Alyssa Chang, Staff Photographer

The Yale New Haven Health system is suing Prospect Medical Holdings to opt out of a hospital purchase agreement initially valued at $435 million.

The Yale New Haven Health System alleges that Prospect’s neglect, mismanagement and irresponsible financial practices violate prior agreements. These violations include failing to meet safety and sanitization standards, mismanaging medical samples and drugs, neglecting infrastructure repairs, incorrectly administering treatments and breaching abuse policy. 

Additionally, the healthcare system cited cybersecurity concerns and financial shortcomings at the Prospect hospitals, including millions in unpaid compensation to hospital workers and debt stemming from rent, interest and unpaid taxes. 

“We simply cannot jeopardize the sustainability of our health system by moving forward with the acquisition as it stands,” Dana Marnane, director of public relations at Yale New Haven Health, wrote in a press release statement sent to the News. 

The network’s negotiations with Prospect for the acquisition of Waterbury Hospital, Rockville General Hospital and Manchester Memorial Hospital started on Feb. 4, 2022, when the Yale New Haven Health System signed a letter of intent to acquire the Prospect Hospitals. After months of negotiations, the parties signed a purchasing agreement on Oct. 5, 2022.

In order to close the acquisition deal, the healthcare system outlined requirements that Prospect needed to satisfy, which included maintaining consistent business practices, protecting patient and employee personal data, remaining current on all payment obligations and complying with all relevant state and federal regulations. 

“Prospect has proven unwilling to make a good faith effort to reach an agreement, leaving YNHHS no choice but to pursue a complaint to obtain a declaration that Prospect is in breach of the Asset Purchase Agreement (APA) and that Yale New Haven Health does not have an obligation to close the transaction on the original terms,” Marnane wrote to the News. 

In a written statement reported on in the CT Mirror, Prospect officials called the suit “a blatant, 11th hour attempt by Yale Health to back out” of the contract and that they will be seeking legal action, “including completion of transaction,” to ensure Yale completes the deal. 

Prospect did not immediately respond to requests for comment.

A Pattern of Repeated Regulatory Violations

According to Friday’s complaint written by the Yale New Haven Health Services Corporation, state and federal regulators issued notices that regulatory violations at Waterbury Hospital, Rockville General Hospital and Manchester Memorial Hospital jeopardized the health and safety of patients, subsequently violating the ordinary course of business. 

In June 2023, the Connecticut Department of Public Health uncovered that a patient died after the Waterbury Hospital Laboratory failed to process the patient’s blood work in a timely manner, per the complaint. 

The department also identified 20 violations of the Regulations of Connecticut State Agencies to Waterbury Hospital.

The violations include failing to sanitize operating room equipment, leaving it rusty; failing to properly label medication, resulting in staff being unable to identify expiration dates; and failing to complete criminal background checks on 25 new hires who had direct access to patients and their records.

On Oct. 11, 2023, the Centers for Medicare & Medicaid Services issued a notice to Manchester Memorial Hospital as a result of the hospital failing to investigate allegations that a registered nurse engaged in intimate relations with patients in hospital rooms before and after discharge. According to the complaint, this nurse was not removed from patient care areas or placed on administrative leave, violating Manchester Memorial Hospital’s abuse policy. 

Additionally, the state’s Department of Public Health identified 13 regulatory violations at Manchester Memorial Hospital, including losing a sample of potentially cancerous cells collected during a surgery, using an incorrect implant during a knee surgery and failing to ensure that patients with infections received antibiotics. 

In November 2023, the department issued another notice of noncompliance to the hospital for failing to implement continuous safety precautions to prevent infant abductions.

Like Manchester Memorial Hospital, Waterbury Hospital faced consequences from both the department and the Centers for Medicare & Medicaid Services. On Jan. 3, 2024, the state’s Department of Public Health issued a notice of noncompliance to Waterbury Hospital for allegedly neglecting to ensure that the breakers feeding electrical power to the system were replaced, resulting in the heating, ventilation and air conditioning system losing power. Instead of paying to repair the system, the hospital did not take action for five months. 

