval review.
In response, a law firm representing Prospect submitted a letter criticizing ProPublica’s article to the regulators in Rhode Island. In the letter and an accompanying four-page statement, Prospect asserted the article is “riddled with inaccuracies and misleading statements, both by inclusion and omission.” It stated that ProPublica “ignored significant information” that “refuted multiple issues raised in the article.” (You can find Prospect’s letter and statement here.)
Prospect’s statement contains a number of false and misleading claims, starting with the repeated assertion that its views were “ignored.” ProPublica’s article prominently quotes a formal statement from Prospect and Leonard Green and then includes responses, or testimony, from Prospect, its CEO, or Leonard Green in 29 other places in the article.
ProPublica made extensive efforts both to solicit and include Prospect’s statements. Early in the reporting process, ProPublica requested interviews with the company’s executives. Through its designated spokesman, Prospect and Leonard Green declined the initial request and asked ProPublica to submit written questions.
Starting on July 23, ProPublica’s reporter sent the joint public relations representative for Leonard Green and Prospect a lengthy array of specific questions and factual assertions resulting from interviews and other reporting. Prospect responded in detail. Over the nearly two months between Aug. 8 and Sept. 30, when the article was published, ProPublica’s reporter and Prospect’s press representative were in frequent contact, discussing the merits of many pieces of evidence in close detail and exchanging documents. Their exchanges about these matters totaled more than 100 pages. While this was happening, after months of declining to make executives available, Prospect’s spokesman offered an interview with Prospect CEO Sam Lee on condition that he not be quoted in the article. ProPublica delayed its publication date to give Lee the opportunity to be heard.
ProPublica carefully weighed all the input it received from Prospect (and, as noted, included it in many places in the article). However, many of the company’s statements were either at odds with evidence that ProPublica obtained (and discussed with Prospect) or irrelevant. Reaching such a conclusion after months of reporting and weeks of discussion with Prospect does not constitute “ignoring” input. Shortly before publication, Prospect’s chief outside attorney wrote, of ProPublica’s reporter: “We are not questioning Mr. Elkind’s integrity. He has been fair, open and forthright with our client.”
We respond below to specific Prospect criticisms of our story.
The article “relied on and quoted one source who denied in writing, through his lawyer, that he ever made the statements attributed to him by the reporter.”
Prospect misleadingly suggests this “one source” repudiated all of the multiple statements attributed to him in our article. This is untrue: He has repudiated none of them.
As the story makes clear, the source Prospect cites is Steve Aleman, the company’s former chief financial officer, who was abruptly terminated in August 2019 after 12 years at Prospect, including nearly six as CFO. Prospect’s claim appears to refer to a written response from Aleman’s attorney to its assertion, in a letter threatening legal action, that Aleman had made three specific “defamatory” statements about the company to ProPublica. Describing this claim as “baseless,” Aleman’s attorney replied that Aleman “steadfastly and wholly denies making any defamatory statements, including the ones generally alleged in your letter.” In addition, as we noted in our story, Aleman confirmed the accuracy of all of his published comments to ProPublica before the article appeared.
Prospect: “an alleged problem in one of our hospitals” was described by “a source who wasn’t even employed at that hospital during the time the alleged problem occurred.” Prospect expanded on the point later in its statement: “The article, discussing a lawsuit at the company’s Culver City Hospital, states, ‘Don Andrews, a seasoned administrator who worked as emergency department director during part of this period, backed these claims in an interview with ProPublica.’ We checked his employment record. He did not work at the hospital during the period. We told ProPublica this. They ignored this fact.”
Prospect’s claim is false. As our story made clear, the “alleged problem” discussed in our story was a charge of systemic Medicare fraud contained in a 2018 lawsuit filed against Prospect by Christina Demauro, a former ER nurse at the company’s largest hospital, in Culver City, California. In her pending complaint, Demauro asserts that elderly Medicare patients were unnecessarily admitted to the hospital’s emergency room, after being recruited by Prospect “marketers” from nursing homes and other eldercare facilities as much as 100 miles away. (Demauro said this practice was employed to boost hospital Medicare revenues.) Demauro, who worked at the hospital for six years, stated that she made “multiple complaints” to hospital management about this ongoing “illegal patient procurement scheme” during the two years before she filed her complaint, on April 2, 2018.
Andrews, the former emergency department director at Culver City, was described in the article as backing Demauro’s claims. Andrews did, in fact, work at the hospital during this period — specifically, from November 2016 through March 2017, when, he told ProPublica, he quit because of ethical concerns about Prospect’s “dangerous” focus “on the bottom line versus patient safety.” Andrews’ work history at Culver City isconfirmed by three colleagues who worked with him there.
Prospect writes: “The article states: ‘Many of these problems had yet to emerge by 2015, as Prospect struck rapid-fire deals to double the company’s size. That’s when it reached agreements to spend more than $500 million to buy hospital systems in three states: East Orange General, in New Jersey; three community hospitals in Connecticut; and a four-hospital system in suburban Delaware County, Pennsylvania, west of Philadelphia.’ This too is inaccurate. At least two of the four acquisition agreements weren’t reached in 2015. Crozer was signed in January 2016 and the transaction closed in July 2016. Waterbury and the ECHN transaction closed in October 2016. Again, the article contains inaccurate and inconsistent reporting. These were all easily verifiable facts that ProPublica omitted or ignored.”
