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Prospect Medical Holdings, Inc.
Linda Hodges,
Executive Vice President
(310) 337.4170
linda.hodges@prospectmedical.com

Investor Relations Counsel:
The Equity Group Inc.
Devin Sullivan
(212) 836-9608
dsullivan@equityny.com

FOR IMMEDIATE RELEASE

PROSPECT MEDICAL HOLDINGS REPORTS FISCAL 2005 FOURTH QUARTER AND YEAR-END FINANCIAL RESULTS

2005 Highlights:

• Record Annual Revenues of $133.5 Million
• Q4 FY 2005 Operating Income Increases to $3.5 Million
• Q4 FY 2005 Net Income Rises to $1.0 Million, or $0.13 Per Diluted Share
• Sets aside record physician bonuses

Culver City, CA— December 27, 2005— Prospect Medical Holdings, Inc. (AMEX: PZZ) ("Prospect Medical" or "Prospect"), which manages the medical care of individuals enrolled in managed care (HMO) plans in Southern California, today announced financial results for its fiscal 2005 fourth quarter and year ended September 30, 2005 (see attached tables).

Total operating revenue for the fourth quarter of fiscal 2005 rose to $35.5 million, from $35.0 million in the same period last year, including approximately $4 million of additional calendar year 2005 rate increases under Medicare's revised reimbursement methodology.

Medicare is at the mid-point of a four year phase-in to a new "Risk Adjusted" methodology of paying for the healthcare of America's seniors. Under Risk Adjustment, companies caring for seniors with conditions requiring more services will receive additional compensation. As of September 30, 2005, Prospect managed the care for approximately 12,500 seniors.

Gross margin for the fourth quarter of fiscal 2005 improved to 29.4% from 22.1% in the same period last year, due primarily to the increased Medicare reimbursement discussed above, and decreased capitation and claims expense, resulting in an improved medical loss ratio ("MLR"). These margin and MLR improvements were partially offset by approximately $2.2 million of physician bonuses recorded during the 2005 quarter.

Operating income increased 108% to $3.5 million from $1.7 million in the same period last year, reflecting the improved gross margin discussed above, recovery of approximately $500,000 in transaction costs upon the September 1, 2005 closing of Prospect's minority investment in Brotman Medical Center ("Brotman"), and approximately $600,000 resulting from the favorable conclusion of a longstanding legal matter.

Net income for the fourth quarter of fiscal 2005 improved to $1.0 million, or $0.13 per diluted share, on approximately 8.0 million diluted shares outstanding ("shares outstanding"), from net income of $908,000, or $0.11 per diluted share, in the fourth quarter of fiscal 2004, on approximately 8.4 million shares outstanding. Net income for the fourth quarter of fiscal 2005 included a $1.0 million charge related to Prospect's investment in Brotman. Prospect does not have any exposure to future losses at Brotman.

Dr. Jack Terner, Chairman and Chief Executive Officer of Prospect Medical, commented, "We are very pleased with our results for this quarter, improving earnings per share over the same quarter last year, as well as over our June 30 quarter. These 2005 results are especially gratifying in that they were achieved after setting aside almost $3 million in annual bonuses for our physician partners that provided the most and best care to our members. Fiscal 2005 was a very important year for Prospect on a number of other strategic fronts; we completed our transformation to a public company, listed our shares on the American Stock Exchange, completed the integration of our prior year acquisitions of the ProCare, StarCare and Northwest Orange County operations, finalized a potentially strategic investment in Brotman, increased our emphasis on the lucrative Medicare market, and continued to invest in our operating infrastructure to accommodate our next series of acquisitions. In that regard, we have already finalized the key Genesis Healthcare acquisition, and are in discussion with several other acquisition targets that would further strengthen our presence in the region."

Dr. Terner continued, "In addition to the positive impact we believe the revised Medicare Risk Adjustment approach will have on operating results going forward, we continue to focus on other Medicare-related initiatives. Our potentially strategic investment in Brotman Medical Center was made to enable Prospect to offer our HMO partners a full-risk Medicare product in the large West Los Angeles market. In another of our key markets - Orange County, California - we have been approved to participate in the County's One Care program, which is a managed care program for the approximately 50,000 individuals who qualify for both Medicare and Medi-Cal benefits ("Medi-Medis"). Revenue from those Medi-Medis choosing, or assigned to, Prospect's contracted physicians will begin in January 2006."

Dr. Terner concluded, "We believe that these Medicare developments (Risk Adjustment, Brotman and Medi-Medi) provide us an opportunity to increase our presence and enhance our operating profitability, while the industry's increasing barriers to entry further insulate us from significant new competition. We look forward to fiscal 2006 with confidence and optimism."

FINANCIAL POSITION

Prospect's balance sheet at September 30, 2005 included cash and investments of $18.0 million and shareholders' equity of $26.9 million, or $3.18 per diluted share. Prospect had $8.2 million outstanding on its $10 million term facility, and had not utilized any portion of its $5 million revolving credit facility.

FISCAL 2005 RESULTS

Revenues for fiscal 2005 increased to $133.5 million from $129.5 million in fiscal 2004. In addition to the reasons discussed above, fiscal 2005 revenues included almost $1.2 million in hospital risk pool revenue resulting from better hospital contracting and utilization programs in fiscal 2005. Hospital risk pool revenue for 2004 was negligible.

Gross margin for the year improved to 27.8% from 25.9% last year, due primarily to the reasons cited above. For those same reasons, operating income for fiscal 2005 rose to $9.1 million, from $8.7 million last year.

Net income for fiscal 2005 was $4.1 million, or $0.48 per diluted share, on approximately 8.5 million shares outstanding, inclusive of the $1.0 million Brotman investment charge, increased physician bonus expense and increased interest on our new credit facility used, in part, to fund the November 2005 Genesis HealthCare acquisition. Net income for fiscal 2004 was $5.1 million, or $0.68 per diluted share, on approximately 7.5 million shares outstanding.

ABOUT THE COMPANY

Prospect Medical Holdings, Inc. is a health care management services organization that provides management services primarily to its affiliated IPAs. IPAs are professional corporations that contract with independent physicians and other health care providers to create a medical panel of primary care and specialist physicians, and other health care service providers, capable of providing the full range of medical services to individuals enrolled in health maintenance organization ("HMO") managed care health plans. At September 30, 2005, Prospect's 10 IPAs were comprised of approximately 9,000 primary care and specialist physicians serving approximately 172,000 HMO enrollees.

This press release contains forward-looking statements. Additional written or oral forward-looking statements may be made by the Company from time to time, in filings with the Securities and Exchange Commission, or otherwise. Statements contained herein that are not historical facts are forward-looking statements. Investors are cautioned that forward-looking statements, including the statements regarding anticipated or expected results, and the future introduction of new products, involve risks and uncertainties which may affect the Company's business and prospects, including those outlined in the Company's Form 10-K filed on December 27, 2005. Any forward-looking statements contained in this press release represent our estimates only as of the date hereof, or as of such earlier dates as are indicated, and should not be relied upon as representing our estimates as of any subsequent date. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our estimates change.

Prospect Medical Holdings, Inc.
Condensed Consolidated Statements of Income

Prospect Medical Holdings, Inc.
Condensed Consolidated Balance Sheets
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