Yale New Haven Health wants out of deal to buy Prospect hospitals

Yale New Haven Health is asking the state Superior Court to be let out of its contract with Prospect Medical Holdings for the purchase of Manchester Memorial, Rockville General and Waterbury hospitals.

YNHH is suing Prospect, from whom it is trying to purchase the three Connecticut hospitals, charging that Prospect breached its contract with Yale by defaulting on rent and tax liabilities, allowing its facilities to deteriorate, mismanaging assets, “driving away” physicians and vendors and engaging in “a pattern of irresponsible financial practices.”

YNHH had announced in 2022 that it reached a deal with Prospect to buy the hospitals for $435 million. But following a cyberattack in August and revelations that Prospect owes tens of millions of dollars to vendors, physicians under contract at the hospitals and the state in taxes, Yale asked Prospect to revise the purchase price. The two sides have not reached an agreement, YNHH officials said Friday.

“Prospect has refused to negotiate in good faith,” Dana Marnane, a spokeswoman for the health system, said in a statement. “Yale New Haven Health has remained committed to the success of the transaction, cooperating with the Office of Health Strategy and engaging in good faith discussions to attempt to reach an agreement with Prospect. Despite numerous notifications by Yale New Haven Health that Prospect has failed to uphold the [contractual] obligations and closing conditions, Prospect has refused to acknowledge and address these breaches.”

In a statement Friday, Prospect Medical officials called the lawsuit “a blatant, 11^th hour attempt by Yale Health to back out” of the contract.

“Prospect believes Yale is in breach of the Asset Purchase Agreement that was signed by both parties more than two years ago and we will be seeking legal remedies, including completion of the transaction, to ensure Yale keeps its word to our communities,” they wrote.

“Despite the claims made by Yale in its complaint, Yale only notified Prospect for the first time of its concern that there had been a material adverse effect on the hospitals’ finances and operations on March 27, 2024. In response, and following Yale’s failure to obtain an $80 million grant from the state, we offered Yale a good-faith price reduction in an attempt to move the negotiations forward and complete the transaction.”

Prospect officials said patient volumes and finances at their Connecticut facilities have “rebounded significantly.”

“In fact, our hospitals’ performance has returned to levels comparable to those reported in the months leading up to February 2022 … the month of February 2022, and the subsequent financial periods through signing on October 5, 2022, at which point Yale committed to the deal,” they said.

The state approved a certificate of need authorizing the acquisition in March.

“Over the last 18 months since the [contract] was signed, Prospect and the selling entities have subjected the businesses to a pattern of irresponsible financial practices, severe neglect and general mismanagement,” lawyers for YNHH wrote in the lawsuit. “As a result, the Prospect hospitals’ administrators have admitted that they ‘are going through a very significant financial challenge’ and that their situation is ‘dire.’”

Gov. Ned Lamont, who was briefed earlier this week about the lawsuit, said he believes Yale still is open to completing the purchase if Prospect is willing to resolve questions over the finances and value of the properties.

“Get to the table, make the deal. I think they [Yale] feel like there has been some foot dragging. They have questions about some of the representations. But it’s time to get the deal done,” Lamont said.

The governor said he hoped the lawsuit would move the sale forward, not kill it.

“Lawyers and courtrooms always make me a little nervous. They seem to slow down a process, but also maybe it gets people to focus on the issue at hand,” he said. “This has been going on for quite some time.”

The Connecticut Mirror previously reported that surgeries at Prospect’s Connecticut hospitals were being postponed because health care providers didn’t have the needed resources. Contracts with traveling nurses and technicians were in jeopardy and had remained in place only on a “week-to-week” basis at one point last fall, physicians at the hospitals said. An anesthesiologist group sued over nonpayment of more than $3 million. And the cyberattack that crippled operations also set the hospitals back further financially, executives have said.

In January, CT Mirror reported that Prospect neglected to pay $67 million in taxes. The state has filed three liens against the California-based company.

“Prospect and the selling entities have not complied with their obligations to providers, failing to pay their physician groups, medical staff and vendors and, in turn, damaging irretrievably their relationships with the very individuals and entities that allow the businesses to provide medical care to their patients,” lawyers for Yale wrote in the lawsuit.

“Prospect and the selling entities have failed to ensure that their information technology systems have even the most basic protections against data breaches, and in fact, a damaging ransomware matter and system compromise occurred in August 2023, resulting in the compromise of protected health information and personally identifiable information of thousands of patients and employees.”

Yale officials said they previously had warned Prospect that it had violated the contract, including in a March 27 letter.

“Rather than attempt any steps to rectify the breaches and satisfy the closing conditions, defendants’ only response has been to seek to delay the outside closing date,” attorneys for Yale wrote in the lawsuit. “It is now clear that Prospect and the selling entities have not satisfied — and cannot satisfy — the [contract’s] closing conditions.”

House Majority Leader Jason Rojas, D-East Hartford, said Friday he worries the deal could fall apart.

“We have to be concerned,” he said. “The impact to people who go there for health care, the impact to employees, the impact to the communities in which those hospitals are located – it would be a significant harm if the hospitals were to fail.

“I think Yale is trying to do right by ensuring that these hospitals can continue to operate and serve the communities they serve. If this is one way to hold Prospect accountable, then so be it.”

Waterbury Mayor Paul K. Pernerewski Jr. said Friday that it’s crucial for Yale to complete the sale.

“I was initially concerned when I heard about the lawsuit, but after having some conversations with high level folks at Yale, it really is a bargaining chip to try to get Prospect to the table and negotiating in good faith,” he said. “It’s very important to us that Yale steps in and takes over that hospital. We need two fully functioning, quality hospitals in Waterbury to meet our needs.”

Prospect has until May 30 to make a court appearance in the case.

Connecticut Mirror Reporter Mark Pazniokas contributed to this story.