For-Profit Hospital Chain Never Put Aside Money for Malpractice Insurance to Compensate Injured Patients
The collapse of Prospect Medical, a for-profit hospital chain plundered by private equity and the company’s management, has generated a painful litany of woes.
Amid a debt-fueled acquisition spree that saw the small California company grow to 17 hospitals in six states, Prospect was repeatedly cited for dangerous medical care, poor infection control and unsanitary facilities. The company stiffed state and local governments on more than $135 million in taxes and didn’t pay vendors for equipment, services and supplies. It shuttered four safety-net hospitals in a Philadelphia suburb that it had promised to keep open, laying off thousands.
Now, more than a year after the company filed for bankruptcy in January 2025, a new layer of harm has emerged: Prospect had promised to provide malpractice coverage for its hospitals and many of its doctors, but court filings show it set aside no money to pay those costs — or to compensate injured patients.
As a result, hundreds of people with pending malpractice cases against the company may never have a shot at meaningful redress.
One of them is Pamela Dorn. The lawsuit she filed against Prospect in 2024 has stalled, and it’s now doubtful she’ll ever be able to hold the company accountable for the negligent care she says it provided her husband.
Bob Dorn, 75, suffered from such severe dementia that he couldn’t chew and was on a liquid diet. But when he became aggressive in March 2022 and was taken to Prospect’s emergency room in Waterbury, Connecticut, the medical staff sedated him, then left him unattended with a meal of macaroni and cheese and broccoli, according to Dorn’s lawsuit and an interview with her. Hospital staff later found her husband choking and struggling to breathe. He was intubated and taken to the intensive care unit but never regained consciousness. His death certificate said he died from asphyxia due to food blocking his airway.
“I didn’t want the same thing to happen to somebody else,” Dorn said, explaining why she filed the case. “How a hospital system operates without malpractice insurance is beyond me. It’s irresponsible.” (In court filings, attorneys for Prospect and the ER doctors have denied the negligence allegations.)
Compounding the shock for plaintiffs like Dorn, as well as former Prospect doctors and their lawyers, is that Prospect wasn’t legally obligated to prove it could actually pay its malpractice costs.
Like a growing number of health care companies, Prospect had saved money by “self-insuring” against these claims. Instead of paying premiums to a commercial insurer, the company pledged to pay directly for the legal defense of its facilities and doctors and to cover negotiated settlements or trial awards up to certain amounts — for many cases, up to $7.5 million.
States typically require commercial insurers to file audited statements showing they’ve set aside sufficient funds for malpractice obligations and to contribute to a guaranty fund that pays a portion of claims if an insurer goes belly-up.
But there’s little oversight — and no safety-net fund to tap — when companies self-insure. The problem has also surfaced in the bankruptcies of two other private-equity-backed health care companies, the Steward hospital chain and Genesis HealthCare, once the nation’s largest nursing home company. (Genesis agreed to at least 155 malpractice settlements totalling $58 million but filed for bankruptcy before paying most plaintiffs, KFF Health News reported. The company denied wrongdoing.)
“It seems like a gaping hole,” said Connecticut Rep. Cristin McCarthy Vahey, who co-chairs the state legislature’s public health committee. She called Prospect’s lack of coverage “awful, devastating and infuriating. … What has happened with Prospect is like peeling an onion. The more we peel, the more we cry.”
In emailed responses to questions from ProPublica, insurance regulators in Connecticut, Rhode Island and Pennsylvania said they are troubled by the harm caused by Prospect’s failure to fund malpractice coverage, a problem they hadn’t encountered before. All said they have limited authority to regulate companies that self-insure.
In Connecticut, where Prospect owned three hospitals, a spokesperson for the insurance department wrote that state law allows health systems “to meet malpractice obligations through self-insured options” and the agency has no responsibility for “solvency oversight.” Prospect also owned insurance subsidiaries that provided some coverage for its hospitals. But they were headquartered in Vermont and offshore, in the Cayman Islands — which is legal but puts them beyond Pennsylvania’s reach, a spokesperson for the state’s insurance department said.
