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September 22, 2023

Lamont warned cyberattack, vendor debt put sale of Prospect hospitals at risk

CLOE POISSON / CTMIRROR.ORG Patrick A. Charmel is President and CEO of Griffin Health.

A Connecticut hospital owned by Prospect Medical Holdings owes vendors tens of millions of dollars, and a deal to sell Prospect’s Connecticut facilities to Yale New Haven Health could be at risk due to their “deteriorating conditions,” the chief executive officer of another Connecticut hospital told Gov. Ned Lamont in an email last month.

Patrick Charmel, president and CEO of Griffin Hospital, sent Lamont the email days after Prospect’s three hospitals — Manchester Memorial, Rockville General and Waterbury Hospital — were hit with a cyberattack in early August. The Connecticut Mirror obtained the email through a Freedom of Information Act request.

Charmel told the governor he had spoken to Justin Lundbye, CEO of Waterbury Hospital, who said he had been awaiting funding from Prospect to pay vendors, but the money didn’t arrive. Charmel did not specify which vendors were owed money but said the debt was over $40 million.

“During our conversation, Justin told me that Prospect Medical Holdings’ long awaited debt refinancing that was supposed to improve liquidity and provide working capital that would flow to company-owned hospitals like Waterbury, Manchester and Rockville finally occurred, but none of the proceeds found their way to Connecticut,” Charmel told the governor.

“In previous discussions and correspondence about conditions at Waterbury, I told you that Justin was stretching out his vendors (many of them local), and the hospital’s accounts payable were growing. 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. Justin promised vendors that when Prospect’s refinancing occurred, he would pay them. He has now reneged on those promises. He told me that he receives numerous calls daily from local vendors who tell him (while crying) that they may have to declare bankruptcy because of his nonpayment.”

In an emailed statement Wednesday, Lundbye said $25 million to $30 million has been provided by Prospect to its Connecticut-owned hospitals since June, when its 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.

“We pay vendors every day and the balances change every day,” a Waterbury Hospital spokesperson said in a statement.

A spokesperson for Eastern Connecticut Health Network, which includes Manchester and Rockville hospitals, could not be reached for comment Thursday morning.

Charmel framed the financial difficulties at Waterbury Hospital in the context of the cyberattack that impacted Prospect’s Connecticut hospitals, as well as hospitals in other parts of the country, throughout August.

“My conversation with Justin took place before Waterbury and all Prospect Medical Holdings hospitals suffered devastating operational disruption as a result of a ransomware attack … which has no doubt made the conditions described by Justin earlier in the week much worse,” he said.

Charmel called the conversation “distressing” and expressed concern about Yale’s deal to purchase the Prospect-owned hospitals. Yale announced in 2022 that it had signed an agreement with Prospect to acquire the facilities. Completion of the sale and a certificate of need is pending.

Hospital executives have said the deal is considered crucial in helping stabilize finances at the three hospitals.

“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,” Charmel 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.”

The email was forwarded by Jonathan Dach, Lamont’s chief of staff, to state Public Health Commissioner Manisha Juthani on Aug. 5. Dach asked Juthani to investigate the matter.

“I know [the health department] was just out there and found nothing actionable regarding patient safety,” he wrote. “However, please … take the allegations below as fact and review your statutory powers to see whether there is a defensible interpretation under which they give you any hooks into Prospect. If vendors are cutting off the hospitals, at some point they will not have the supplies they need to care adequately for patients. We shouldn’t have to wait for that to happen to intervene.”

Juthani sent the email to members of her staff with a message: “Every time this type of issue comes up, I tell them that our authority over hospitals is very limited unless they actually can’t provide care. Let’s discuss again on Monday so I can best try to explain our authority in this situation.”

A spokesman for Griffin Health said this week that Charmel was out of the country and unavailable for comment. He referred questions to the governor’s office.

In an interview Tuesday, Lamont said the state has continued to perform inspections at the hospitals to ensure quality of care has not been compromised.

“We checked into the quality of care. They’re meeting those standards,” he said. “The money is going where it ought to go. What is our enforcement mechanism on something like that? I can’t tell you, except they have certain obligations to their patients, and we’re going to enforce that.”

Dach did not return a call seeking comment.

In a statement, Lundbye said vendors have been “working with” Prospect’s Connecticut hospitals, but he did not elaborate.

“Prospect has access to advanced payments from certain payors, as well as lines of credit available to ensure our hospital has the resources it needs to meet our patients’ and our community’s most pressing health care needs,” he said. “Most of Prospect’s vendors have been constructive in working with the company, including its Connecticut hospitals, in helping our recovery from the recent data security incident.”

Asked whether he thought the sale of Waterbury Hospital was in jeopardy, Lundbye said: “Both Waterbury HEALTH and Yale remain committed to the transition.”

Dana Marnane, a spokeswoman for Yale New Haven Health, said the company remains “deeply committed to the communities surrounding Waterbury and ECHN.”

But Marnane added Yale is concerned about the pace of the state’s regulatory process.

“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,” she said. “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. We are increasingly concerned that the state’s regulatory review process is moving much too slowly, which is impeding on our ability to provide patients in those communities with access to critical, high quality health care services.”

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

“There is a statutory process,” she said. “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.”

Gifford declined to comment on the issues raised in Charmel’s email.

In a statement to the CT Mirror, Juthani reiterated that she has limited ability to intervene and said the hospitals, for now, are meeting state requirements for patient safety.

“The Prospect hospitals are obligated to provide safe and appropriate care to their patients regardless of their financial challenges and through the interruptions brought by the cyber-attacks,” she said. “While reports of financial instability at the Prospect hospitals certainly are troubling, DPH’s enforcement authority over hospitals is limited to quality-of-care issues.

“In response to these reports, and in response to the cyberattack event, DPH has conducted several site visits at each of the hospitals over the last few months to ensure that the hospitals are providing safe and appropriate care. To date, these hospitals appear to be meeting their federal and state obligations for patient care and safety.”

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.

Some of Prospect Medical’s financial problems have spilled over to Connecticut’s courts.

Prospect sued the city of Waterbury after the company’s appeal of a recent assessment of the hospital property was denied by the Board of Assessment Appeals, according to a pending lawsuit.

The hospital’s property at 64 Robbins St. was assessed at $171 million. The company appealed to the board in February, “claiming to be aggrieved by the action of the assessors,” but was denied.

The lawsuit, filed in Waterbury Superior Court in March, asked a judge to sustain the hospital’s appeal to the assessment board and lower the value of the property so the taxes would be less.

In the lawsuit, Prospect also asks the judge to make the city retroactively repay the hospital for any previous tax bills paid under the current assessment. The case is pending.

Prospect filed a similar lawsuit against the Manchester Board of Assessment Appeals in 2022 after that board refused their request to lower an assessment of its property at 71 Haynes St., the location of Manchester Hospital.

The property was assessed at about $55 million. The two sides settled the lawsuit last August, and the city agreed to lower the assessment to $49 million.

There also is a pending lawsuit by an anesthesia company alleging that Prospect Waterbury Inc. has reneged on a contract for that firm to provide anesthesiologists to the hospital beginning in 2020.

The lawsuit by the North American Partners in Anesthesia of Connecticut claims that Prospect has not paid them more than $3 million in wages and fees. Prospect is disputing the terms of the contract and denied that it hasn’t paid the company what it is owed.

The case is still pending, and a judge has scheduled a hearing for October. In the meantime, North American Partners is no longer providing anesthesiology services to the hospital.

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