This story was updated at 1 p.m. with a statement from Yale New Haven Health.
Prospect Medical Holdings, the owner of three struggling Connecticut hospitals in Waterbury, Manchester and Vernon, filed for bankruptcy protection late Saturday night.
The California-based hospital operator, which also owns facilities in California, Pennsylvania and Rhode Island, filed for Chapter 11 in the U.S. Bankruptcy Court in Northern Texas to “proceed on a strategic pathway to realign its organizational focus outside of California,” according to a company statement.
Prospect committed to continuing “uninterrupted” patient care at their facilities throughout the bankruptcy process.
The bankruptcy filing could complicate efforts to resolve longstanding financial and operational problems at Prospect’s three Connecticut hospitals that were exacerbated by a debilitating cyberattack in August 2023. The following month, the presidents of those hospitals warned the governor that the financial situation at all three hospitals was dire.
In particular, it’s unclear what the filing will mean for the pending agreement Prospect signed in 2022 to sell its three Connecticut hospitals to Yale New Haven Health.
The statement issued by Prospect mentioned that the bankruptcy filing would help to expedite the timeframe of two pending agreements: one to sell Prospect’s two Rhode Island hospitals and another to divest from the Crozer-Chester Medical Center in Pennsylvania. However, it made no mention of the agreement with YNHH and representatives from Prospect did not respond to a request for comment Sunday.
A spokeswoman for Yale New Haven Health issued a statement Sunday saying that Prospect’s bankruptcy filing “is a national matter and of grave concern to many hospitals around the country.”
“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,” wrote the spokeswoman, Dana Marnane. “The situation was further exacerbated by their lack of payment to the pension plans and growing debt to the state, local governments and vendors. Many of these same issues were referenced in lawsuits filed by the States of Pennsylvania and Rhode Island regarding Prospect’s mismanagement of their hospitals in those states. We will closely monitor the proceedings and determine what steps, if any, YNHHS will take as part of this process.”
Connecticut officials issued a statement Sunday saying they, too, were closely monitoring the situation.
“We have a cross-agency team in place to ensure hospital operations continue uninterrupted and that employees and vendors continue to be compensated, as required by court orders,” said Gov. Ned Lamont in the statement.
Lamont said the state has an independent monitor overseeing operations at Waterbury Hospital and will “increase oversight” at Manchester Hospital. He added that the administration will be “evaluating opportunities to transfer these institutions to a new operator.”
“This changes nothing with regards to their obligations to patient care and safety,” Attorney General William Tong said as part of the same statement.
“We need to look at how we can avoid situations like this, and that starts with taking a hard look at whether allowing for profit companies to buy hospitals is a good idea and in the best interest of Connecticut patients. I don’t think it is,” State Comptroller Sean Scanlon said in a statement on Sunday.
Von Crockett, Prospect’s chief executive officer, added that the filing represents an “important step forward” in the company’s “longstanding commitment” to its patients and communities.
“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 to highly coordinated, personalized, and critical health care services long into the future,” stated Crockett.
The bankruptcy filing could also impact the state financially. The state of Connecticut is listed as one of the top 30 creditors in the bankruptcy filing. Prospect owes the state more than $67 million in health provider taxes, also known as a hospital user fee, which every hospital, as well as nursing homes and other health care providers, must pay to the state every year based on their revenues.
Prospect had not paid health provider taxes to the state dating back to March 2022, according to three liens filed by the Department of Revenue Services against Prospect Medical last January.
Manchester-based Legacy ECHN Inc., an organization that controls a multi-million dollar bequest to Manchester Memorial Hospital from a local philanthropist, is the only other organization from Connecticut listed in the filing’s top 30 creditors.
An attorney for Legacy ECHN did not respond to a request for comment.
Pending sale
The deal between Prospect and Yale New Haven Health is currently mired in legal disputes, as the parties have sued and countersued over the true value of the three hospitals.
Sen. Saud Anwar, D-South Windsor, co-chair of the Public Health Committee and a physician who is affiliated with Manchester Memorial Hospital, said he has been in close communication with the leadership of Prospect’s Connecticut hospitals and remains hopeful the deal could still go through.
Anwar said he’s optimistic that “no further meaningful involvement of Prospect at the national level will help us move to make sure that the money generated by the hospitals will be used to enhance the capacity of the hospitals, and the leadership in Connecticut for Prospect would be focused on moving forward with Yale.”
Sen. Jeff Gordon, R-Woodstock, a practicing physician who has filed legislation this session to limit private equity involvement in health care, said he’s “hopeful” but the fate of the sale remains “unclear.”
“I think Yale has been kind of looking for a way out,” Gordon said. “I’m still hopeful that Yale will want to buy them out to keep things going. The issue is going to be to what degree does the state have to do various things with that.”
In 2023, Yale requested $80 million from the state to help support the acquisition following the cyberattack at the hospitals. So far, Lamont has been reluctant to put taxpayer money behind the deal.
If the deal were to fall through and a new buyer were to surface, the transaction would need to apply for approval from the state’s Office of Health Strategy. The approval process for the deal between Yale and Prospect took 16 months. The lengthy timeline drew criticism from both lawmakers and the hospitals.
In an emailed statement on Sunday, OHS commissioner Deidre Gifford stated that the agency would review any deal with a new buyer “as expeditiously as statutes allow.” She added that the agency has reduced its approval process from a median 434 days in 2021 to 156.5 days in 2024.
“Should a new buyer for Prospect hospitals be identified through a bankruptcy process, OHS does not anticipate that a Certificate of Need review would be prolonged. Review timelines can differ based on the application and other factors,” Gifford stated.
For now, local officials want residents to know that the hospitals are still operational.
Vernon Mayor Daniel Champagne stressed that Rockville General Hospital is still open, particularly the emergency room, and that state officials have assured him that won’t change.
“People in this area who need emergency care should not pass them by, the hospital is still open,” he said.