Rhode Island requires hospital companies to receive formal approval to self-insure and to submit financial information annually to regulators, but a spokesperson for the state Department of Business Regulation acknowledged Prospect had filed no such documents since 2019, despite self-insuring until 2025 when it filed for bankruptcy. Agency records show the state has taken no action against the company. (Open investigations are confidential, and the spokesperson said he could not comment on whether one is underway.)
Connecticut plaintiff attorney Mike D’Amico, who represents Dorn, has been handling malpractice cases for four decades. The Prospect situation is “a disaster” and “something I’ve never seen before,” he said. “You have a lot of people that have been harmed by negligent conduct that have no recourse.”
Prospect, which ProPublica reported on in 2020, has become a case study on the public harms that can stem from private equity’s growing involvement in health care. In the decade after Leonard Green & Partners bought majority control of Prospect in 2010, the firm and the company’s founders, Sam Lee and David Topper, together extracted $658 million in fees and dividends for themselves and other investors, according to Securities and Exchange Commission filings and financial statements. This starved the business of money for staffing, maintenance and critical supplies while loading it up with debt.
Unable to find an outside buyer for the now financially decimated company, Leonard Green finally sold its majority stake back to Lee and Topper in 2021. Prospect’s January 2025 bankruptcy filing came just four days after the release of a bipartisan U.S. Senate Budget Committee investigation into how private-equity ownership affects care. Titled “Profits Over Patients,” the report offered a harsh verdict on Prospect, saying its “primary focus was on financial goals rather than quality of care at their hospitals,” and that it had caused “the collapse of critical health care services in the communities it served.” Prospect, which has denied any misconduct or negligent care, has now sold or closed all of its hospitals.
Leonard Green, which disputed the Senate report’s conclusions, declined to respond to questions from ProPublica. Lee, estimated to have personally received $128 million from the company, could not be reached for comment; an attorney who previously represented him did not respond to a call and email. Topper, who received $94 million from Prospect through a family trust, responded to questions posed by a reporter in a brief phone conversation with “no comment.”
Prospect’s bankruptcy filing placed an automatic hold on more than 300 lawsuits filed against the company, seeking a total of more than $800 million in damages, according to bankruptcy court filings. Some of the malpractice cases awaiting resolution were near settlement or scheduled to go to trial when the hold began. Many alleged egregious harms, including wrongful deaths or debilitating injuries requiring costly care.
The widower of a 39-year-old physician sued the company in state court in Hartford, Connecticut, in 2022, alleging his wife died from negligent care following an emergency cesarean section at the Prospect hospital where she worked. Parents of a 10-month-old boy filed suit in state court in Philadelphia in 2023, claiming he’d required multiple operations (and eventually removal of his esophagus) after ER doctors failed to conduct tests revealing that he’d swallowed a button battery. A 2019 Pennsylvania case claimed a man’s bowel was perforated during a hernia repair, triggering life-threatening complications that required five more surgeries. In court filings in each of these cases, Prospect, its hospitals and its doctors denied the allegations of malpractice, negligence or wrongful death.
The insurance chaos began to surface in late October, after the Texas judge presiding over Prospect’s bankruptcy lifted the initial litigation hold. Her move followed failed efforts to persuade private insurers responsible for covering awards in excess of what Prospect’s self-insurance provided to kick in money for mediated settlements. The private insurers’ reasoning, according to bankruptcy court filings: their “reinsurance” contracts required them to pay only in cases where Prospect had already paid its entire share, similar to an auto insurance deductible.
In Connecticut and Rhode Island, Prospect had promised to pay $7.5 million for each lawsuit before any outside coverage kicked in. In Pennsylvania, Prospect relied on another form of self-insurance: a Vermont-based insurance subsidiary. That business was supposed to pay the first $500,000 of Pennsylvania malpractice costs, but it appears Prospect underfunded the subsidiary. (By exactly how much remains unclear.) Complicating matters further: For Pennsylvania cases filed after October 2020, the subsidiary wasn’t required to contribute until after Prospect had covered the first $250,000.
There are similar problems in California, where Prospect sold its six hospitals in the bankruptcy proceedings to a new for-profit company. Los Angeles attorney Judith Tishkoff, whose firm has represented Prospect for years, last week filed to withdraw from seven malpractice cases, saying Prospect’s general counsel has told her there is no insurance coverage and no money to pay any defense costs or legal fees.
