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June 6, 2024

Prospect Medical files countersuit against YNHH in hospital sale

PHOTO | SHAHRZAD RASEKH/CT MIRROR Manchester Memorial Hospital is owned by Los Angeles-based Prospect Medical Holdings, which is the only for-profit hospital operator in the state. It has come under scrutiny for its shaky finances and following a major cyberattack last fall.

Prospect Medical Holdings is suing Yale New Haven Health, claiming the health system breached its contract with Prospect by “failing to deliver the agreed-upon purchase price” for the three Connecticut hospitals it has made a bid to buy.

The California-based company also alleges that YNHH failed to make “reasonable best efforts” to complete the acquisition of the three Prospect-owned facilities and has “actively worked to prevent the closing of the transaction” in order to get a lower purchase price.

The lawsuit comes a month after Yale New Haven Health sued Prospect, charging that Prospect violated the contract by defaulting on rent and tax liabilities, allowing its facilities to deteriorate, mismanaging assets, “driving away” physicians and vendors and engaging in “a pattern of irresponsible financial practices.”

YNHH asked the state Superior Court to be let out of its contract with Prospect. It had made an offer to buy Manchester Memorial, Rockville General and Waterbury hospitals for $435 million, but following a cyberattack that devastated operations at the facilities, as well as revelations that Prospect owed tens of millions of dollars to vendors, physicians under contract at the hospitals and the state in taxes, YNHH asked Prospect to adjust the purchase price. In the lawsuit filed Thursday, lawyers for Prospect wrote that Yale suggested a lower purchase price on Jan. 31, and that on Feb. 15, Prospect declined.

“Our primary purpose in filing this lawsuit is to hold YNHH to its binding promise to acquire these critically important safety net hospitals and maintain YNHH’s stated commitment to ensuring the hospitals’ continuing ability to serve their communities,” Von Crockett, co-CEO of Prospect Medical Holdings, said in a statement Thursday. “This transaction is in the best interest of these communities, and is supported by our physicians, nurses, caregivers, and elected officials.” 

The lawsuit also alleges that YNHH violated the Connecticut Unfair Trade Practices Act and its confidentiality agreement, and failed to act in good faith in its dealings with Prospect.

Lawyers for Prospect said the company’s three Connecticut hospitals have struggled “for years, even pre-dating [Prospect’s] ownership.” They also accused YNHH of abandoning discussions.

“Yale New Haven Health has further frustrated closing by canceling numerous meetings with [Prospect] and instructing its counsel to decline and not appear for regularly scheduled closing calls,” lawyers wrote in the lawsuit.

In a statement Thursday, YNHH officials said they stood behind their May legal filing.

“Yale New Haven Health stands by our complaint, which outlines Prospect’s numerous violations of our Asset Purchase Agreement through serious mismanagement,” Dana Marnane, a spokeswoman for the health system, said. “The lawsuit filed by Prospect is a clear attempt to shift attention away from the for-profit, California-based company’s mismanagement of their Connecticut facilities and neglect of the communities who entrusted them with their care. We are prepared to defend ourselves against this suit, while pursuing our own litigation to the end.”

The state approved a certificate of need authorizing the hospital merger in March.

The Connecticut Mirror previously reported that surgeries at Prospect’s Connecticut hospitals were being postponed because health care providers didn’t have the needed resources. Contracts with traveling nurses and technicians were in jeopardy and had remained in place only on a “week-to-week” basis at one point last fall, physicians at the hospitals said. An anesthesiologist group sued over nonpayment of more than $3 million. And the cyberattack that crippled operations also set the hospitals back further financially, executives have said.

In January, CT Mirror reported that Prospect neglected to pay $67 million in taxes. The state has filed three liens against the California-based company.

On May 22, Gov. Ned Lamont met with the CEOs of YNHH and Prospect in an effort to move the stalled negotiations out of the courtroom.

Lamont’s spokesperson, Julia Bergman, said at the time the governor was encouraged by the meeting even if the parties left without an agreement.

“This is the first time the two CEOs have been in a room together, so we take that as a sign of progress,” Bergman said.

“The governor wanted to get everyone back together, away from the courtroom, to see if there was a way to move this forward,” Bergman said. “He continues to see this as the best deal and Yale as the best owner for the three hospitals.”

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