These are easily verifiable facts, and we reported them accurately. The Pennsylvania Crozer system announced its signed letter of intent to sell to Prospect on Oct. 12, 2015. Likewise, Prospect’s two Connecticut deals (including the Waterbury-ECHN system) were both “struck” (and publicly announced) in mid-2015. Prospect’s criticism misleadingly cites different events that did occur in 2016 — when the acquisitions were formally “signed” and “closed.”
Prospect blames “false statements from a disgruntled former employee” for our account of the company’s problems — including an accounting restatement and suspension of trading in its stock — following Prospect’s 2007 acquisition of Alta, a private hospital company then run by current Prospect CEO Sam Lee. It also asserts we “falsely” stated the problem “nearly wrecked Prospect” and failed to include Lee’s view that the matter was far less consequential than the acquiring company’s own problems.
Multiple SEC filings (here, here, and here) detailed the months of upheaval we described that resulted from the discovery of inflated revenues and earnings on Alta’s 2006 books. These filings include comments by Alta’s own audit firm that Alta’s management had misused and ignored “factual information that existed” at the time the inaccurate financials were prepared. The problem was also described to ProPublica by Alta’s former CFO, by Alta’s former outside auditor and by a CPA at Ernst & Young, then Prospect’s outside audit firm, who told ProPublica the accounting misstatement was “very easy” to find. Our story includes Lee’s view that this problem was far less significant than problems with Prospect’s own business.
Prospect asserts that multiple criticisms regarding its COVID-19 response were “demonstrated to the reporter to be unfounded. But that too was ignored.” Among other statements, Prospect questions our reference to the death of Dr. Frank Gabrin, the first ER doctor to die of COVID-19 in the U.S., who worked for an ER staffing company at Prospect’s East Orange General Hospital in New Jersey. Prospect stated: “He was not a Prospect employee and worked at other hospitals in the greater New York area for the management company. The article claimed his death was due to inadequate PPE at East Orange. Once again, Prospect provided information showing that the assertion was not true. This information was ignored, and the reporting was irresponsible.”
It is impossible, of course, to know with absolute certainty where any individual contracted COVID-19. But some facts are clear. It was Prospect’s hospital, not the staffing company, that was responsible for providing personal protective equipment for the ER staff at East Orange hospital. As the article noted, East Orange was Gabrin’s “chief workplace”; he worked three out of his four weekly shifts there, according to his family and friends. And after contracting COVID-19 in March, Gabrin texted a friend his own belief that “it was me reusing the same mask for four days in a row that infected me,” something that would not have been necessary if East Orange had ample PPE. In discussing other COVID-19 problems at Prospect hospitals, we included the company’s claim — rebutted by employee interviews, formal complaints, news stories, and photos of nurses wearing garbage bags for makeshift protection — that none of its hospitals have ever run short of PPE.
Combining separate passages from the beginning and end of our story, Prospect states: “Speaking about the sale of the business by Leonard Green & Partners to Sam Lee and David Topper, the article says, ‘Given the cash and assets that private equity owners have taken out of hospitals, their new owners will be left with heavy debt and limited resources — as the saga of Leonard Green and Prospect demonstrates. It (LGP) is leaving a mess behind at Prospect. The company has little cash, weighty pension debts and lease commitments, and uncertain earnings.’ This is patently false. As ProPublica was told, the company has substantial cash and liquidity and a strong earnings outlook. This too was ignored in the article.”
The publicly available information about Prospect’s finances contradicts such claims. As we reported, Prospect has used debt, not profits, to pay $645 million in dividends to its private shareholders (including Green investors and top Prospect executives). In January 2019, Prospect had so little cash it required an emergency $41 million loan from those investors; this was necessary, according to Aleman, who was then CFO, to assuage auditor fears the company might not remain “a going concern” and to avoid violating loan covenants. Two months later, Moodys downgraded Prospect’s junk-rated debt, citing the business’ “very high financial leverage” and “history of failing to meet projections.” Poor recent operating results in 2018 (a $46 million loss) continued in fiscal 2019, with a tiny $2 million operating profit, according to Prospect’s audited financial statements. The company reported holding just $54 million in cash, with about $2 billion in future obligations. All of this preceded the COVID-19 crisis, which has generally been a cataclysmic event for finances at hospitals around the country.
“One key piece of information provided to the reporter that was ignored was that nearly all of the hospitals purchased by Prospect were on the verge of closure or bankruptcy…In nearly every instance, we have purchased hospitals that no one else wanted.”
Our story prominently included Prospect’s statement that it has “invested hundreds of millions of dollars, saving many failing hospitals and preserving thousands of jobs.” In different places in the article where it examined specific transactions, ProPublica’s article explicitly noted that two hospitals were purchased out of bankruptcy. Moreover, Prospect’s claim ignores that there was at least one rival suitor for several of Prospect’s acquisitions, including its hospitals in Rhode Island, New Jersey and Connecticut. As we also reported, Prospect purchased a profitable hospital system in 2012 in San Antonio, Texas, that then became unprofitable — and was shut down — after seven years of the company’s ownership.