Private equity-funded Prospect Medical Holdings (PMH), the parent company of Waterbury Hospital, Manchester Memorial Hospital, and Rockville General Hospital in Connecticut, filed Chapter 11 bankruptcy proceedings Jan. 11 in the U.S. Bankruptcy Court, Northern District of Texas.
But the California-headquartered Prospect has no operations in Texas, having long since exited the state after shutting down four health care organizations, including a 90-year-old community hospital.
Chris Mattei, a lawyer for the families of the victims killed in the Sandy Hook Elementary School shooting in 2012, said some bankruptcy districts in the country are preferred by debtors.
“One of the things I've learned, and I did not know this before Alex Jones and Infowars filed for bankruptcy [in the Southern District of Texas], the Northern District of Texas and the Southern District of Texas have gained reputations as being preferred venues for debtors of this kind,” Mattei said.
A U.S. Bankruptcy Court judge in the Southern District of Texas stopped the sale of Jones’ platform Infowars to the satire media group The Onion.
On his platform Jones called the Sandy Hook school shooting a hoax, and said the parents were crisis actors, galvanizing his followers to harass the victims, the families alleged.
Mattei said Prospect’s decision is what is commonly known as “forum shopping,” where debtors file in a venue “that doesn't necessarily have the most common sense nexus to the litigation, but expect to gain favorable treatment there.”
The goal of the bankruptcy court is not to ensure that patients are well taken care of, but to ensure that the debtor and the creditors are treated fairly and in a way that maximizes financial value to the creditors. This allows the debtor to come out of bankruptcy as a going concern, Mattei said.
The State of Connecticut is a top creditor. Waterbury Hospital, Manchester Memorial and Rockville General Hospitals owe the state $106.5 million in taxes.
While decisions regarding the allocation of funds will be guided by the bankruptcy court, the primary focus at the three Connecticut hospitals remains on maintaining operations, said Deborah Weymouth, president and CEO of Prospect’s Connecticut hospitals.
“We will work closely with the court to ensure that operational commitments are met and advocate for the best interests of our patients, employees, and communities,” Weymouth said.
Chapter 11 bankruptcy 101: The next steps
Mattei, who is an attorney at Koskoff, Koskoff, & Bieder, laid out the steps in which the Prospect bankruptcy is expected to unfold.
- The first key step was for Prospect Medical Holdings to secure financing. The Court approved that financing, which will allow Prospect and its hospitals to continue operating in the near term.
- Normally, a company entering Chapter 11 would have a restructuring agreement in place that has the support of key stakeholders, including creditors. Prospect entered bankruptcy without a plan or agreement. Its immediate objective will be to develop that plan, or simply start selling off assets on an ad hoc basis.
- Absent a plan, Prospect Medical Holdings is likely to attempt to sell its Connecticut hospitals, with the proceeds of the sale then being used to pay creditors. “I expect that the bankruptcy will hasten negotiations between Yale and Prospect to close on the 2022 purchase agreement,” Mattei said.
- If Prospect Medical Holdings is unable to find a buyer for its Connecticut hospitals, the facilities will close and the tangible property will be sold at the conclusion of the case.
- If there is going to be a sale of the Connecticut hospitals, that would likely happen within months. The larger case may take upwards of a year to wrap up. If there is no buyer for the Connecticut hospitals, then those assets will be liquidated at the conclusion of the case.
