Prospect Files Suit Demanding Yale New Haven Purchase Its Three Connecticut Hospitals

Dive Brief:

• The battle over what to do with three Prospect Medical Holdings-owned hospitals in Connecticut heated up last week after Prospect sued the hospitals’ would-be buyer, Yale New Haven Health, alleging the health system had “actively worked to prevent” the deal closing in a bid to get a lower purchase price.
• Yale signed a binding agreement to acquire three hospitals from Prospect in 2022 for $435 million. However, the health system alleges Prospect has neglected the properties since that time, driving the facilities into “dire” conditions. Last month, Yale filed its own suit to get out of the deal.
• Now Prospect is petitioning Connecticut’s Superior Court to hold Yale to its word and force it to complete the deal. The complaint alleges Yale “knew it was purchasing struggling hospitals” and had agreed to acquire the facilities on an “as-is” basis.

Dive Insight:

Yale and Prospect have been at odds since the beginning of the year over whether and how their 2022 deal might close.

Yale New Haven, which operates five hospitals, proposed lowering the purchase price of the hospitals in January, according to Prospect’s lawsuit.

When Prospect declined, Yale filed a lawsuit in May to get out of the deal. Yale claimed closing conditions couldn’t be met after Prospect degraded the quality of the facilities by defaulting on rent and vendor payments, failing to implement basic cybersecurity standards — possibly contributing to the health system’s August 2023 cyberattack — and “driving away” physicians and vendors. 

Prospect claims that none of these events warrant lowering the acquisition price or vacating the deal. 

Patient volumes at the hospital have recovered since the cyberattack, and its monthly EBITDAR — earnings before interest, taxes, deprecation, amortization and restructuring or rent costs — have returned to levels leading up to February 2022, when Yale New Haven signed the purchase agreement, according to the lawsuit.

The system argued in court filings that Yale New Haven is acting in bad faith to get out of the deal, which would require it to acquire three safety-net hospitals: Waterbury Hospital, Manchester Memorial Hospital and Rockville General Hospital.

Even if the hospitals are struggling, Prospect argues Yale should have known what it was purchasing. Problems at the facilities have been ongoing, “for years, even pre-dating [Prospect’s] ownership,” according to the lawsuit.

Since at least 2020, there have been multiple allegations of mismanagement. 

Prospect was sued last year by the Rhode Island attorney general, which claims Prospect owes more than $24 million to vendors in the state. News site ProPublica has also published several reports on alleged financial mismanagement at Prospect, reporting in 2020 that the health system changed vendors to avoid payment and “bounced checks as part of its regular cash management process.”

The health system contends that Prospect’s operating conditions have worsened since the parties inked their 2022 agreement.

Prospect has received an “unacceptable number of regulatory citations” and notices from the CMS over the past 18 months, according to Yale New Haven’s May lawsuit.

Prospect has further failed to provide Yale timely financial documents to audit its performance, in violation of the asset purchase agreement, according to Yale. As of May, more than 200 days after the end of Prospect’s fiscal year 2023, Prospect has yet to provide Yale with audited statements. 

Last month, Prospect’s landlord, Medical Properties Trust, which also leases facilities to Steward Health Care, revealed the health system had failed to pay April or May rent during its quarterly earnings call.

Yale New Haven doesn’t intend to back down from its own lawsuit, a spokesperson told Healthcare Dive.

“The lawsuit filed by Prospect is a clear attempt to shift attention away from the for-profit, California-based company’s mismanagement of their Connecticut facilities and neglect of the communities who entrusted them with their care,” the spokesperson said. “We are prepared to defend ourselves against this suit [to] ensure the sustainability of our health system.”