State officials trying to determine fiscal health of Prospect’s 3 CT hospitals find its finances murky

CT Insider – Tuesday, February 11, 2025
By Paul Hughes

WATERBURY — What state regulators are unable to find out about the finances of privately held Prospect Medical Holdings presents challenges for assessing the financial health of the troubled operator of three Connecticut hospitals, including Waterbury Hospital.

The state Office of Health Strategy questioned some of the financial information Prospect Medical Holdings provided in a follow-up report to the latest annual financial status filings for the state’s 27 acute-care hospitals and the five health systems that operate them.

OHS regulators said it was not possible to assess Prospect’s capital spending for the 2023 fiscal year because certain financial information was not reported, and they lacked confidence in some reported results, so they did not rely on them to make conclusions about Prospect’s overall financial status.

The follow-up report was issued after Prospect Medical Holdings filed for bankruptcy reorganization on Jan 11. OHS made note of the bankruptcy filing.

Prospect Medical Holdings is a California-based private equity company and its subsidiary, Prospect Connecticut, operates its three Connecticut hospitals — Waterbury Hospital, Manchester Memorial Hospital, and Rockville General Hospital in Vernon.

State regulators said while Prospect Connecticut submits required financial information to OHS, corporate parent Prospect Medical Holdings’ audited financial statements are not publicly available, and they are only able to review other publicly available sources on its financial status, including public court filings and news reports.

The OHS reported operating losses of $86.4 million for Prospect Connecticut for the 2023 fiscal year, including individual operating losses of nearly $27.9 million for Waterbury Hospital, $22.4 million for Manchester Memorial Hospital, and $10.6 million for Rockville General Hospital.

Waterbury Hospital reported operating revenue of $248.4 million and operating expenses of $273 million. In addition, the hospital reported a $3.3 million loss in nonoperating revenue.

Manchester Memorial Hospital reported operating revenue of $221.9 million and operating expenses of $229.4 million, plus a $14.9 million loss in nonoperating revenue.

Rockville General Hospital reported operating revenue of $34.3 million and operating expenses of $42.8 million. It also lost $2 million in nonoperating revenue.

Hospital regulators issued a follow-up report to the annual financial filings in January to provide more context and background for understanding the financial health and stability of the five major health systems, including ownership and composition.

The OHS follow-up report said Prospect Connecticut has reached a particularly concerning financial position, and it also stated, though limited information is available, that a few notable findings suggest the parent company is also in a concerning financial position.

The follow-up report noted that Prospect Medical Holdings filed for Chapter 11 bankruptcy protection on Jan. 11. The case is pending in a federal court in Texas.

The report also referenced allegations that Yale New Haven Health has leveled in state court that Prospect failed to operate its Connecticut hospitals in good faith, including paying rent and other expenses.

Yale sued Prospect last May to get out a purchase agreement to buy the three Connecticut hospitals for $435 million. Yale claimed that Prospect violated the agreement’s terms due to its irresponsible financial practices, severe neglect and general mismanagement that has left the three hospitals a shell of what they were when Yale agreed to acquire them in October 2022. Prospect countersued to compel Yale to complete the sale as negotiated. Prospect moved to have the consolidated state case moved to the federal bankruptcy court.

OHS regulators said they were unable to assess Prospect’s capital spending for the 2023 fiscal year because the company did not report depreciation and amortization information in its OHS filings.

The follow-up report noted there was high variability in measures of capital expenditures for the preceding five fiscal years. It said some of that variance may be related to a sale-leaseback agreement between Prospect and Medical Properties Trust, an Alabama-based real estate investment trust.

In 2019, Prospect sold its the buildings and grounds of its Connecticut hospitals to MPT and agreed to lease them back. It was part of a larger $1.6 billion sale-leaseback deal that also included Prospect’s real estate assets in California and Pennsylvania.

The MPT deal is widely seen as contributing to the financial difficulties of the three Connecticut hospitals. It added another operating expense, and OHS filings suggest it was significant.

Waterbury Hospital had recorded five operating surpluses totaling $123 million following its 2016 acquisition by Prospect until reporting a $10.7 million deficit reported in the 2022 fiscal year and a $27.9 million operating loss for the 2023 fiscal year. A financial summary filed in connection with the proposed sale to Yale indicated the losses carried into the 2024 fiscal year, with the hospital recording first quarter losses of $6.5 million.

OHS filings also showed that other expenses that Waterbury Hospital reported after personnel costs, supplies and drugs, depreciation and amortization, and interest expenses quadrupled from $68.1 million in the 2019 fiscal year to $273 million.

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