Judge OKs pay boost for execs at bankrupt Waterbury and ECHN hospitals

CT Insider – Friday, June 13, 2025
By Liese Klein

Top executives of bankrupt Prospect Medical Holdings could get salary boosts in coming months as part of a court-approved incentive program.

Prospect, the California-based owner of Waterbury, Rockville General and Manchester Memorial hospitals in Connecticut, asked a bankruptcy judge on Tuesday to approve a “key employee incentive plan” that would give extra pay to six top executives for meeting financial benchmarks.

“If certain economic targets are met, certain value is met in the future of this case, the future sale, then these six employees will get a little bit of extra compensation,” North Texas bankruptcy Judge Stacy Jernigan said at the hearing.

Jernigan earlier agreed to seal documents detailing the amount of the incentives and the names of the six Prospect employees who could earn the extra pay. After approving the plan, she said that the amounts involved were not “eye popping” and in line with salary boosts approved as part of similar bankruptcies.

Prospect Medical Holdings did not respond to a request for comment on the executive incentive plan.

The salary boosts come as efforts intensify to sell Prospect’s Connecticut properties amid fallout from the closure of the chain’s two safety-net hospitals in Pennsylvania.

A representative of a group of creditors including the state of Connecticut and Waterbury hospital union members agreed Tuesday that the executive incentive plan was needed to keep Prospect’s hospitals running smoothly as they are eyed by at least four potential buyers.

“We do think this is a good use of the estate’s money to ensure that the process goes forward as best as it can,” said Charles Persons, an attorney representing the court-appointed Committee of Unsecured Creditors.

“We do not want to do anything to potentially scare off any bidders,” said Liz Young of the Office of the United States Trustee, a section of the U.S. Justice Department which oversees bankruptcy cases.

Multiple bidders

At least four bidders are involved in preliminary talks on purchases of Prospect’s California and Connecticut holdings, according to Dave Hannon, president of the Connecticut Health Care Associates District 1199. Hannon sits on Prospect’s Committee of Unsecured Creditors but spoke in his capacity as a union representative.

Prospect plans to name a “stalking horse” bidder to set a floor on sale prices by the end of the month, and is aiming to announce auction dates within “a few weeks,” said William Curtin, an attorney with law firm Sidley Austin that represents the bankrupt firm. Deadlines for sale hearings set earlier in the bankruptcy process have been extended.

Investment banking firm Houlihan Lokey Capital is working with Prospect’s landlord Medical Properties Trust and other parties to speed the hospital sales, Curtin added.

Also at Tuesday’s hearing, the judge approved nearly $4.2 million in fees for Houlihan Lokey Capital, which has been attempting to help Prospect sell its hospitals and other assets since the company’s Jan. 11 bankruptcy filing. That comes on top of more than $13 million billed by Prospect’s main law firm and more than $11 million by restructuring firm Alvarez & Marsal — all funds that come out of Prospect’s remaining assets.

Creditors like Waterbury Hospital’s unionized nurses understand the bankruptcy process is expensive, Hannon said.

“It is pretty typical for these proceedings, for bankruptcies with these huge health care systems,” Hannon said. “Everybody wants the best representation that they can get.”

Stability and hope

As for the executive incentive plan, Hannon said that stability in management was important at the Connecticut hospitals, which have faced years of uncertainty as Prospect’s finances deteriorated.

“It is concerning that these executives are getting these bonuses, and some of them are the same people that got us into this mess in the first place,” Hannon said. “On the flip side of that, I understand that a change in leadership at this point in the bankruptcy proceedings would probably not be a good thing.”

None of the bidders interested in the Connecticut hospitals have been publicly named, Hannon said, but deadlines have been extended to allow a fourth potential purchaser to do due diligence.

Employees remain hopeful for a brighter future for the hospitals under new ownership, but dread any future involvement of private-equity-backed firms like Prospect.

A bill died in the state legislature this session that would have allowed extra regulation of private equity firms seeking to buy Connecticut hospitals, but state officials have vowed extra scrutiny of any future deals.

“There are definitely some players that we don’t want in Connecticut,” Hannon said. “We probably don’t want any other private-equity-backed hospital systems in Connecticut because it’s only a matter of time before they collapse into themselves.”

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