Connecticut to pay up to $3M for consultant to monitor Prospect Medical Holdings bankruptcy

Stamford Advocate – Friday, April 11, 2025
By Paul Hughes

HARTFORD — The administration of Gov. Ned Lamont has up to $3 million set aside to pay a global consulting firm to monitor the Prospect Medical Holdings bankruptcy case and provide advice and assistance.

The state Office of Policy and Management and FTI Consulting Inc. signed a $1 million contract roughly two weeks after the California-based hospital chain that owns Waterbury Hospital, Manchester Memorial Hospital and Rockville General Hospital in Connecticut filed for Chapter 11 bankruptcy protection on Jan. 11.

OPM has paid to $197,578 under the contract for services FTI Consulting performed in February and March, said Chris Collibee, an OPM spokesman. A joint legislative-executive committee earlier this month approved OPM’s request for a $3 million transfer within its budget to cover consulting costs associated with the Prospect bankruptcy.

FTI Consulting offers specialized expertise in key aspects of the complicated bankruptcy proceeding and business dealings that proceeded the Chapter 11 filing. One of its responsibilities will be evaluating the qualifications and viability of any potential bidders for the three Connecticut hospitals in any a court-supervised auction process.

“The state of Connecticut remains focused on preserving access to safe and quality care and, through a cross-agency team, is actively evaluating all available options to transition operations of the three Prospect hospitals,” said Rob Blanchard, Lamont’s director of communications.

FTI Consulting operates offices in 84 cities across more than 30 countries, with its executive headquarters located in Washington, D.C. The company specializes in corporate finance and restructuring, forensic and litigation consulting, economic consulting, technology, and strategic communications. It serves customers in a variety of industries, including financial services, health care, insurance, real estate, and private equity.

The state attorney general’s office is representing Connecticut in the Chapter 11 proceeding.

Prospect Medical Holdings filed for Chapter 11 reorganization as a proposed $435 million sale of its three Connecticut hospitals to Yale New Haven Health teetered on collapse amid a state court battle Yale initiated to get out the purchase agreement alleging Prospect violated its terms due to its mismanagement of the hospitals after Prospect refused to lower the negotiated price to $150 million.

The Yale lawsuit and a Prospect counter suit to compel Yale to complete the sale as negotiated were joined, and the trial in the consolidated case was scheduled to start April 22. The Chapter 11 filing in a North Texas bankruptcy court put the state litigation on hold.

Yale declared the deal to buy the three Connecticut hospitals “impossible” to complete in statement issued Feb. 25. Eight days later, Gov. Ned Lamont, who had intervened to try to make the sale happen, stated that he thought the deal was over.

Prospect obtained bankruptcy court approval on March 19 to move forward with selling Waterbury, Rockville General and Manchester Memorial hospitals.

Prospect had sold the grounds of three hospitals to Medical Properties Trust in $1.6 billion financing deal in 2019 and leased them back from the Alabama-based real estate investment trust. The bankruptcy court’s March 19 decision approved a deal with Medical Properties Trust that enables the hospitals to be sold with the grounds they occupy.

Judge Stacey Jernigan at that time also approved a new plan for selling the three Connecticut hospitals that would include state officials and Connecticut pension plan representatives in a court-supervised auction process.

Total cost for consultant will not be known until case is over

The Finance Advisory Committee on April 3 approved a $3 million budget transfer that OPM requested for covering legal and financial consulting services associated with the Prospect bankruptcy case. The joint panel of state legislators and executive branch officials must approve internal transfers in state agency budgets of $325,000 or 25% of any specific appropriation, whichever is less.

At that time, Deputy OPM Secretary Paul Potamianos stated under questioning from Democratic and Republican legislators that the Lamont administration was unsure how much FTI Consulting’s services would ultimately cost. The final bill will depend on how much time FTI Consulting spends on the Chapter 11 proceeding, how long the bankruptcy case plays out, and how much longer the administration will require its consulting services after its conclusion.

The contracted hourly rates range from $420 for a junior consultant to $1,210 for a senior managing director. OPM also agreed to reimburse certain out-of-pocket expenses, including filing fees and court costs, commercial messenger and delivery services, expert witnesses, investigative services, and transcript or deposition costs, according to the contract.

Potamianos said OPM is not anticipating spending more the $3 million. If more funding is required before the current fiscal year ends June 30, OPM would have to return to the FAC.

The $3 million to cover FTI Consulting’s services was available because OPM will not be spending all of a $7.3 million appropriation for state oversight of financially troubled municipalities. Only the cities of West Haven and Hartford remain under the jurisdiction of the Municipal Accountability Review Board, and OPM determined the $3 million will not be needed to support those two communities.

Potamianos described FTI Consulting as well positioned to represent the state’s interests, citing its expertise in health care and bankruptcy. He stated FTI has been involved in advising Steward Health Care during its Chapter 11 bankruptcy proceedings, including advising the Unsecured Creditors Committee.

FTI Consulting was also appointed as a receiver to temporarily manage two Prospect-owned hospitals in Pennsylvania under an agreement between Pennsylvania Attorney General Dave Sunday and Prospect that Jernigan approved in February.

Potamianos said FTI consulting are going to be monitoring the bankruptcy proceedings and assessing potential outcomes and their possible effects on health care in Connecticut. He said the consultants will be engaging with debtor advisers.

If there is a court-supervised auction of the three Connecticut hospitals, FTI Consulting will be evaluating potential bidders to ensure they are qualified and viable entities, Potamianos said.

If necessary, the OPM contract provides that FTI Consulting will also help identify appropriate corporate restructuring options, including equitable receivership or involuntary bankruptcy. The company can be called upon to assist the state in filing a petition for equitable receivership or a petition for involuntary bankruptcy, including developing the evidentiary basis for either such filing.

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