A Los Angeles-based company that owns more than a dozen hospitals in four states filed for bankruptcy late Saturday night, the second major system acquired by private equity to collapse in less than a year. In an initial filing seeking Chapter 11 protections, Prospect Medical Holdings, which owns facilities in California, Pennsylvania, Rhode Island, and Connecticut, listed debts of more than $400 million. In a press release announcing its restructuring, the company said it would continue to operate as normal.
Hospital operator Prospect Medical Holdings, a large tenant of the biggest hospital landlord in the U.S., is working with restructuring advisers to explore options to address its financial challenges, according to people familiar with the company. The closely held hospital chain with facilities in states including California, Pennsylvania, Rhode Island and Connecticut has struggled financially for years and recently skipped rent payments owed to landlord Medical Properties Trust, a publicly traded healthcare real-estate investment trust. Prospect faces pressure from regulators in several states over its financial troubles and the deteriorating conditions at its facilities.
The Pennant Group has completed its acquisition of Signature Healthcare at Home assets in Oregon, following the earlier purchase of Signature's Idaho and Washington assets on August 1, 2024. The Oregon acquisition, finalized this month, includes seven locations across the state, complementing Pennant's existing presence in Portland and Grant's Pass.
Donald Trump's election win prompted even more bullishness in a stock market that was already up significantly for the year. For healthcare investors, though, it represented yet another reason to dump some stock. Trump's appointment of industry skeptics like Robert F. Kennedy Jr., alongside broader expectations of a Republican crackdown on programs like Medicaid and Obamacare, has prompted a selloff in everything from hospitals to pharmaceuticals, health insurers and biotech.
The election jitters exacerbated what had already been a tough period for the industry. In 2023, healthcare underperformed the S&P 500 by about 22 percentage points, so many believed that 2024 would be a bounce-back year. Instead, history repeated itself, with yet another 20-percentage-point underperformance for healthcare. That created a valuation gap that looks like a historic aberration: The Health Care Select Sector ETF is trading at a more than 20% discount to the S&P 500 based on their forward earnings multiples, far larger than the average 5% discount seen over the past two decades, according to FactSet.
The market bearishness is partly due to financial fundamentals. At a time when the U.S. economy is on solid footing and tech companies are riding high on the AI frenzy, most healthcare subsectors seem to be caught in a negative earnings-revision cycle, writes Asad Haider, a healthcare equity strategist at Goldman Sachs. The reasons are idiosyncratic. For health insurers, it was due to higher-than-expected postpandemic costs as people returned in droves to hospitals and doctors. For pharma, some of the profitability issues have stemmed from higher acquisition-related charges as the industry seeks to make up for low growth with dealmaking. But the bottom line is that in a red-hot market, healthcare simply isn’t where investors want to be. Since the start of 2023, Goldman data shows healthcare with the second-biggest outflows among S&P 500 sector ETFs, behind energy.
Massachusetts State Auditor Diana DiZoglio's office says there is a "direct correlation" between inaction by the state's Center for Health Information and Analysis and the closing of hospitals. The routine audit of the agency, founded by the legislature in 2012 and known as CHIA, covered the two-year period ending June 30, 2023. The auditor's office adds, the agency failed to collect financial information or assess up to $1.6 million in fines.
Rochester-based hospital says Sanford’s misrepresentations have stuck the clinic with the bills; Sanford counters that Mayo is “looking to shift blame for its mistakes.”