The state has filed three tax liens against Prospect Medical Holdings because the California company has neglected to pay $67 million in taxes, records show.
The liens, filed by the Department of Revenue Services late last month, show that 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 has failed to pay the state its share of what is known as the health provider tax or hospital user fee, which requires every hospital, nursing home and other health care providers to pay the state a tax annually based on its revenues. Prospect hasn’t paid taxes dating back to March 2022, according to the three liens obtained by The Connecticut Mirror.
By filing the lien, the Department of Revenue Services is protecting the state’s interest if the hospital chain were to file for bankruptcy or be sold. Any sale would be contingent on the state getting paid the back taxes.
Prospect is negotiating with Yale New Haven Health to sell the three hospitals for $435 million, but the deal needs final approval from the state Office of Health Strategies, which has been reviewing it for more than a year.
[RELATED: YNHH sale ‘paramount’ to CT Prospect hospitals’ survival, CEO says]
The two hospital groups and OHS officials have quietly been meeting over the past few months to iron out an agreement.
Many legislators, hospital employees and mayors have appealed directly to Gov. Ned Lamont to intervene and push to get the sale finalized.
“My administration continues to closely monitor all three Prospect-owned hospitals to ensure they continue to provide safe, quality health care to patients,” Lamont said Tuesday in a statement. “At the same time, I’m fighting on behalf of state taxpayers to get the money back.”
Yale New Haven Health Director of Public Relations Dana Marnane declined to comment Tuesday. Prospect officials did not immediately return requests for comment.
Meanwhile, as the months pass, hospital executives, legislators and local officials say the threat of closure is growing, with the Prospect hospitals owing tens of millions to vendors and physicians on top of the taxes.
Surgeries have been postponed because health care providers don’t have the needed resources. Contracts with traveling nurses and technicians are in jeopardy and remain in place only on a “week-to-week” basis, physicians at the hospitals said. An anesthesiologist group is suing over nonpayment of more than $3 million.
In November, lawmakers and health care workers from the three hospitals rallied at the state Capitol in an effort to speed up the deal.
The hospitals were also hit with a cyberattack over the summer that crippled operations and set them back further financially.
Sources have told CT Mirror that YNHH officials are seeking $16 million per year over five years, or $80 million total, from the state to help with recovery efforts from the cyberattack across the Prospect-owned hospitals, to update computer systems and to address “deteriorating” conditions at the facilities.
YNHH has also asked Prospect Medical to adjust the previously agreed upon purchase price of $435 million to offset some of the extra costs that Yale New Haven Health would incur, such as paying back taxes, if the sale goes through.
As part of the proposed merger, Yale New Haven Health also had to submit the deal to the Federal Trade Commission for approval. Under the Hart-Scott-Rodino Act, the FTC and the Department of Justice review most of the proposed transactions and can take legal action to block deals that they believe would “substantially lessen competition.”
YNHH officials said the FTC approved the merger in March 2022, and they had one year to act under that approval. But because the state’s Certificate of Need process wasn’t completed by the time the FTC approval period expired, YNHH had to apply again. That application was approved in July 2023. Both of those applications also were reviewed by state Attorney General William Tong’s office.
Prospect did owe the two towns where the hospitals were based — Manchester and Vernon — about $1.7 million, but they have paid all of their back taxes and are current in all three towns, according to city officials in each town.
The industry was projected to pay $850 million this fiscal year into the health provider tax, but to date the state has received about $800 million from hospitals, according to Lamont’s budget agency, the Office of Policy and Management.
The provider tax has a checkered past and began imposing significant financial burdens on Connecticut’s hospital industry not long after legislators broadened the tax in 2011 to include hospitals.
Originally it was envisioned by then-Gov. Dannel P. Malloy as a tax in name only.
In the tax’s first year, Connecticut collected $350 million from hospitals — then redistributed and returned every penny to the industry, plus $50 million more.
This back-and-forth arrangement follows a federally sanctioned process, that many states employ. The supplemental payments back to hospitals entitled Connecticut to hundreds of millions in federal Medicaid reimbursements.
Both the state and its hospital industry came out ahead.
But things began eroding almost immediately after that. As state government struggled frequently with budget deficits, the tax grew while the payments back to the industry shrank — even though federal reimbursement rates to Connecticut grew.
Hospitals filed suit in 2015, charging Connecticut had abused this process.
By 2017, hospitals were paying $514 million to the state and getting a collective $78 million in return.
When Gov. Ned Lamont took office in 2019, hospitals paid $900 million and received back about $493 million.
Under the settlement, the state agreed to pare the tax burden back gradually through 2026 and boost annual supplement payments to mitigate the industries’ losses. The deal five years ago also included a one-time payment to hospitals totaling $79 million.
