Private equity-funded Prospect Medical Holdings in California, the owner of three financially troubled hospitals in Connecticut, filed for bankruptcy late Saturday night. The bankruptcy impacts Waterbury Hospital, Manchester Memorial Hospital and Rockville General Hospital.
The filing could complicate an already messy legal battle between Yale New Haven Health (YNHH) and Prospect. The two are at odds over a proposed $435 million sale of the three hospitals to YNHH.
Lawmakers and advocates are closely watching the bankruptcy filing, expressing concern about the growing role of private equity in health care and its impact on local hospitals.
“The news of Prospect Medical Holdings declaring bankruptcy is both disturbing and deeply disappointing,” said State Sen. Saud Anwar, chair of the state’s Public Health Committee. “It sends ripples of uncertainty through the three hospitals affected, as well as the communities and families who rely on these institutions.”
Gov. Ned Lamont spoke about the bankruptcy proceedings Monday and said the hopsitals will remain open as the bankruptcy filing makes it ways through the courts.
Across Waterbury and its surrounding towns, about 400,000 people depend on Waterbury Hospital, said Mayor Paul K. Pernerewski.
"The news of the Chapter 11 bankruptcy is deeply concerning," Pernerewski said. "But I want to reassure the residents of Waterbury, and the surrouding region, that we're working tirelessly to ensure that Waterbury Hospital remains open and continues to provide the high quality care that our community has come to depend on."
‘Part of a trend’
In 2023, private equity-backed companies accounted for 21% of all health care bankruptcies, according to the nonprofit Private Equity Stakeholder Project (PESP). The bankruptcies included physician staffing and practice management companies, hospitals and behavioral health organizations.
In the first six months of 2024, nine private equity-owned health care companies, including Steward Health Care in neighboring Massachusetts, declared bankruptcy. That accounted for nearly a quarter of all health care bankruptcies in the U.S., PESP data showed.
“Prospect and Steward are not outliers, they are part of a trend in which over-leveraged private equity-owned health care companies are going under, with long lasting impacts on our nation’s health care infrastructure,” said Mary Bugbee, research director of health care at PESP.
In a statement, Prospect said the bankruptcy proceedings were to expedite the sale of two of its hospitals, the Roger Williams Medical Center and Our Lady of Fatima Medical Center in Rhode Island.
The company says it is also negotiating the sale of Crozer-Chester Medical Center in Pennsylvania.
“Divesting our operations outside of California will ensure that they receive necessary financial support so that the communities that rely on those facilities will maintain continued access,” Von Crockett, CEO of Prospect, said.
An already messy deal just got even messier
As Prospect remains embroiled in its stalled $435 million sale of Waterbury Hospital, Manchester Memorial Hospital and Rockville General Hospital, news of the bankruptcy proceedings could complicate those sales.
“Prospect’s decision to file for bankruptcy is much larger than just the state of Connecticut – this is a national matter and of grave concern to many hospitals around the country,” Yale said in a statement. “Yale New Haven Health raised the alarm about this inevitability in the lawsuit we filed last year, recognizing Prospect’s lack of investment and mismanagement of the Connecticut Prospect hospitals.”
YNHH said the situation was worsened by what it said was Prospect’s “lack of payment to the pension plans and growing debt to the state, local governments and vendors,” issues it said have come up in lawsuits filed against Prospect in other states.
Bugbee said the three Prospect-owned hospitals would need a well-capitalized buyer to step in if they are to remain open in the long term.
“It is possible Yale will try to purchase the hospitals out of bankruptcy, but I can only speculate,” she said.
One other key complicating factor in the sale? The global real estate firm Medical Properties Trust (MPT), which owns the three hospitals’ real estate and “will likely complicate any sales of the hospitals out of bankruptcy, similar to ... Steward [in Massachusetts],” Bugbee said.
As Connecticut Public has reported, landlord concerns can play a role in hospital purchase agreements.
“Many buyers are disinterested in purchasing hospitals with high rents, so unless MPT agrees to lower the leases or to sell the real estate at a fair market value, this could deter potential buyers,” Bugbee said.
Lawmakers pledge ‘to hold Prospect accountable’
Sen. Anwar said Gov. Ned Lamont and Connecticut Attorney General William Tong and state legislators are “in close contact with Prospect Medical Holdings' leadership to address this situation with urgency and clarity.”
Tong said he was disappointed that Prospect has decided to file for bankruptcy, but “this changes nothing with regards to their obligations to patient care and safety” and that he intends “to actively participate in the proceeding to protect the interests of the state, Prospect’s patients, employees, and the communities that rely on its services.”
The bankruptcy filing comes following a recent U.S. Senate committee investigation that blasted Prospect for draining the hospitals of finances and saddling them with debt. U.S. Sen Richard Blumenthal of Connecticut said Prospect had turned the hospitals into its “personal piggy banks.”
The Senate report cited Connecticut Public’s reporting on staffing shortages at Waterbury Hospital. Connecticut Public also reported on patient abuse, rusty operating room equipment, and unpaid bills at Prospect-owned hospitals. Prospect said it put corrective actions in place after being cited by the state and has since passed subsequent state inspections.
“The administration has been preparing for the possibility that Prospect Medical Holdings would file for Chapter 11 bankruptcy,” Gov. Ned Lamont said in a statement, noting the group’s three Connecticut hospitals “remain open, and we will continue to hold Prospect accountable to provide quality care to the communities that rely on these institutions.”
This story has been updated.
