Connecticut hospital owner owes $56 million in back rent, new court docs say

CT Insider – Monday, December 2, 2024
By Liese Klein

Add landlord issues to the litany of woes facing the for-profit owner of three Connecticut hospitals.

Prospect Medical Holdings, which owns Waterbury, Manchester and Rockville General hospitals, stopped paying rent on its hospitals after signing a deal to sell to Yale New Haven Health and had to sign over an ownership stake to its landlord as a court fight over the deal’s price dragged on, according to a recent court filing. Prospect’s rent issues were detailed in court documents filed Wednesday as part of lawsuits filed relating to the deal’s purchase price.

Yale New Haven Health agreed to pay $435 million for the three Connecticut hospitals in October 2022, but has argued in court that Prospect began neglecting its properties almost immediately after the deal was struck, in addition to failing to pay over $100 million in taxes to the state and the city of Waterbury, according to state and local officials. Prospect has also been shortchanging employee pension plans in Connecticut and Pennsylvania, according to the Pension Benefit Guaranty Corporation.

Employees have alleged short-staffing and poor maintenance at the hospitals in recent years: Prospect’s Waterbury Hospital was fined $60,000 and required to hire an independent monitor on Nov. 22 after a series of surprise inspections found unspecified violations of the state’s health code.

It turns out Prospect also stopped paying rent to its landlord soon after the Yale New Haven Health deal was announced in October 2022.

By May 2023, Prospect owed $56 million in back rent to Medical Properties Trust, the Alabama-based real estate investment trust that bought the buildings and land under Prospect’s Connecticut hospitals in 2019, according to this week’s court filings. Prospect did not return a request for comment.

Prospect earned $1.5 billion in 2019 for selling hospitals in Connecticut, California and Pennsylvania to Medical Properties Trust, with much of that windfall going to executive pay and shareholder dividends, according to documents obtained by the Rhode Island Attorney General in a case involving the company’s hospitals in that state.

Hospital “sale-leaseback” deals have earned landlord Medical Properties Trust about $1.9 billion in rent and mortgage interest on its national holdings since 2016, according to the company’s third-quarter earnings call on Nov. 7.

In Connecticut, Prospect owed Medical Properties Trust $314 million in loans in addition to the $56 million in back rent on its Connecticut hospitals when the landlord agreed to a deal last year that would give it a $103 million equity stake in its affiliate PHP Holdings, LLC., according to the new court filings.

Yale New Haven Health argued in the Wednesday filing that Medical Properties Trust is refusing to cooperate with requests for additional documents relating to Prospect’s Connecticut hospitals that would fully outline the chain’s debts and defaults.

The Yale New Haven Health-Prospect Medical Holdings civil case is scheduled to go to trial in late April in Hartford Superior Court. The latest court filings are related to a Dec. 31 deadline for information-gathering ahead of the trial.

Amid losses, hospital landlord takes control

Prospect’s court battle comes as its landlord faces significant losses related to its former No. 1 tenant Steward Health Care, a Massachusetts-based chain of community hospitals that collapsed this year amid bankruptcy and allegations of “greed and mismanagement” by its executives, according to Massachusetts Gov. Maura Healey.

Federal agents briefly detained Steward’s former CEO last week as part of a corruption probe, and two of the chain’s seven Massachusetts hospitals have since closed, the Boston Globe reported.

“With Steward’s removal from our portfolio, we look forward to demonstrating the strength and resilience of our diversified portfolio of hospital real estate and the importance of our business model to an industry in desperate need for more capital solutions,” Medical Properties Trust said in a statement with its recent earnings report.

In addition to Steward’s collapse, Prospect’s poor performance and the stalled Yale New Haven Health sale were blamed in part for the Medical Properties Trust’s $801 million loss in the third quarter. “Prospect’s operating losses in multiple East Coast markets that it is attempting to exit … have adversely impacted overall liquidity,” the company said.

Accusing Prospect of defaulting on debt tied to its California hospitals, Medical Properties Trust recently escalated its actions, according to Bloomberg News. The landlord demanded in a Nov. 18 letter that the board members of three of Prospect’s health-care entities in California resign so they could be replaced by designated independent managers, Bloomberg reported.

Medical Properties Trust’s recent dealings with Prospect in California are directly related to its Connecticut court case, Yale New Haven Health said in a filing on Wednesday.

“(Medical Properties Trust) ‒ including the MPT Connecticut Entities ‒ possesses highly relevant and responsive materials that have not been produced,” Yale New Haven Health said in its motion. “(It) goes without saying that these are relevant to the allegations of this case, where Prospect’s declining financial condition…and its failure to satisfy its obligations to MPT are directly at issue.”

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