Dive Brief:

• Yale New Haven Health will pay Prospect Medical Holdings $45 million to exit a previous agreement to purchase three Prospect hospitals in Connecticut, according to documents filed in a bankruptcy court on Friday.
• The parties agreed to a sale in 2022, but closing the deal proved highly contentious. Last year, Yale New Haven sued to get out of the deal, claiming Prospect failed to satisfactorily maintain the facilities per the asset purchase agreement. Prospect then launched its own counter suit asking the court to hold Yale New Haven to the arrangement.
• The fate of the hospitals has been an open question as Prospect, which has filed for bankruptcy, works to sell assets throughout its portfolio. Attorneys for Prospect said in court filings that the current agreement represents a compromise and that “everyone’s pretty satisfied” with the arrangement.

Dive Insight:

At the heart of the dispute is Yale New Haven’s prior agreement to purchase Prospect’s Waterbury Hospital, Manchester Memorial Hospital and Rockville General Hospital for $435 million.

The two companies became at odds over sale terms last year, when Yale New Haven alleged Prospect had failed to pay staff and vendors on time, amassed numerous regulatory investigations and violations, and neglected to implement basic cybersecurity measures, contributing to the system’s ransomware attack in 2023. 

Prospect later countersued, alleging Yale had intentionally stalled the sale and was trying to renege on the agreement to get a better purchase price. 

Prospect filed for bankruptcy in January, revealing the extent of its financial troubles — including at least $1 billion in liabilities. Yale New Haven said the bankruptcy provided “proof of [Prospect’s] disinvestment and mismanagement.”

The current deal will end the competing litigation. It was negotiated with the help of Prospect’s landlord, Medical Properties Trust, which is serving as Prospect’s debtor-in-possession (DIP) financier through bankruptcy, according to Prospect attorneys.

In a statement Monday, MPT said it expects the $45 million to go to paying down MPT’s $105 million DIP loan to Prospect.

A judge is slated to approve settlement terms on Oct. 10.

Meanwhile, Prospect is still hunting for buyers for the beleaguered Connecticut hospitals. 

Connecticut-based system Hartford HealthCare has offered $86.1 million to purchase Manchester Memorial and Rockville General, according to a Sept. 18 court filing. The company’s subsidiary, ECHN Holdings Inc., will serve as the stalking horse bidder for the hospitals in an upcoming auction, allowing the company to set a floor price.

Hartford HealthCare has seven acute care hospitals and over 500 locations across Connecticut, according to its website. Last year, it received a high credit rating from Fitch Ratings, which found the system had a stable outlook, strong outpatient volumes and a well-performing investment portfolio.

University of Connecticut Health, meanwhile, has said it wants to buy Waterbury Hospital.

“We are excited about the potential to assist the State in preserving access to care in the Waterbury region, while at the same time bringing UConn Health’s nationally recognized quality of care, top rated patient experience and expansive specialty services to more communities,” Dr. Andrew Agwunobi, CEO and EVP for Health Affairs at UConn Health, said in a statement about a possible deal.

Other buyers could still emerge, as none of the deals have been finalized.

Completed sales would end Prospect’s presence in Connecticut, a development that state lawmakers and regulators are likely to cheer. Since Prospect filed for bankruptcy, Connecticut lawmakers have heavily criticized Prospect and its former private equity owner, Leonard Green & Partners, for mismanaging hospitals in the state at the expense of patient care.

State lawmakers are currently weighing adding more restrictions on private equity ownership in healthcare, following the example set by Massachusetts and Oregon earlier this year.