Effort to regulate CT private equity hospital ownership fails again amid Prospect bankruptcy auction

CT Post – Sunday, June 8, 2025
By Paul Hughes

A renewed push to regulate private equity ownership of hospitals in Connecticut succumbed to the same knotty complications that frustrated last year’s first attempt to reach a consensus at the state Capitol.

The second setback leaves the state legislature and Gov. Ned Lamont to try a third time to forge some agreement on how to better manage private equity’s role in the health care sector in Connecticut in the 2026 legislative session.

“It is incredibly complex and where we go from here is we have to continue this conversation,” said state Rep. Cristin McCarthy-Vahey, D-Fairfield, the House chairwoman of Public Health Committee. “We need to stay at the table and figure out how we can adequately address this because the issue is not going away.”

A California-based private equity company’s ownership of Waterbury Hospital, Manchester Memorial Hospital and Rockville General Hospital presents a case study for Connecticut.

Prospect Medical Holdings Inc. purchased the three hospitals for a combined $205 million in 2016. Prospect made some initial investments and then siphoned off hundreds of millions and profited immensely, according to court documents.

Prospect consequently encountered serious financial troubles and decided to sell its Connecticut operations, and finally filed for Chapter 11 bankruptcy in January after Yale New Haven Health sued to get out a $435 million deal to buy the Prospect-owned hospitals claiming Prospect’s irresponsible financial practices, severe neglect and general mismanagement left those medical institutions a shell of what they were when Yale agreed to acquire them.

Now, the three Connecticut hospitals are being sold through a bankruptcy auction. There are widespread concerns that another private equity buyer could purchase the hospitals.

Waterbury Mayor Paul K. Pernerewski Jr. is someone who does not want to see that happen following Prospect’s ownership of Waterbury Hospital, one of the two hospitals serving his city.

“I will say that from our perspective here, just having lived through this, I’m hoping the next owner is not a private equity owner. I don’t think they will be,” he said.

Pernerewski said he has heard unofficially that there are at least three interested bidders for the Connecticut hospitals and none are private equity firms.

State senator blames Lamont for inaction

Lamont said he was surprised that no legislative action was taken in the 2025 session to increase oversight of private equity investment in hospitals and other health care facilities, health systems and medical practices.

But state Sen. Saud Anwar, D-South Windsor, the Senate chairman of the Public Health Committee, blamed the inaction on the governor’s resistance to stronger restrictions that he and other legislators advocated.

“We had a bill. It is a robust bill. We negotiated it. We had frank conversations and held public hearings. We heard everybody’s interests and perspectives,” said Anwar, a medical doctor specializing in pulmonary and critical care medicine and chairman of the Department of Internal Medicine at Manchester Memorial and Rockville General Hospitals.

One of the legislation’s central proposals would have prohibited private equity companies or real estate investment trusts from outright ownership of hospitals, but would have permitted private equity companies to participate in joint ventures as junior partners and minority owners. This provision was intended to prevent the type of business and financial practices that many believe have put Prospect-owned hospitals in jeopardy.

In 2019, Prospect under the ownership of private equity firm Leonard Green & Partners sold the land of the hospitals it owns in Connecticut, California and Pennsylvania to Medical Properties Trust for $1.4 billion, and then leased back those properties from the Alabama-based real estate investment trust. The sale funded a $457 million dividend for Prospect’s executives and investors.

The MPT deal is widely seen as contributing to the financial struggles of the three Prospect-owned hospitals because they were paying tens of millions in monthly rent while Prospect remained current. The company is also contractually owed $355 million of the $435 million sales price Prospect and Yale negotiated.

Anwar said he is deeply disappointed the legislation failed due to Lamont’s apparent opposition because there is nothing in state law to prevent private investors from buying hospitals and engaging in the same business practices that Prospect followed.

“We were ready to run the bill and we had the votes for it, but then we heard the House did not want us to run the bill because what I heard secondhand was the governor’s office did not want us to run the bill,” he said.

Anwar said the legislature must continue to try to translate the hard-learned lessons from Prospect’s troubled ownership and management of its Connecticut hospitals into legislative actions.

“I believe the right thing to do is to continue the work on this bill. We should have done this during the legislative session,” he said. “If people want to have more conversations, they’re welcome to do so. I am ready and open.”

Good private equity versus bad private equity

The policy disagreement between Lamont and state legislators like Anwar and McCarthy-Vahey boiled down to their approaches — more restrictions on private equity investment versus more oversight of private equity investment in hospitals, health systems, and medical practices.

“I think it is a problematic issue because, on the one hand, you want to protect private equity from coming in and pillaging our hospitals,” said House Minority Leader Vincent J. Candelora, R-North Branford. “On the other hand, you want to make sure good private equity is here investing in our hospitals, and all health care, not just hospitals, but physician offices. It is really a tough needle to thread.”

The Connecticut Hospital Association and the Connecticut State Medical Society also expressed the opinion that there are positives to private equity-backed investment and the hospital association advised that blanket prohibitions on certain activities are generally not the cure.

The two Democratic leaders of the Public Health Committee favored restricting the acquisition of hospitals by private equity firms and prohibiting sale-leaseback agreements between hospitals and real estate investment trusts like a 2019 deal Prospect and MPT did.

“It is going to take a lot more negotiation because the monied interests are really powerful,” McCarthy-Vahey said. “Private equity’s role and goal is to create a profit and health care is to provide health care, and we need to make sure that we’re keeping in line with providing safe, accessible health care for our patients.”

But Lamont viewed restrictions and outright prohibitions on private equity investment as too heavy-handed. He advocated increasing oversight of private equity investment in the health care sector.

“I thought we had a pretty good middle ground, which is we get a right to opine on any change in structure in a hospital that involves private equity,” Lamont said.

The governor proposed changes to the existing “notice of material change” statute to give state attorney general’s office and the state Office of Health Strategy greater authority and more notice to scrutinize proposed transactions and expand the transactions subject to this greater regulatory scrutiny, including a corporate merger, the sale of a hospital’s property to a real estate investment trust, or the sale of a majority share of a physician practice to a private equity firm.

Pernerewski, the Waterbury mayor, said he sympathizes with the goals of Anwar, McCarthy-Vahey and liked-minded legislators in his heart, but his head believes the governor proposed a better, more practical and balanced approach.

“The simplest thing, but I’m not necessarily sure it would always be the right thing, but the simplest thing would have been to simply say you can’t do it, and then there is no issue around it,” he said.

“But I think the more realistic approach has to be to make sure your oversight is sufficient in place to see what is going on to make sure that there are mechanisms in place to keep the kind of things that happened here, which is the wholesale selling of the assets to a third party and creating these burdensome leases and the rest, are not happening.”

Pernerewski said statutory restrictions and prohibitions that legislators were contemplating could have impeded Pennslyvania-based PAM Health from opening a $35 million, 42-bed inpatient rehabilitation hospital for acute care on Harper’s Ferry Road in Waterbury.

“So, there is always the danger that you react to this incident, which was horrific, but in doing so you could take a player like PAM Medical out of the picture,” he said.

The Office of Health Strategy last July approved a required certificate of need for PAM Health at Waterbury LLC, a joint venture that is 70% owned by PAM and 30% owned by Prospect Waterbury Inc., the Prospect subsidiary that owns Waterbury Hospital, according to state filings.

McCarthy-Vahey said administration representatives, state legislators, health care industry leaders and other stakeholders need to use the lead-up to the 2026 legislative session to continue working on trying to find middle ground and lay the groundwork for enacting legislative solutions next year.

“I am hoping to start in the late summer,” she said.

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