Prospect moves forward with hospital sale plans, promises to include CT parties in auction process

CT Insider – Wednesday, March 19, 2025
By Liese Klein

Prospect Medical Holdings secured a key approval in bankruptcy court on Wednesday to move forward with selling Waterbury, Rockville General and Manchester Memorial hospitals.

Bankruptcy court Judge Stacey Jernigan approved a deal with Prospect’s landlord, real estate investment trust Medical Properties Trust, that enables the hospitals to be sold with the land they sit on. She also approved a new plan for selling the for-profit company’s hospitals that would allow Connecticut pension plan representatives and state officials, among others, to sit in on an auction process.

Creditors including pension funds and Yale New Haven Health had objected to an earlier agreement that Prospect inked with Medical Properties Trust, arguing that the landlord had too much power to claim Prospect’s assets under the deal.

“(Prospect) and MPT are attempting to dictate the terms of a sale that leave the workers who participate in this pension fund high and dry,” said Andrew Costa-Kelser, an attorney representing the Hospital and Health Care Employees Pension Plan of Philadelphia.
Changes were made in the new MPT settlement to give a greater share of the proceeds of any Prospect hospital sales to creditors including the city of Waterbury and the state of Connecticut.

Speaking for the city of Waterbury, which is owed about $22 million in property taxes, attorney Grace Bregard said, “We wanted to make sure that all of the city’s rights and ability to collect those property taxes will be protected.”

Jernigan said she approved the revised MPT settlement to speed a sale, with the goal of avoiding months of litigation over the hospital properties and a situation where the hospitals would be pushed into bankruptcy again in the future by post-sale property disputes.

“Negotiating with these landlords and figuring out how to deal with them … it can slow down a sale process enormously,” Jernigan said at the hearing in North Texas Bankruptcy Court, which was live-streamed. “While we don’t have perfect smooth sailing, we have definitely created the potential for a much easier sale process.”

Wednesday’s hearing also featured an appearance by an attorney for Yale New Haven Health, which is involved in a legal fight with Prospect over a failed bid to buy the Connecticut hospitals for $435 million. Yale said last month that any deal with Prospect is now “impossible,” but the system filed a “reservation of rights” with the bankruptcy court to ensure that Prospect’s auction plans wouldn’t impact the ongoing lawsuit in Connecticut district court.

“We know they can’t linger in bankruptcy, and they’ve got to do something with these hospitals and we’re not here to stand in the way of that,” YNHH attorney Stephen Pezanosky said. “We just wanted to make sure that nothing in these bid procedures would somehow affect our rights.”

Prospect’s two Pennsylvania hospitals, which the company said earlier this month were days from closing down, got good news at Wednesday’s hearing. State officials confirmed that they were in the final stages of securing a deal to sell the hospitals and keep them operating in a low-income area south of Philadelphia.

Chief Deputy Attorney General Melissa Van Eck told the judge that an asset purchase agreement could be ready as soon as next week for the sale of the two Prospect hospitals, which were kept operating this month with $7 million in emergency funding from a local foundation.

“We are cautiously optimistic that we will have a long-term plan,” Van Eck said.

The bankruptcy court actions come as Connecticut lawmakers have amplified calls to keep private equity firms and real estate investment trusts like MPT out of Connecticut’s health-care market.

“What happened here in Waterbury and what has happened in Connecticut is an abomination,” U.S. Sen. Chris Murphy said Tuesday at an event in Waterbury.

At a hearing on Monday, members of the Legislature’s Public Health Committee expressed frustration at the fact that any state action to restrict the role of private equity and REITs in health care would come too late for Connecticut’s Prospect hospitals.

“We’re living right now with three bankrupt hospitals,” said state Rep. Cristin McCarthy Vahey, D-Fairfield. “To my chagrin, my sense is the horse has left the barn.”

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