Three community hospitals in Connecticut owned by private equity-funded Prospect Medical Holdings are at risk of closure in the absence of a buyer at bankruptcy court.
The communities surrounding Waterbury Hospital, Manchester Memorial Hospital and Rockville General Hospital in Vernon are at the heart of a deal gone sour as Yale New Haven Health Systems (YNHHS) said Tuesday it was “impossible” to acquire the three hospitals.
“While YNHHS had hoped to acquire these assets and enhance the clinical care for the impacted communities, Prospect’s failure over several years to pay vendors and state and local taxes and to fund their pension obligations have made this transaction impossible,” Dana Marnane of YNHHS said in a statement.
“The bankruptcy filing is proof of their disinvestment and mismanagement,” the statement continued. “Prospect has never been in a position to close the transaction on the terms set out in the October 2022 Asset Purchase Agreement.”
YNHHS said it will “continue to closely monitor the bankruptcy proceedings.”
But the sale was off to a rough start at the very outset, according to Deborah Weymouth, CEO of the three Prospect hospitals. That’s in part due to the state’s certificate of need (CON) process, which she said “required over 400 days to get approval.”
“So the last three-and-a-half years have brought with it the worldwide COVID pandemic, followed by a 41-day cyber event that we went through as an organization,” she said, followed by a lawsuit from YNHHS to back out of the deal, and Prospect counter-suing.
State lawmakers are working to create a process to more quickly approve acquisitions of hospitals that have filed for bankruptcy, according to the Connecticut Mirror.
Since their acquisition by Prospect, the three Connecticut hospitals have been hit by citations for health and safety violations along with a decline in the number of staffed beds.
State inspectors also identified an “immediate jeopardy” finding at Manchester Memorial Hospital for what it said was the hospital failing to provide adequate quality of care to a high-risk pregnant patient. That patient later died, according to a U.S. Senate report.
Meanwhile, Prospect owes the state of Connecticut $106.5 million in taxes.
Timeline of sale gone sour
2016
Prospect purchased Waterbury Hospital and its assets for $31.8 million, and Rockville General Hospital and Manchester Memorial Hospital and its assets for $105 million. The acquisitions included 51 outpatient facilities and clinics.
February 2022
YNHHS signs an agreement to acquire Waterbury Hospital, Manchester Memorial Hospital, and Rockville General Hospital from Prospect Medical, headquartered in California. The hospitals have a combined bed capacity of 708 and 4,300 employees.
October 2022
Purchase price set at $435 million. The three hospitals pay rent to Medical Properties Trust for land they once owned after Prospect sold the hospital land to Medical Properties, a real estate investment trust. Prospect then used that money to pay shareholders.
August 2023
Prospect’s Connecticut hospitals hit by debilitating cyber attack resulting in diversion of patients, cancelation of elective procedures and inability to bill insurers.
April 2024
State approves the sale deal under the terms that YNHHS will invest a minimum of $6 million over three years in mental health and substance use disorder treatment for patients in central western and central eastern Connecticut.
The settlement also requires Prospect to prioritize resolution of its Connecticut debts, including a payment of $55 million in back taxes by the closing date.
May 2024
YNHHS files a lawsuit against Prospect Medical Holdings for breach of contract by defaulting on rent and tax liabilities, allowing its facilities to deteriorate, mismanaging assets and refusing to negotiate in good faith.
June 2024
Prospect countersues YNHHS for backing out of the agreement.
September-October 2024
Connecticut Public obtains public records and reports on patient abuse allegations, rusty operating room equipment, staffing problems and payment delays at Prospect’s Connecticut hospitals. YNHHS alleges that Prospect fails its pension obligations.
January 2025
A U.S. Senate investigation, citing Connecticut Public reporting on Prospect, says private equity firms used hospitals as their “personal piggy banks.”
Financial documents reviewed by the Senate committee showed Rockville and Manchester hospitals combined generated a net income of $2.8 million in 2017, but slid to a net loss of $3.1 million the next fiscal year, “beginning the hospitals’ downward trend and leading to a net loss of $49.8 million in fiscal year 2023,” according to the report.
Waterbury Hospital incurred a loss of $34.2 million in fiscal year 2022 after the exit of Leonard Green & Partners (LGP), owner of Prospect, in 2021.
Jan. 10, 2025
Prospect files for bankruptcy in the Northern District of Texas. Chris Mattei, a lawyer for the families of the victims killed in the Sandy Hook Elementary School shooting in 2012, told Connecticut Public that 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.
Jan. 14, 2025
Deborah Weymouth, CEO of Prospect-owned Waterbury Hospital, Manchester Memorial Hospital and Rockville General Hospital, tells Connecticut Public that local management did not have direct access to funds generated by local hospitals, but that is likely to change at bankruptcy court.
Feb. 25, 2025
YNHHS says it is “impossible” to acquire the three Prospect-owned hospitals in Connecticut.
Now what?
The cost of closing or replacing the hospitals would amount to $1 million per bed in current value, according to Deborah Weymouth, CEO of Connecticut’s Prospect-owned hospitals.
A spokesperson for Gov. Ned Lamont told the Connecticut Mirror the governor’s office continues to have conversations with possible buyers.
Prospect currently owns and operates 16 hospitals in California, Connecticut, Rhode Island and Pennsylvania, and plans to shift its focus entirely to its seven hospitals in California post bankruptcy.
Sen. Dr. Saud Anwar, co-chair of the Connecticut Public Health Committee, said he was disappointed by Yale’s decision.
“As a fan of high-quality care that YNHH provides to patients and Connecticut’s population, I’ve always been hopeful it would look at the amazing opportunity to strengthen these existing three hospitals,” he said.
“I agree with some of their concerns about these assets, but I do feel there’s still a significant opportunity to strengthen the quality of care and improve access to care for people within these systems,” Anwar said.
