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September 27, 2023

Hospital execs to Lamont, lawmakers: Seal the Yale-Prospect deal


The presidents of two Connecticut hospitals owned by Prospect Medical Holdings told a gathering of state legislators Tuesday that their financial situation is dire, that they are struggling to pay bills and, if a deal to sell Prospect’s Connecticut hospitals to Yale New Haven Health is not approved, the facilities may not remain financially viable, according to people in attendance.

Waterbury Hospital Chief Executive Officer Justin Lundbye and Eastern Connecticut Health Network President Deborah Weymouth met privately with Gov. Ned Lamont before gathering with about 30 concerned lawmakers from Waterbury, Manchester and surrounding towns. Prospect owns Waterbury, Manchester Memorial and Rockville General hospitals.

Hospital executives painted a gloomy picture of their finances and urged the state to move quickly on approving a sale of the facilities to Yale New Haven Health, according to legislators who were present at the meeting.

Yale announced in 2022 that it had signed an agreement with Prospect to acquire the hospitals. Completion of the sale and a certificate of need is pending. Hospital officials have said they are worried about the length of time the state has taken to review and approve the sale.

Sen. Saud Anwar, who with Majority Leader Jason Rojas organized the legislators’ meeting Tuesday, said hospital executives expressed concern about their “dire” financial situation and are having trouble paying vendors and physicians under contract to provide care at the facilities.

Prospect Medical facilities were recently hit by a cyberattack.

“They were talking about almost getting to the point where they’re having difficulty paying for bed linens, things like that,” said Anwar, D-South Windsor, who is co-chair of the legislature’s Public Health Committee and a physician under contract at Manchester Memorial. “Between the cyberattack and the current financial situation … they are going through a very significant financial challenge.”

Representatives from Yale New Haven Health and Prospect Medical also attended the lawmakers’ meeting, which was held in the Old Appropriations Room on the third floor of the Capitol.

Yale raised concerns about investing in facilities with outdated computer systems. An official with Prospect said the company was dealing with dual issues of financial challenges and recovering from the cyberattack, Anwar said.

“I know [some of] the hospital doctors have not been getting paid. Many of them are planning to leave. And then there are other situations where there have been the limitations on lab equipment and chemicals used for labs.”

Anwar said the CEOs also warned that if the sale falls through, the hospitals would not remain financially viable or functional.

“With their lack of funding and capacity with the cyberattack, their survival may be impacted if the state delays this sale or [approves it] with contingencies that are going to make Yale walk away,” he said. “The fear we have at this point is if, God forbid, something like that happens … then the deal will fall through and the hospitals will have to close, which would mean thousands of jobs would be lost and hundreds of thousands of people in our state would be without health care.”

The Connecticut Mirror reported last week that another Connecticut hospital CEO, citing discussions with Lundbye, told Lamont that Waterbury Hospital owes vendors more than $40 million and that Yale executives are concerned about “deteriorating conditions” at Prospect’s three Connecticut facilities.

Yale officials “have begun to question whether acquiring Manchester and Waterbury hospitals remains a prudent business decision,” Pat Charmel, CEO of Griffin Health in Derby, wrote to Lamont in an August email.

Charmel’s message came just days after the cyberattack.

As he was leaving the state Capitol on Tuesday, Lundbye confirmed in a short interview that he met with the governor and several legislators.

“The governor wanted to talk about health care issues in general and also about the cyberattack and what long-term effects there could be on the hospitals,” Lundbye said.

The cyberattack began in early August and lasted for more than six weeks, forcing the hospitals to divert patients, cancel surgeries and care for fewer people because of staffing issues.

Lundbye said that although computer systems are working again, the hospitals face “a long-term recovery” from the attack.

Weymouth could not be reached for comment, and ECHN spokeswoman Nina Kruse did not return calls.

Lamont said hospital officials told him they are eager to close the deal with Yale New Haven, reassuring insurers that revenues would go toward patient care. Concerns had been raised about how money was being spent.

“Revenues at these hospitals that should be going back to patient care seem to be siphoned by the equity owners to pay off bond holders,” Lamont said. “I’m very hopeful we can get the [certificate of need] process done expeditiously, and we can get Yale New Haven to do the deal.”

Lamont declined to call the fiscal situation a crisis.

“I think they are OK for the near term, but they definitely would like some clarity on the [sale], then the insurance guys would feel more confident” in paying reimbursements, he said. “I think you are going to see some real clarity in the next 60 days.”

