Multiple buyers eyeing Prospect’s CT hospitals ahead of auction, state and local officials say

CT Insider – Thursday, May 22, 2025
By Liese Klein

Multiple buyers are interested in the three Connecticut hospitals owned by bankrupt Prospect Medical Holdings Inc. as the deadline for an auction approaches, according to state and local officials.

Prospect’s Waterbury and Manchester Memorial hospitals have been visited by interested buyers in recent weeks, according to local sources.

It’s unknown if Rockville General Hospital in Vernon, another Prospect property that has been partially closed since the pandemic, has been visited.

“The good news is we’ve got some folks who want to come in and take over as part of the bankruptcy procedure,” Gov. Ned Lamont said on Monday when asked about Prospect’s Connecticut hospitals and potential buyers.

“Those hospitals are going to be in good hands,” Lamont said, noting that the bankruptcy process could be “complicated.” He added: “But those hospitals are going to keep going. The patients are going to be safe.”

Waterbury Mayor Paul K. Pernerewski Jr. said he joins in a teleconference every two weeks with state and local officials on Prospect-related issues and learned during the most recent call that the bankruptcy auction was drawing interested bidders. The bankruptcy court judge had agreed to a timeline that sets a sales hearing for the three Connecticut hospitals as soon as June 5.

“My understanding is that there are a couple of companies that are interested,” Pernerewski said. He said he is optimistic that the court-supervised auction process will produce a buyer for Waterbury Hospital. “I am hoping to see it,” he said. Prospect owes the city of Waterbury nearly $22 million in back taxes.

Prospect declined to offer details on the auction timeline or the parties involved in the process and potential purchases.

Prospect’s chief bankruptcy lawyer, Thomas Califano of law firm Sidley Austin, updated the court at a hearing on Wednesday on the status of Prospect’s assets, with sales moving forward in California and Pennsylvania. Any potential deals for the Connecticut hospitals were not mentioned.

Judge Stacey Jernigan approved one deal at the hearing, the sale of Prospect assets in Rhode Island and California to Astrana Health which would result in $67 million in gross proceeds for the bankrupt company. That deal includes one California hospital and bypasses the bankruptcy auction process.

Restructuring firm bills $11.3 million in Prospect wind-down

The ramp-up in action around selling California-based Prospect Medical’s hospitals was not evident as of the end of April in the billing hours of the company’s restructuring firm, an outside consultant hired to manage assets as part of the bankruptcy process.

In its most recent staff filing with the court, consulting firm Alvarez & Marsal reported that its employees spent less time on tasks under the “sale” heading into April than in previous months. The busiest month so far was February, when the company spent 250.9 hours on sale activity, compared to 188.6 hours in April.

The surge in the February report likely reflects unsuccessful efforts to sell Prospect’s two ailing Pennsylvania hospitals. Both hospitals — Crozer-Chester Medical Center in Chester and Taylor Hospital in Ridley Park — shut their doors earlier this month, resulting in the layoff of about 3,000 employees and the loss of safety-net services in a low-income area south of Philadelphia.

Since Prospect’s bankruptcy was filed on Jan. 11, Alvarez & Marsal has charged the company’s estate more than $11.3 million in fees, according to court documents, with $814,000 going to Chief Restructuring Officer Paul Rundell alone at a billing rate of $1,350 an hour.

In bankruptcy cases, fees for restructuring firms, lawyers and court-appointed officials are billed to the debtor’s bankruptcy estate and come out of the company’s remaining assets.

In addition to Alvarez & Marsal, another court-appointed consulting firm, FTI Consulting Inc., has been paid $393,187 through April by the state of Connecticut, according to the Open CT database, which tracks state spending. The state signed a $1 million contract with FTI soon after Prospect’s bankruptcy filing for consulting services including the evaluation of potential bidders for the Connecticut hospitals.

Alvarez & Marsal did not respond to requests for comment on their fees and services. But in an essay posted on Alvarez & Marsal’s website entitled “The ABCs of the CRO,” the role of a chief restructuring officer is described as vital in the bankruptcy process.

“The number one reason for the failure of a business and the subsequent appointment of a CRO is the structural failure of management; or in other words, poor management,” the essay stated. Restructuring consultants must make tough decisions to restore stability, the essay continues: “A CRO is needed to implement actions, usually against an opposing force, be it the incumbent management or the workforce.”

Sidley Austin, the Chicago-based law firm that employs Prospect’s chief bankruptcy attorney, billed for just over $13 million for services through the end of March, according to another recent court filing.

The chief attorney, Thomas Califano, billed at $2,120 an hour and earned $665,680 for the 314 hours he worked in that time period. More than 30 Sidley Austin employees working on the Prospect case billed for at least $1,000 an hour, with the lowest-paid worker, a library research analyst, billing at $335 an hour.

Filings detail patient advocate’s billing, visit planning

The court-appointed patient advocate, who visited Prospect’s Connecticut hospitals in February, is being paid $525 an hour for her services and personally earned $190,050 in total from Jan. 30 through the end of March, according to another recently filed court document.

