--:-- Ryan Knutson: 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 Gramercy 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.ly slash journallive25. You can find the link in our show notes. Again, we'll be at 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 journallive25 to get your tickets. We hope to see you there.
--:-- Ryan Knutson: 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, 38 percent or so of people are on Medicaid.
--:-- Soma Biswas: That's Shane Wheeler, who runs VSMC Emergency Medical Services, a nonprofit in the area. The disease rate there is insane. It's a rough, it's a really, really bad place with regards to health care.
--:-- Ryan Knutson: 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 class of preventative care. They've lost their primary care physicians, their asthma doctors. They were really invested in the health system that collapsed.
--:-- Soma Biswas: 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.
--:-- Ryan Knutson: Private equity investors are siphoning millions of dollars away from community hospitals. When the Private Equity Back Network filed for bankruptcy last year, it devastated providers and patients. And for Chester City, the impact has been monumental.
--:-- Ryan Knutson: 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 healthcare and the dire consequences for one community. This episode is brought to you by State Farm. Checking off the boxes on your to-do list is a great feeling. And when it comes to checking off coverage, a State Farm agent can help you choose an option that's right for you.
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--:-- Ryan Knutson: The events that led to the healthcare 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.
--:-- Soma Biswas: 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 nonprofit 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.
--:-- Ryan Knutson: With all the hospitals under one holding company, Leonard Green was able to start taking dividends for investors. And those dividends paid out. Between 2012 and 2018, Leonard Green's 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.
--:-- Soma Biswas: 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.
--:-- Ryan Knutson: To make ends meet, Prospect sold the land the hospital was built on. What they did is they reached a 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.
--:-- Ryan Knutson: 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.
--:-- Ryan Knutson: Representatives for Leonard Green also said that their buyout of Prospect helped 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.
--:-- Ryan Knutson: Near the end of the year Prospect 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.
--:-- Ryan Knutson: 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 Prospect's 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.
--:-- Ryan Knutson: 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 a particularly sharp increase for one of the school districts in the county.
--:-- Ryan Knutson: In other words, the community was left holding the bag. That's next.
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--:-- Ryan Knutson: Tuesday on NBC. Jimmy Fallon and Bozema St. John host the highly anticipated new competition show. I hire 10 creatives from all walks of life. They will be battling it out to see who can impress the world's biggest brands. This is a huge opportunity. This is the battle for the next big idea. This is not play play. We're spending millions of dollars. I'm so excited to embark on this adventure with all of you. May the best idea win! On brand with Jimmy Fallon. Series premiere Tuesday on NBC.
--:-- Ryan Knutson: 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.
--:-- Ryan Knutson: That's where Shane Wheeler comes in. He's the guy who runs VSMC, the nonprofit emergency medical service.
--:-- Shane Wheeler: 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, they didn't care. And we wanted to, that's why we're there.
--:-- Ryan Knutson: 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 like cuts and scrapes, coughs and colds. Sometimes, Shane says, his team responds to patients trying to get their prescriptions refilled.
--:-- Shane Wheeler: 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 now starting to feel some of this stuff So I having problems with my blood pressure you know or I can get a doctor appointment for a year Wow Right Literally Am I taking my medication correctly? You know, 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.
--:-- Ryan Knutson: 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?
--:-- Shane Wheeler: 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 percent 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 pay for treatment in place.
--:-- Ryan Knutson: Medicaid and 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.
--:-- Ryan Knutson: 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 services, the state has decided to step in.
--:-- Ryan Knutson: 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.
--:-- Ryan Knutson: 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 healthcare 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 healthcare businesses, it'll require the attorney general to take into account the impact on the community and patient care and not just look at the dollars and cents.
--:-- Ryan Knutson: 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.
--:-- Shane Wheeler: 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?
--:-- Ryan Knutson: 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, the unthinkable happened. 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.
--:-- Ryan Knutson: 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.
