Prospect Medical Holdings, a for-profit hospital chain that filed for bankruptcy in January 2025, never set aside money to pay malpractice claims or compensate injured patients, according to court filings. The revelation adds another layer of harm to the company's collapse, which already included shuttered safety-net hospitals, unpaid taxes exceeding $135 million and citations for dangerous medical care.
The company operated 17 hospitals across six states after a debt-fueled acquisition spree. In bankruptcy proceedings, plaintiffs' attorneys discovered that Prospect had promised to provide malpractice coverage for its hospitals and doctors but had funded no reserves to pay those obligations. Hundreds of pending malpractice cases may now go uncompensated.
One such case belongs to Pamela Dorn, who sued Prospect in 2024 after her husband Bob died at a Prospect hospital in Waterbury, Connecticut. According to the lawsuit, Bob Dorn, 75, who suffered from severe dementia, was sedated and left unattended with a meal of macaroni and cheese and broccoli. Hospital staff later found him choking and he was intubated but never regained consciousness. His death certificate listed the cause as asphyxia due to food blocking his airway.
"I didn't want the same thing to happen to somebody else," Dorn said. "How a hospital system operates without malpractice insurance is beyond me. It's irresponsible." Attorneys for Prospect and the emergency room doctors have denied the negligence allegations in court filings.
The case highlights a growing practice in healthcare: companies "self-insuring" against malpractice claims instead of paying premiums to commercial insurers. Under self-insurance, companies pledge to pay directly for legal defense and settlements up to certain amounts — in Prospect's case, often up to $7.5 million per claim.
What the Right Is Saying
Self-insurance is a legitimate business practice used by many healthcare companies to manage costs, and mandating additional reserves could burden hospitals and potentially reduce access to care, according to some business advocates.
Self-insurance allows companies to retain premium savings that would otherwise go to commercial insurers. For healthcare systems operating on thin margins, this can mean the difference between solvency and bankruptcy, supporters argue.
Attorneys for Prospect have denied the negligence allegations in court filings. The company has not responded publicly to questions about its malpractice funding practices.
Some conservative commentators have argued that increased regulatory oversight of self-insurance could constitute government overreach into private business decisions. They note that companies are generally free to structure their finances as they see fit, and that bankruptcy laws provide a framework for addressing creditor claims.
Additionally, defenders of the self-insurance model note that commercial insurance markets can be volatile and expensive, particularly for medical malpractice. Self-insurance provides predictability in budgeting that many healthcare systems find necessary.
What the Left Is Saying
Connecticut Rep. Cristin McCarthy Vahey, who co-chairs the state legislature's public health committee, called Prospect's lack of malpractice coverage "awful, devastating and infuriating."
"What has happened with Prospect is like peeling an onion," McCarthy Vahey said. "The more we peel, the more we cry."
Patient advocates and plaintiff's attorneys argue that self-insurance without mandatory reserves creates a dangerous gap in accountability. When companies can operate hospitals without proving they can pay malpractice claims, they say patients are left with no recourse when negligent care causes harm.
The problem has also surfaced in other private-equity-backed healthcare bankruptcies, including the Steward hospital chain and Genesis HealthCare, once the nation's largest nursing home company. According to KFF Health News, Genesis agreed to at least 155 malpractice settlements totaling $58 million but filed for bankruptcy before paying most plaintiffs.
Advocates say state insurance regulators need stronger authority to oversee self-insured healthcare companies and require proof of financial ability to pay malpractice claims.
What the Numbers Show
Prospect Medical operated 17 hospitals across six states before its January 2025 bankruptcy filing. The company owed state and local governments more than $135 million in unpaid taxes.
The company's malpractice coverage was structured through self-insurance with limits up to $7.5 million per claim for many cases, though no reserves were set aside to pay those obligations.
Prospect's insurance subsidiaries were headquartered in Vermont and offshore in the Cayman Islands, placing them beyond the regulatory reach of states where hospitals operated. Connecticut, Rhode Island and Pennsylvania regulators said they have limited authority over self-insured companies.
In the Genesis HealthCare bankruptcy, the company had agreed to 155 malpractice settlements totaling $58 million but filed for bankruptcy before paying most plaintiffs. The company denied wrongdoing.
The Bottom Line
Prospect Medical's collapse has exposed a gap in patient protection: healthcare companies that self-insure against malpractice claims face little oversight to ensure they can actually pay those obligations. While states require commercial insurers to maintain reserves and contribute to guaranty funds, self-insured companies face no such requirements.
Hundreds of patients with pending malpractice claims against Prospect may never receive compensation. The case has prompted calls for greater regulatory authority over self-insured healthcare companies, though business groups argue such mandates could further strain hospital finances.
Connecticut regulators said they have no responsibility for solvency oversight of self-insured malpractice obligations. Insurance departments in Connecticut, Rhode Island and Pennsylvania said they are troubled by the harm caused but have limited authority to prevent it. Patients like Pamela Dorn, whose husband died after allegedly receiving negligent care, are left with stalled lawsuits and little hope of accountability.