Even those who win court awards or settlements against Prospect seem destined to be treated as unsecured claims in the company’s bankruptcy. Like vendors with unpaid bills for hospital linens and bandages, they’re likely to receive just pennies on the dollar, bankruptcy lawyers told ProPublica. Some plaintiffs lawyers, who get paid on a contingency basis, say they’re declining to take on new malpractice cases involving Prospect, given the difficulty of obtaining any recovery.
Pennsylvania attorney Leonard Sloane is among them. “It’s a gamble to take on a new case,” said Sloane. “To pursue one of these claims is very expensive. There’s gotta be something at the end, otherwise what’s the sense of pursuing on behalf of a client who gets nothing?” Sloane represents the survivors of a 67-year-old woman who died in 2022 after a Prospect surgeon performing a partial lung removal mistakenly cut a pulmonary vein, leading to a cascade of complications. The doctor acknowledged in medical records that he’d made “a technical mistake,” but the lawyer representing him and Prospect has moved to throw out claims for punitive damages, denying his actions met the legal standard of “recklessness.” Sloane, who has been practicing for 50 years, believes the family’s case is strong, “but if there’s no coverage, that’s the end.”
Prospect promised the doctors it employed malpractice coverage, but those facing lawsuits have learned they may have to foot hundreds of thousands in legal costs personally, plus any settlements or court awards.
Dr. John Horan, 69, is a family physician in Rhode Island who has been practicing medicine for 41 years. He sold his practice to Prospect in 2016 and worked for the company until 2022. That year, the family of a patient who died filed a lawsuit blaming him for failing to diagnose her lung cancer. Horan denies he’s at fault. In December 2025, Horan’s lawyer told him Prospect was refusing to defend him or pay any of his costs. “I was nauseous for the next month,” he told ProPublica. Horan and his wife have met with a bankruptcy lawyer.
Paul Galamaga, Horan’s defense attorney, said he was handling 10 Prospect-related cases in Rhode Island when the company filed for bankruptcy. Prospect owes him about $183,000. He’s won court approval to withdraw from seven of the lawsuits but continues to represent Horan and two other physicians, who he says will now have to pay him personally. “There’s no money to pay me or defend any of the doctors,” Galamaga said.
Some defense lawyers have sought to reimpose a freeze on proceedings, citing the uncertainty about Prospect’s ability to pay. In Pennsylvania, attorney Ben Post, whose firm is listed in court filings as defense counsel in 16 Prospect malpractice lawsuits, filed motions late last year seeking to clamp a stay on several malpractice cases. If he didn’t get it, he said, he’d have “no choice” but to withdraw.
In response to one such filing, plaintiffs attorney Francis Curran wrote that his 83-year-old client had been seeking redress for her husband’s death for nine years. “With each additional delay,” he said, “it becomes less and less likely that Plaintiff will receive just compensation during her lifetime.” (Although one of Post’s stay requests has already been denied, a lawyer his firm has retained to help navigate the insurance uncertainty said Post has no immediate plans to withdraw from any cases.)
In February, the Rhode Island legislature approved an $18 million emergency loan guarantee to assure the long-delayed sale of Prospect’s two struggling Providence-area hospitals, Our Lady of Fatima and Roger Williams Medical Center, to a Georgia-based nonprofit. Rep. Charlene Lima took to the floor to talk about the risk to local physicians left without promised malpractice coverage, warning that it could force them into bankruptcy and worsen the shortage of primary care doctors in Rhode Island.
“The state shares culpability in this situation,” Lima said in an interview, adding that she’d support regulations to ensure this doesn’t happen again. “We weren’t looking at this or regulating this. It’s like nobody was watching the henhouse except the foxes maybe.”
The harms of porous insurance oversight have also surfaced in the bankruptcy of Steward Health Care, an even larger hospital chain bankrolled by private equity.
Backed by giant Cerberus Capital Management in 2010, Steward grew to 37 hospitals over a decade. In 2021, Cerberus exited the investment with a reported $800 million in profits, while Steward CEO Ralph de la Torre, a former heart surgeon who reaped more than $250 million from the company, bought himself a $40 million yacht. Three years later, Steward filed for bankruptcy, owing hundreds of millions to vendors and employees and facing accusations of fraud and abysmal patient care.
