Tim Tai, Senior Photographer

Yale New Haven Health System and Prospect Medical Holdings have sued each other this year over a $435 million agreement to purchase Waterbury Hospital, Manchester Memorial Hospital and Rockville General Hospital. 

Months after the state gave YNHHS the green light to finalize the acquisition, the system filed a lawsuit against Prospect, in which it alleged that Prospect’s financial mismanagement and operational failures of the three Connecticut hospitals violated their purchase agreement. In June 2024, Prospect Medical Holdings filed a countersuit against YNHHS, charging that the system had “actively worked to prevent” closing the deal to try to get a lower purchasing price. 

“The collapse of the deal for YNHH to acquire the three Prospect hospitals has a detrimental impact on the communities they serve,” Connecticut state Senator Saud Anwar, who chairs the Public Health Committee, wrote to the News. 

YNHH system includes five hospitals across Connecticut and Rhode Island. On Oct. 5, 2022, the system signed the agreement to acquire three new Connecticut hospitals from Prospect Medical Holdings. The acquisition would add 700 more beds and roughly 4,400 more employees to the health system. 

Although YNHHS assured residents that this would be a smooth transition, skepticism persisted amongst healthcare seekers. Ted Doolittle, the state’s appointed healthcare advocate said that “it’s probably more likely to be a net negative for the families in the state,” citing evidence of hospital prices rising after similar acquisitions. 

According to Anway, the three hospitals currently serve “nearly half a million people in their coverage areas” and employ “thousands locally.”

Since early 2024, YNHHS and Prospect have been at odds over whether and how to close the purchase agreement. The conflict escalated in January 2024 when YNHHS proposed lowering the purchase price, citing deteriorating conditions at the three hospitals due to a six-week-long cyberattack. 

The state permitted YNHHS to acquire the hospitals in March, but Prospect rejected the proposal. In response, YNHHS filed a lawsuit in May alleging that Prospect violated the initial terms of the agreement. 

In the lawsuit, YNHHS claimed that the conditions required to close the deal could no longer be met due to Prospect’s neglect and mismanagement. YNHHS alleged that Prospect failed to meet safety and sanitization standards, mishandled medical samples and drugs and neglected to pay rent, resulting in significant debt. The system also claims that Prospect failed to provide timely financial documents required for auditing, in violation of the asset purchase agreement.

“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, stated in a May 2024 press release statement to the News. 

Prospect Medical Holdings disputes the system’s claims. In its own June 2024 lawsuit, Prospect accused YNHHS of suing to escape its obligation to acquire the three “safety-net” hospitals, which provide significant care to “Medicaid, low-income, uninsured, and chronically ill patients,” which are crucial to their communities according to the suit.

Prospect contends that the operational challenges highlighted by YNHHS do not justify terminating the deal or reducing the purchase price. The company points out that hospital patient volumes and financial performance have improved since the cyberattack. Additionally, Prospect argues that YNHHS was aware of the challenges facing the hospitals before entering the agreement and that many of the problems predated Prospect’s ownership.

The legal battle has drawn attention to Prospect’s prior allegations of mismanagement. Last year, Prospect was sued by the Rhode Island Attorney General, who claimed that the company owed more than $24 million to vendors in the state. 

Reports have highlighted financial irregularities at Prospect, including accusations that the company changed vendors to avoid payments and regularly issued bounced checks as part of its cash management process. Recently, Medical Properties Trust, the landlord for the Prospect hospitals, revealed that Prospect failed to pay rent for April and May 2024. 

Despite the mounting allegations, Prospect remains determined to finalize the acquisition and vowed to take legal action to ensure that the transaction is completed on the original terms.

Anwar urged “look[ing] at long-term implications” and wrote that “it’s in the state’s best interest these parties talk to each other and develop a plan to provide care in this region and preserve jobs for highly trained and qualified staff in the health care system.”

When the News asked Marnane about the next steps that YNHHS plans to take, she wrote, “YNHHS’ top priority is ensuring we can devote adequate resources to these facilities to meet their communities’ needs while also maintaining the financial stability of our current hospitals.” 

Prospect Medical Holdings was established in Los Angeles, California, in 1996.