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. Bob and Pamela Dorn in their kitchen in Connecticut in 2021, a year before his death Courtesy Pamela Dorn
“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. |
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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. 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.) |
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