In addition to leaving patients and staff without air conditioning during the summer months, the heating, ventilation and air conditioning system failure also led to the cancellation of surgeries because of an inability to maintain adequate humidity and temperature levels. 

On Jan. 26, 2024, the Centers for Medicare & Medicaid Services reported that, because of substantial noncompliance, Waterbury Hospital no longer met the requirements for participation in Medicare, and was placed under a state survey agency. 

Then, on March 11, 2024, the Health Department identified 18 violations at Waterbury Hospital, citing patient abuse and improper administration of anesthesia.

Cybersecurity Concerns

On the morning of Aug. 1, 2023, the three Prospect hospitals fell prey to ransomware as an unauthorized party entered the Prospect hospitals’ electronic environments, gaining access to the protected health information or indefinable information of approximately 110,000 patients and employees, per the complaint.

“Defendants’ insufficient cybersecurity measures and investment have further contributed to the downturn of the hospitals,” read Friday’s complaint.

The complaint notes that, prior to the breach, Prospect’s chief information security officer resigned, but that Prospect is still yet to fill the position. 

Weeks after the cyberattacks, Manchester Memorial Hospital lost over 30 percent of its patient population, as the hospital could not receive new patients until Aug. 28, 2023. Patients arriving at the hospital had to be moved to facilities in Connecticut and in neighboring states, per the report.

“Waterbury Hospital’s emergency department diverted so many patients to Saint Mary’s Hospital that Saint Mary’s emergency department became overrun, with patients sitting on the floor and waiting on gurneys in hallways for days before being admitted,” read the report.

After the breach, the three hospitals were unable to bill Medicaid and other insurance providers, resulting in the state Department of Social Services advancing the hospitals $7.5 million.

Following the cyberattack, Yale New Haven Health submitted a certificate of need application to the state with a recovery plan for the hospitals, including a request for financial support from the state. The Connecticut Office of Health Strategy signed off on the certificate. 

Financial Shortcomings

The Yale New Haven Health System’s decision to sue is also fueled by the Prospect hospitals’ failures to pay vendors and physicians. Lawyers representing the corporation cited a report revealing the hospitals owed $5.9 million to local vendors and $5.18 million in unpaid compensation to physicians in November 2023.

According to the complaint, these financial failures resulted in nurses and physicians from the three Prospect hospitals rallying at the state capitol in Hartford to protest their lack of payment. 

“The value of the assets has declined dramatically due to Prospect’s failure to pay physicians and vendors including Yale Medicine, the non-payment of state provider and municipal taxes, and the impact of a massive cybersecurity event caused in part by a lack of investment in technology which exposed patient, employee and dependent data and rendered Prospect CT unable to bill for services,” Marnane wrote to the News.

Additionally, the complaint states that neither Waterbury Hospital nor Manchester Memorial Hospital have been able to pay for elevator services, resulting in staff carrying patients up and down the stairs. 

Prospect also owes millions in rent, interest and unpaid taxes. According to the report, Prospect owed $56 million in accrued rent and interest and $400 million in loans. In December 2023, the state of Connecticut filed three tax liens against Prospect for failing to pay provider taxes since March 2020. In total, the report reads, the three hospitals owe $67.39 million.

According to the complaint, Prospect’s mismanagement and financial irresponsibility diminished the hospitals’ values.

In the Prospect statement, they wrote that despite what Yale wrote in the complaint, Prospect was only notified that there had been “material adverse effect on the hospitals’ finances and operations” on March 27, 2024, and that they made a “good-faith price reduction in an attempt to move the negotiations forward.”

Prospect further wrote that their Connecticut hospitals’ patient volumes and finances had “rebounded significantly.” 

Prospect Medical Holdings owns 16 hospitals in four states.