The Crozer Health Deal: Another Private Equity Misadventure
The tale of Crozer Health is yet another disappointing chapter in the expanding book of private equity (PE) blunders. As with many other distressed acquisitions, it illustrates how PE firms can take faltering enterprises, piling on layers of debt, and eventually pave the way for operational and financial catastrophe.
Irregular Heartbeat: Painted as a Savior
Prospect Medical Holdings, a PE-backed firm, acquired Crozer Health, a struggling health system in Philadelphia, in 2016. The health system had been hemorrhaging cash, and a fresh influx of funds from Prospect was painted unavoidably as a lifeline. Ring a familiar bell? Typically, private equity acquisitions are framed as benevolent interventions aimed at revitalizing struggling entities. But how did that pan out for Crozer Health?
The Prognosis: Economic Sleight of Hand
While the political and financial environments surrounding healthcare are complex, the financial engineering carried out by Prospect Medical is straightforward enough. Post-acquisition, Prospect did what most PE firms do – repackaged and reloaded the entity with even higher amounts of debt.
Prospect’s surgical operation included a series of financial maneuvers, such as paying itself hefty dividends financed by borrowed money. This left Crozer Health just as, if not more financially vulnerable than before, handicapped by mounting debt service obligations. Profitability was expected to materialize from a series of cost-cutting measures – a classic PE thumb rule.
Flatline: The Outcome of Privatization
Fast forwarding to today’s reality, Crozer Health is seemingly on life-support. Staff layoffs, quality of care concerns, long ER wait times, and a general drop in morale among the hospital’s staff highlight the dire state of affairs. This is notably in stark contrast to Prospect’s rosy financial outlook painted when the deal was sealed.
The Symptoms: Failure at Recovery
Crozer Health’s employees paid a heavy price for the financial gamesmanship played by Prospect Medical. The cost-cutting measures included significant reductions in staffing levels, tarnishing not only employee wages and morale but patient care as well.
A Diagnosis: The Usual Suspect
While it’s tempting to lay all blame at the feet of Prospect Medical, they’re only a manifestation of the financialized approach that’s pervaded the healthcare industry. PE firms have a single-minded focus on returns, often at the expense of the broader ecosystem they inhabit. Evidently, this approach seldom works well for hospitals or caregivers.
Prescription: Facing the Reality
Crozer Health’s tale sounds a deafening alert about the unpredictability and oft-declared injustice of private equity acquisitions in healthcare. Patient care and employee welfare need to be prioritized. Empathy and sustainable business practices must take precedence over spreadsheet-driven short-termism.
It’s time we quit seeing private equity’s incursion into healthcare as a white knight’s arrival. The repetitious story of staff cuts, increased debt, and ensuing chaos is a cautionary tale that we must heed, for the sake of our healthcare system and the society it serves.