Dive Brief:

• Bankrupt Prospect Medical Holdings may need to find another buyer for its Connecticut hospital portfolio, after Yale New Haven Health, which originally signed an agreement to acquire the three facilities in 2022, called the deal “impossible” in a statement to Healthcare Dive.
• A spokesperson for Yale New Haven said the deal was unworkable due to Prospect’s failure to pay vendors on time, disinvestment in the facilities and record of mismanagement. 
• Connecticut Gov. Ned Lamont said in a press conference on Monday that Prospect has found possible buyers located in Connecticut and out of state that could be named in the coming weeks, according to a report from the Register Citizen. 

Dive Insight:

Prospect filed for bankruptcy in January, citing a need to restructure amid ongoing financial difficulty.

The Los Angeles-based operator said it would attempt to sell its East Coast portfolio to focus on its comparatively healthier California-based facilities.

However, Prospect has already been trying to sell its Connecticut portfolio, which includes Manchester Memorial, Waterbury and Rockville General hospitals, for years without success. In 2022, it signed a deal to sell the facilities to Yale New Haven for $435 million.

Yale sued to get out of the deal in May, saying Prospect had reneged on sale conditions by leaving the facilities in “dire” financial condition. In June, Prospect countersued in an attempt to hold Yale to the terms.

The litigation remains ongoing, but a spokesperson for Yale New Haven said Prospect’s bankruptcy filing is “proof of disinvestment and mismanagement.”

“As we have been saying for almost 18 months, and detailed in our lawsuit, Prospect has never been in a position to close the transaction on the terms set out in the October 2022 Asset Purchase Agreement,” the spokesperson said.

Prospect did not respond to a request for comment by press time.

The health system is under pressure from state regulators to sell the hospitals quickly while the facilities continue to rack up operational losses. 

While Prospect and Yale New Haven argue about who ought to operate the facilities, Connecticut regulators say patients are suffering.

In a February bankruptcy filing, lawyers for the state said the “real victims” of the legal dispute were state residents who did not have a clear path toward receiving healthcare. They said their first priority was keeping the facilities open, and that the state would work with Prospect to find a new operator, Yale or not. 

“It is critical that the Connecticut Hospitals be transitioned to a new operator, one who will ensure that the hospitals are adequately funded and safely run,” the attorneys said. “To be very clear, that operator is not Prospect.”

As Connecticut grapples with the fallout from Prospect’s bankruptcy, lawmakers are advancing a bill that would give regulators more oversight over healthcare transactions involving private equity firms.

Prospect was formerly owned by Leonard Green & Partners. In a scathing Senate report issued earlier this year, federal lawmakers said financial strategies employed by the PE firm, including sale-leaseback transactions, may have contributed to Prospect’s financial decline.

The state’s hospital association has opposed the bill, saying it adds unnecessary layers of review and would delay healthcare transactions.