Prospect Medical has a troubled history. In 2018, the company took out a $1.12 billion loan and used the funds to pay its executives and shareholders a $457 million dividend, CBS News reported. To pay back the loan, Prospect sold the land and buildings from hospitals it owns in Connecticut, California and Pennsylvania to a real estate investment trust, then leased back those hospitals from the trust. In Pennsylvania, the lease-back agreement meant one health care system was on the hook for $35 million a year in rent, CBS reported.

Deidre Gifford, executive director of Connecticut’s Office of Health Strategy, has defended the state’s timetable for reviewing the certificate of need.

“There is a statutory process,” she told the The Mirror last week. “We have met our timelines on the cost and market impact review. We prepared an initial draft; we shared it with the transacting parties. They had 30 days to send us comments. We have just received the comments back from the parties. The next steps are, we have, by statute, 60 days to incorporate any changes. … We have not missed any of the statutory timelines.”

State Rep. Jeffrey Currey, D-East Hartford, who attended Tuesday’s meeting with other legislators, said hospital officials were trying to “convey a sense of urgency to get the sale completed.”

“They outlined several issues around cash flow and [payments to] vendors,” Currey said. “They were pleading with us to do what we could to expedite the sale.”

Yale New Haven Health officials raised concerns about the software at Prospect-owned hospitals following the cyberattack, Anwar said. The computer system was described as outdated.

“They’re stressed about the cyberattack. There needs to be a recovery plan,” he said. “Because the computer system for the hospitals is too old, the recovery plan should include upgrading the computer system for functionality. But they can’t do that, because [the Office of Health Strategy] has not made a decision [about the sale]. So it’s illegal for Yale to help them.”

Representatives with Prospect Medical “claim they don’t have enough resources” to fund the upgrades, he added.

Officials from Yale and Prospect could not be reached for comment late Tuesday.

Rep. Jason Doucette, D-Manchester, said hospital officials were distressed about their finances.

“There’s no question things have gotten pretty perilous at ECHN, mostly because of the cyberattack, but also because Prospect is having serious a serious cash flow problem,” Doucette said.

“We need to get the merger approved, because we want Yale here in Manchester. We seem to be at a point where the problems are starting to compromise patient care.”

“Time is of the essence,” added Rep. Cristin McCarthy Vahey, D-Fairfield, co-chair of the Public Health Committee. “What has been clear, and what was even more clear today, was the compounding impact of the cybersecurity event on the situation at the hospitals. That really makes it even more vital that they’re able to move forward in a way that allows the patients of Connecticut to be cared for.”

Prospect Medical owns hospitals in California, Pennsylvania, Rhode Island and Connecticut. In his email to the governor, Charmel said the company’s “long awaited” debt refinancing was supposed to “improve liquidity and provide working capital” to hospitals like Waterbury, Manchester and Rockville, but “none of the proceeds found their way to Connecticut.”

“In previous discussions and correspondence about conditions at Waterbury, I told you that Justin [Lundbye] was stretching out his vendors (many of them local), and the hospital’s accounts payable were growing,” Charmel wrote. “They have continued to grow and are now in excess of $40,000,000. Many vendors have Waterbury and Manchester hospitals on credit hold and are refusing to do additional business with the hospitals until AP balances (vendor receivables) are paid down.” 

In an emailed statement last week, Lundbye said $25 million to $30 million had been provided by Prospect to its Connecticut-owned hospitals since June, when the debt refinancing was completed, but he did not say how the money was used or whether it went toward vendor payments. He declined to say how much money was still owed to vendors.

Charmel warned that the financial troubles could affect the sale of Prospect’s Connecticut hospitals to Yale New Haven Health.

“We know that Waterbury, Manchester and Rockville hospitals will only get relief when their proposed acquisition by the Yale New Haven Health System is finalized,” he wrote to Lamont. “I have not spoken to [Yale] CEO Chris O’Connor recently, but I am aware that Chris and his board are concerned about deteriorating conditions at Waterbury and Manchester hospitals and have begun to question whether acquiring Manchester and Waterbury hospitals remains a prudent business decision.”

Yale New Haven officials said last week that they remain “committed to the communities surrounding Waterbury and ECHN.”

“While we cannot speculate on what specifically is happening with ECHN and Waterbury Hospital, we are working with them to understand the issues and their implications for patient care and operations,” said Dana Marnane, a Yale spokeswoman. “Our acquisition of Prospect Medical Holdings’ Connecticut health systems is pending approval from the state of Connecticut, and we remain deeply committed to the communities surrounding both Waterbury Health and ECHN.”

Anwar said lawmakers will relay concerns expressed at Tuesday’s meeting to Lamont.

“I’m worried about the wellbeing of the patients in the community and also the wellbeing of all people employed by these hospital systems,” he said.

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