This story has been updated.
State officials will allow California-based Prospect Medical Holdings, owner of three troubled hospitals in Connecticut, to pay at least $12 million less than it owes in provider taxes, though state officials gave few details Thursday about the agreement or how the money would be repaid.
Prospect was hit with three liens late last year for failing to pay the state $67 million in taxes.
“It’s a negotiation,” Gov. Ned Lamont said Thursday. “[We’re] making sure we’re senior creditors in this transaction and the taxpayers get paid back.”
“We’ve been helping out a lot of hospitals in part by them not paying their taxes that are due,” he said. “We’re going to get paid back.”
Representatives with Prospect Medical and Yale New Haven Health, which has moved to purchase Prospect’s three Connecticut hospitals, could not be reached for comment.
The reduction in taxes for Prospect was included in the state’s approval Wednesday of Yale New Haven Health’s plan to acquire Prospect’s three Connecticut hospitals — Manchester Memorial, Rockville General and Waterbury Hospital.
[CT approves Prospect Medical-YNHH deal, paving the way for sale]
“The settlement does require at least $55 million to be paid back to the state in order for the asset purchase agreement to go forward or for the certificate of need to be to be finalized,” Deidre Gifford, executive director of Connecticut’s Office of Health Strategy, said at a press conference Thursday. “It does not mean that that’s the total amount. It just means $55 million is included in the settlement.”
The $12 million represents interest and fees on $55 million in unpaid taxes, sources told The Connecticut Mirror. The commissioner of the Department of Revenue Services can negotiate settlements with delinquent taxpayers.
Connecticut officials filed three liens against Prospect in December for failing to pay taxes. Records show Prospect Waterbury Inc. owes the state $36.39 million, Prospect Manchester Hospital Inc. owes the state $22.9 million, and Prospect Rockville Hospital owes $8.1 million for a total of $67.39 million.
The hospital group neglected to pay the state its share of what is known as the health provider tax or hospital user fee, which requires hospitals, nursing homes and other health care providers to pay the state an annual tax based on their revenues.
Prospect hasn’t paid taxes dating back to March 2022, according to the three liens obtained by The Connecticut Mirror. The taxes are supposed to be paid quarterly, and at least one more tax bill has come due since the liens were filed. It was unclear if Prospect paid its most recent bill.
By filing the lien, the Department of Revenue Services was protecting the state’s interest if the hospital chain were to file for bankruptcy or be sold.
Gifford said there are other ways for the state to recoup tax money, though she did not elaborate on what actions officials might take. She referred questions to the Department of Revenue Services.
“I don’t want to reveal information that shouldn’t be revealed. I will say the state has other opportunities to recoup funds from hospitals,” she said.
Mark Boughton, commissioner of revenue services, could not be reached for comment.
The state authorized the sale after 16 months of consideration, paving the way for completion of the deal. But the long-awaited approval is only the first step. The two hospital chains must now finalize a private deal that was first agreed upon nearly two years ago but is now in danger of falling apart.
YNHH initially agreed in April 2022 to pay Prospect Medical $435 million to purchase Waterbury Hospital and the Eastern Connecticut Health Network, which includes both Manchester Hospital and Rockville General Hospital.
But after a cyberattack debilitated operations across the three facilities for weeks and news of Prospect’s growing debts came to light, Yale balked at the purchase price and is seeking to renegotiate it. Hospital leaders have said Prospect owes tens of millions of dollars to vendors and physicians under contract, as well as to the state for provider taxes.
[Inside the cyberattack at Prospect Medical Holdings’ CT Hospitals]
Lamont said he stood by his earlier pledge that the state would not put any money into the private deal and that the two sides needed to work it out. He added that with the state’s part taken care of, it was time for Prospect to step up.
“Yale New Haven and the state are on the same page,” he said Thursday. “Now’s the time for Prospect to come to the table and get the deal done.”
Sen. Saud Anwar, co-chair of the legislature’s Public Health Committee and a physician under contract at Manchester Memorial, said the reduction in taxes appeared to be an attempt to move the deal along.
“In trilateral negotiations, there are multiple moving parts. And while I’m not privy to the details, I believe in order to move things forward, this could have been used to bring the parties together to find common ground and keep this deal moving forward,” he said.
State officials call for passage of hospital financial oversight bill
Lamont, Gifford and Dr. Manisha Juthani, the state’s public health commissioner, urged passage Thursday of a bill that would implement a series of reforms to enhance hospital financial oversight.
The measure would require notification to the state if 10% or more of the assets owned by a hospital, including real estate, are transferred to another person or entity, or if an issuance of dividends during any three-year period exceeds 20% of the net worth of a hospital.
The proposal would also give the state more authority to penalize hospitals that fail to report adverse events.
“Right now, we have limited recourse. The only thing we can do is say we’re going to suspend the whole license of the hospital, which we wouldn’t do for just one adverse event,” Juthani said. Under the bill, “if a hospital doesn’t report an adverse event in a timely fashion, we now would have the authority to impose a civil penalty that we did not have before.”
The measure also sets up guidelines around state involvement in hospital diversions.
“Whenever a hospital calls or says it need to go on diversion, right now we have no authority and there is no guidelines as to who goes on diversion and when that happens,” Juthani said. “Basically, that’s something that is just determined by the hospital industry on their own.
“This would put in some guidelines and rules around what qualifies you to go on diversion. You would have to notify the health department that you’re going on diversion. [That] could really help us ensure that patients, if they are sick, are going to an appropriate hospital and there’s enough bandwidth in the community to be able to accept patients into the emergency department.”
The Public Health Committee advanced the bill earlier this month.
In his budget proposal, Lamont also recommended adding four positions to the Office of Health Strategy, one of which would support “expanded” financial monitoring of hospitals, “to develop advanced warning of financial distress,” and to strengthen Connecticut’s certificate of need review process.
This story was updated to reflect that the $12 million figure represents interest and fees on unpaid taxes.