(Cerberus declined to respond to questions from ProPublica, instead pointing to a public statement in which it said Steward’s problems “appear to be overwhelmingly related to the post-Cerberus ownership period.” A spokesperson for de la Torre, who led the ownership group until he resigned in late 2024, said he “firmly disputes” the allegations against him, “including claims of greed and bad-faith misconduct,” and intends to “vigorously defend himself against them.”)
To cover its malpractice costs, Steward operated a self-insurance subsidiary, called TRACO, which it had relocated to Panama, where it faced little regulatory oversight. According to a Boston Globe investigation, instead of setting aside adequate reserves, Steward treated TRACO like “a piggy bank,” siphoning out hundreds of millions to pay operating costs and buy more hospitals. By 2024, when Steward went bankrupt, TRACO had just $3.5 million left to defend and pay for more than 500 malpractice lawsuits, according to documents cited by the Globe.
Last year, a malpractice case brought against a Steward hospital outside Salt Lake City went before a Utah state judge. It involved allegations that a 19-year-old pregnant woman’s delivery was botched by inexperienced, ill-trained nurses. According to medical records and court testimony, they gave her overdoses of the labor-inducing drug Pitocin, starving her baby of blood and oxygen, then ignored fetal monitoring that signaled distress while an on-call doctor dozed in a room nearby. The baby suffered brain damage that has left her largely unable to speak. She is likely to remain disabled for life.
Steward’s defense lawyers had withdrawn after the company stopped paying and communicating with them, leaving the family and its expert witnesses to present their case. In an emotional 42-minute discourse from the bench, Judge Patrick Corum said what had happened “literally took my breath away.” The family “would have been better off delivering this baby in the bathroom of a gas station, or in a hut somewhere in Africa, than in this hospital,” he declared. In October, he awarded the family $543.2 million in damages, one of the biggest malpractice awards in Utah’s history.
The injured child is now 6 and requires costly care. But because TRACO has no money — and Steward’s “excess” insurers are refusing to step in because TRACO hasn’t paid its share — it’s unclear when, or whether, the family will get anything. David Creasy, the family’s attorney, said the battle to resolve the matter could take years. “We’ve got to be able to find some way to get them the money they need to take care of her,” he said in an interview. “There was absolutely no oversight of TRACO.”
The Steward and Prospect bankruptcies make clear “this is a national issue,” said Stacy Paterno, CEO of the Rhode Island Medical Society. Paterno said she has begun convening regular meetings with her counterparts from a half-dozen states where Prospect and Steward operated hospitals about the risks posed by unregulated self-insurance plans, both to doctors and injured patients.
Steward’s creditors are trying to claw back money from the company’s former leaders. In November, a Steward creditors committee filed a 178-page lawsuit against former CEO de la Torre and more than a dozen other individuals and corporate entities that details the company’s alleged plundering of TRACO’s insurance reserves. The complaint does not name Cerberus as a defendant but suggests Cerberus may be a future target of the creditors’ “ongoing” investigation. (In court filings, de la Torre and other Steward defendants have denied the creditor lawsuit’s allegations.)
Prospect’s creditors are poised to launch a similar effort. The bankruptcy court has approved $10 million to pursue legal claims against former Prospect principals, with Leonard Green and Prospect’s former top executives, Lee and Topper, as the big targets. “We really do believe there are potentially hundreds of millions” that can be recouped from those who “may have contributed to the downfall of this company,” Charles Persons, an attorney for the unsecured creditors committee, told the judge at a Dec. 12 court hearing.
It’s unclear how much might be recovered, but it would likely be a fraction of what the company owes, and malpractice victims would share these funds with thousands of other unsecured creditors.
“The folks who have the lawsuits,” said D’Amico, the lawyer representing Dorn, “essentially go to the bottom of the barrel.”
The post For-Profit Hospital Chain Never Put Aside Money for Malpractice Insurance to Compensate Injured Patients appeared first on ProPublica.
Comments
Post a Comment