Yale New Haven Exits Hospital Acquisition Deal, Prospect Medical Seeks New Buyers

Yale New Haven Health has reached an agreement to pay Prospect Medical Holdings $45 million to terminate a previous deal to acquire three Connecticut hospitals. This development comes amid Prospect's bankruptcy proceedings and ongoing efforts to sell its assets, including the hospitals in question.

Settlement Details and Background

Yale New Haven Health and Prospect Medical Holdings have settled their dispute over the planned acquisition of Waterbury Hospital, Manchester Memorial Hospital, and Rockville General Hospital. The original deal, valued at $435 million and agreed upon in 2022, fell apart due to allegations of mismanagement and regulatory violations.

Yale New Haven sued to exit the agreement in 2023, claiming Prospect had failed to maintain the facilities adequately and citing numerous issues, including:

• Late payments to staff and vendors
• Multiple regulatory investigations and violations
• Inadequate cybersecurity measures, which contributed to a ransomware attack in 2023

Prospect countersued, accusing Yale New Haven of intentionally stalling the sale to negotiate a better price. The dispute culminated in Prospect's bankruptcy filing in January, revealing liabilities of at least $1 billion.

The $45 million settlement, negotiated with assistance from Prospect's landlord and debtor-in-possession financier Medical Properties Trust (MPT), will end the competing litigation. MPT expects the settlement amount to be used to pay down its $105 million DIP loan to Prospect. A judge is scheduled to approve the settlement terms on October 10.

New Potential Buyers Emerge

As Prospect exits the Connecticut market, new potential buyers have expressed interest in acquiring the hospitals:

1. Hartford HealthCare has offered $86.1 million to purchase Manchester Memorial and Rockville General hospitals. The company's subsidiary, ECHN Holdings Inc., will serve as the stalking horse bidder in an upcoming auction.

2. University of Connecticut Health has indicated its desire to acquire Waterbury Hospital, with CEO Dr. Andrew Agwunobi expressing enthusiasm about expanding UConn Health's services to the Waterbury region.

These potential acquisitions align with state lawmakers' and regulators' criticisms of Prospect's management of the hospitals. Connecticut officials have been vocal about their concerns regarding private equity ownership in healthcare, with some pushing for increased restrictions similar to those implemented in Massachusetts and Oregon earlier this year.

As the sales process continues, other buyers may still emerge, and none of the proposed deals have been finalized. The completion of these sales would mark the end of Prospect Medical Holdings' presence in Connecticut, a development likely to be welcomed by state officials concerned about the impact of private equity ownership on patient care.