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March 27, 2024

CT approves Prospect Medical-YNHH deal, paving the way for sale


After 16 months of considerations, the state’s Office of Health Strategy on Wednesday  approved an application for a Certificate of Need from Yale New Haven Health, paving the way for it to potentially purchase three troubled hospitals owned by Prospect Medical Holdings. 

But the long-awaited approval is only the first step. The two hospital chains must now finalize a private deal that was first agreed upon nearly two years ago but is now in danger of falling apart.

YNHH initially agreed in April 2022 to pay Prospect Medical $435 million to purchase Waterbury Hospital and the Eastern Connecticut Health Network, which includes both Manchester Hospital and Rockville General Hospital.

But after a cyberattack debilitated operations across the three facilities for weeks and news of Prospect’s growing debts came to light, Yale balked at the purchase price and is seeking to renegotiate it. Hospital leaders have said Prospect owes tens of millions of dollars to vendors, physicians under contract and the state for provider taxes.

One of the conditions of the agreement calls for the state to give Prospect Medical a break on its provider taxes. Prospect owes the state $67 million but would get at least a $12 million tax break, decreasing its debt to the state Department of Revenue Services to $55 million.

“We are confident that we’ve come to an agreement that is in the best interest of the residents of Connecticut, which has been our priority since receiving this application,” Dr. Deidre Gifford, executive director of OHS, said Wednesday in a statement.

“I want to thank both the Yale and Prospect parties for their collaboration in reaching this agreement. With these conditions in place under the new ownership of Yale New Haven Health, we can expect that these hospitals will continue to operate and provide high-quality services to their patients and communities,” she added.

Gov. Ned Lamont also issued a statement, saying the deal “ensures that the residents who live in each of the hospitals’ host communities will continue to have local access to essential medical care, and the jobs of the employees who provide this care will be preserved under this new ownership.”

“I know that many people have been anxious to get to this day, and I completely understand their concerns. While it may have taken a little bit of time to get here, this process is an important part of protections under the law to ensure that patients are receiving affordable, high-quality care and that the hospitals will continue meeting all of their obligations to patients, employees, and the community at large,” Lamont said. “With today’s approval by the Office of Health Strategy, I encourage Prospect to work with Yale to reach a deal that will allow them to finalize this purchase and bring a much-needed resolution to this transaction.”

The 39-page Certificate of Need, or CON, includes 46 conditions that OHS has placed on Yale, including things ranging from price caps on health care costs to ensuring local participation on the hospitals’ boards.

  • Yale must hire an independent monitor for five years that will report directly to OHS on all aspects of the agreement including the level of community benefits and uncompensated care provided by Yale in the community. 
  • Yale must honor all collective bargaining contracts for hospital staff and also offer to “hire substantially all non-management employees in good standing at the three hospitals or any of their affiliates, into like or similar positions in the new organization.”
  • Provide Medicaid patients access to the following medical and surgical specialty services for its employed physician practices within the respective hospitals: psychiatry, medication assisted treatment for substance misuse, dermatology, otorhinolaryngology (ENT), neurology, orthopedics and pain management.
  • YNHHS will invest a minimum of $6 million over three years to enhance access to mental health and substance use disorder treatment for patients.

The CON does not allow Yale to return Rockville General Hospital to an inpatient acute care center. Instead it will still operate a 24-hour emergency room and also keep open its much-needed 80-bed inpatient psychiatric units.

There are 24 beds for adult patients, 10 beds for adolescents and 18 beds for elderly patients in Rockville and another 28 inpatient psychiatric beds, six of which are for adolescents, at Manchester.

“Throughout this process, we have worked closely with the state to maintain access to care for the Waterbury, Manchester and Rockville communities,” said Dana Marnane, a spokeswoman for YNHH. “While OHS’ approval is an important milestone in this transaction, this process is not yet complete. As a next step, we are working with Prospect to reach agreement on several outstanding details that must be resolved to allow the transaction to close. We are hopeful that these details can be addressed.”

“We are pleased that Yale New Haven Health, the Office of Healthcare Strategy, and Prospect Medical have reached a joint agreement on the terms and conditions for the granting of the CON that will enable the transfer of Prospect’s Connecticut facilities to Yale,” Prospect officials said in prepared statement. “We are working closely with Yale’s leadership to formalize the remaining ancillary agreements in the coming weeks to transfer ownership of the hospitals.  We will provide an update at that time.”