Suzanne Koenig, president of SAKHealthcare and the appointed ombudsman for Prospect’s hospitals, worked 362 hours in that period. Her company spent $5,299.32 on hotels and $8,728.37 on airfare for visits to Prospect’s hospitals in three states, charging a total of $319,209.17 for its services.

New court filings also detail the circumstances of Koenig’s February visits to Waterbury, Manchester Memorial and Rockville General hospitals, after which she issued a generally positive report on conditions at the facilities.

“The ombudsman did not observe any material issues impacting patient care requiring this court’s immediate attention,” Koenig wrote in her report.

In a document filed with the bankruptcy court on May 15, Koenig’s company details a timeline in which Koenig and her staff met with and briefed Prospect officials days ahead of visits to the Connecticut hospitals.

The day before a Feb. 17 visit to Manchester Memorial Hospital, Koenig spoke with Prospect CEO Deborah Weymouth and Connecticut Department of Public Health officials, according to the document. And on the day of the visit, Koenig met with Weymouth and the hospital’s chief nursing officer first before touring the facility.

Koenig’s visit to Manchester Memorial lasted 6.2 hours and cost Prospect’s bankruptcy estate $3,255 at the rate of $525 an hour for the patient advocate’s services.

A 9-hour visit to Waterbury Hospital on Feb. 18 included a meeting with Weymouth and the hospital’s quality team before tours of the birthing unit, Pharmacy Department, Dialysis Unit Laboratory Department and Telemetry Unit. That visit was billed at $4,275, with Koenig’s associate charging $475 an hour.

Koenig also billed $2,887.50 for 5.5 hours of work on Feb. 28 to conduct a series of “data analysis” tasks which appears to include responding to a CT Insider query on Prospect’s Connecticut hospitals. At the time Koenig declined any comment to CT Insider on her role due to restrictions by the bankruptcy court.

Prospect’s CT operations show positive cash flow, then outflow

Cash flowing out of Prospect’s estate to pay consultants and other bankruptcy officials continues as its Connecticut operations show positive financial results, according to the company’s first monthly operating report. Filed with the bankruptcy court on May 5 and showing results for February, the document is the first public glimpse of cash flow at Prospect Medical, a private company that is traditionally not required to disclose its financial results.

Prospect’s 20 different Connecticut entities — which include the three hospitals, the hospitals’ foundations, home health agencies, provider groups, imaging services and surgery centers — reported $49.1 million in receipts, or incoming funds, from Feb. 1-28. The company disbursed $36.2 million in outgoing payments during that same time period.

But every dollar of the more than $12.9 million surplus was then subtracted from Connecticut’s cash balance under the heading of “intercompany activity,” or a transfer to Prospect Medical divisions in other states, according to Thomas S. Marrion, a professor at the University of Connecticut Law School, partner at the law firm Hinckley, Allen & Snyder LLP and an expert in hospital bankruptcies.

“There’s a little bit going out from Pennsylvania, there’s a lot going out from Connecticut, and there’s a lot going into Rhode Island and California and Prospect Medical Holdings corporate,” Marrion said of the cash flows reported in the document. Prospect is based in Los Angeles and owns hospitals in both California and Rhode Island, as well as other states.

“There’s no other detail in here about exactly what those transfers were about. But it sure looks to me like there was money leaving Connecticut,” Marrion said. In bankruptcy cases, courts usually seek to keep the assets of divisions strictly separate to ensure that the individual creditors of each entity are paid back, he added.

“I expect there’s probably more to the picture than we’re seeing from this report,” Marrion said.
Prospect declined to comment on the $12.9 million in “intercompany activity.”

PA officials denounce hospital closures

Prospect’s decision to close its two Pennsylvania hospitals earlier this month has sparked outrage among state officials there, who vow to prevent private-equity-backed firms from acquiring health-care assets in the future. In addition to the two hospitals closed in Pennsylvania earlier this month, Prospect shut down two others in the state in 2022 and no longer operates acute-care hospitals there.

“Unfortunately, this community and the people who worked here and the patients who received quality health care here, well, they are now suffering from the cost of one company’s greed,” Gov. Josh Shapiro said at an event on May 16 in front of the shuttered Crozer-Chester Medical Center.

Shapiro called on Pennsylvania lawmakers to pass a bill that would give the state’s attorney general more power to block private equity firms like Prospect Medical from acquiring health care businesses.

“Contrary to the governor’s assertion, at all times, Prospect Medical negotiated and collaborated in good faith with the Commonwealth and other parties to find a viable path that would enable Crozer Health to remain open,” the company said in a statement issued after Shapiro’s event. “The outcome is extremely unfortunate and we are continuing to work to provide support for our patients and team members.”

Hoping for a better outcome in Connecticut, employees at Waterbury Hospital have witnessed inspections by potential buyers in recent weeks and have heard of bids being placed on the facility, said Ed Gadomski, an organizer with the hospital’s nurses and tech unions.

The union members are simply waiting for a new owner,” Gadomski said. “If a private equity ownership comes in, I fear a mass exodus of staff leaving and we are already short staffed as it is. No one is going to stay around to live through a second nightmare.”

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