OHS has been criticized by lawmakers from Eastern Connecticut and Manchester as well as hospital officials for taking too long to approve Yale’ CON’s application, which was submitted on November 22, 2023. 

OHS held a public hearing on the application in April 2023. Twenty-seven people commented, including the mayors of Manchester and Waterbury, several state representatives, hospital employees and volunteers, and residents. None spoke against the proposed acquisition.

Records show that the YNNHS/Prospect deal has taken longer than several other Connecticut hospital mergers. YNHH’s purchase of Milford Hospital in 2019 took 204 days from the time a CON was filed; Hartford HealthCare’s acquisition of Saint Vincent’s Medical Center the same year took 267 days; YNHH’s purchase of the Hospital of Saint Raphael in 2012 took 147 days; YNHH’s merger with Lawrence + Memorial Hospital in 2016 took 337 days; and Hartford HealthCare’s 2017 acquisition of Charlotte Hungerford Hospital took 351 days.

In a recent interview with The Connecticut Mirror, Gifford defended her office’s review of the deal and said the lack of a negotiated settlement between the two parties is impacting the process.

“There’s nothing for the office to approve if they don’t have an agreement,” Gifford said. “The certificate of need or the agreed settlement pertains to an asset purchase agreement, and if there’s no underlying asset purchase agreement, there’s nothing to move forward on, even if we issued an approval tomorrow.”

Gifford added attorneys for both hospital chains have had a draft settlement agreement from the state since Oct. 20.

“We would like to get it wrapped up as soon as possible in a way that protects quality, affordability, access … that’s our obligation,” Gifford said.

The two hospital chains and OHS officials have been meeting for several months behind closed doors as all three sides agreed to keep the negotiations confidential.

Part of the pressure on Gifford and her office was because of Prospect’s spiraling financial situation in Connecticut and other New England states.

Prospect suffered a devastating cyberattack across its three facilities last August, and hospital executives told state leaders that the data breach set them back financially but never revealed how much. 

Meanwhile, as the months passed with no agreement, hospital executives, legislators and local officials said the threat of closure is growing, with the Prospect hospitals owing more than $40 million to vendors and physicians, and in taxes.

Physicians said that surgeries had been postponed because health care providers don’t have the needed resources. Contracts with traveling nurses and technicians are in jeopardy and remain in place only on a “week-to-week” basis, physicians at the hospitals said. An anesthesiologist group sued Prospect over nonpayment of more than $3 million. 

The state, concerned about Prospect possibly going bankrupt, also filed a tax lien because the company owes $67 million in health care provider taxes.

YNHH officials have said the deal changed since it was first agreed upon in 2022 because of the cyberattack and Prospect’s growing debts in Connecticut and needs to be revised. 

At one point last year, hospital officials met with Gov. Ned Lamont to seek as much as $80 million from the state to offset the cost of upgrading the three hospitals’ computer security systems and help them recover from the cyberattack.

Lamont rejected the plan and said that the privately owned companies needed to work out an agreement and the state would not sweeten the deal.

The delays in this case has many legislators and health officials calling for an overhaul of the CON process. The state requires a Certificate of Need for closures, expansions and other changes to health care facilities.

The Connecticut Hospital Association has urged the state to bolster its process, according to Paul Kidwell, senior vice president of policy for the association.

“If used correctly, the state’s Certificate of Need process is a tool to prevent crisis. Unfortunately, inefficient administration of the CON process has resulted in significant delays that have put in jeopardy access to health services for patients in our state,” Kidwell said.

State and local elected officials called on YNHH and Prospect to reach an agreement that would complete the sale.

“This is a step in the right direction. I am glad the certificate of need has been approved, but now the two parties have to sit down and in good faith move forward for the communities they serve,” said Sen. Saud Anwar, co-chair of the Public Health committee and a physician under contract at Manchester Memorial. The hospitals “need infrastructure support, they need investment in the computer systems, and they need investment in various service lines to be able to manage complex diseases. In order to have those investments, they have to come together and reach a final decision fast.”

Manchester Mayor Jay Moran, who has been critical of how long it has taken the state to approve the deal, called the approval a “huge step” for the city because having a local hospital is vital.

“It’s so important to have a local hospital, and to now hopefully be part of a great system like Yale will be good for our residents and for all of the people employed there,” he said.

“I can’t wait for this whole process to be finished.”

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