A lawyer for Prospect Medical Holdings said during a court hearing on Wednesday that the company will announce initial bids for its Connecticut hospitals as soon as Friday, while also petitioning the court to force Yale New Haven Health to comply with a deal they inked to buy the hospitals over two years ago.
The offers Prospect has received through the bankruptcy sale process aren’t as high as the $435 million Yale New Haven Health agreed to pay for the facilities in an April 2022 deal, Thomas Califano, a lawyer for Prospect, told the judge during the proceeding.
“We anticipate having stalking horses this week,” Califano told the bankruptcy court judge. “Admittedly, the Yale New Haven contract provides a better return to the estate.”
A “stalking horse bidder” is the initial bidder in a bankruptcy sale and sets a minimum offer other bidders have to beat, either with a higher price or better terms.
Califano’s reference to multiple “stalking horses” could imply that the hospitals will be bid on as separate assets. Spokespeople with Prospect Medical Holdings and Prospect CT did not respond to a request for comment regarding how many stalking horse bids the company expects.
Prospect must complete the sale auction for the Connecticut hospitals by Sept. 19 and a final order approving the transaction must be entered by Oct. 3, according to a recently updated agreement with one of its lenders.
Rob Blanchard, a spokesperson for Gov. Ned Lamont, told The Connecticut Mirror the state would work “diligently on the regulatory approval process” once it’s presented with a sale to approve. As of the bankruptcy filing, Prospect owed Connecticut upwards of $127 million in unpaid provider taxes, in addition to other unpaid state and municipal taxes, the governor’s office confirmed.
On Monday, lawyers for Prospect filed a motion to hold Yale New Haven to the terms of the 2022 deal, meaning Yale would either have to purchase the hospitals for $435 million, pay a penalty to Prospect or challenge them in court.
During Wednesday’s hearing, the judge seemed surprised by Prospect’s motion and, at first, confused about moving forward with a sale process while also holding Yale New Haven to its 2022 agreement.
Califano explained that, if the judge grants Prospect’s motion, Yale would be considered as the first bidder to come in over the floor set by the stalking horses, and be given the option to close the deal.
If Yale New Haven refused to move forward with the deal, “we would close with whoever is the other highest bidder, and we treat Yale as defaulted under their contract and we’d see the difference in damages,” Califano told the judge.
The bankruptcy court judge will decide whether to grant Prospect’s request in a hearing scheduled for Sept. 23.
Yale New Haven Health is also petitioning the judge to facilitate its effort to get out of the 2022 contract to purchase the hospitals.
In May 2024, following a cyberattack and reports of dire financial conditions at the Prospect hospitals, Yale New Haven sued Prospect in Connecticut Superior Court to get out of the deal. The health system alleged that Prospect breached its contract by, among other actions, defaulting on rent and tax liabilities.
But, when Prospect declared bankruptcy in January, all ongoing litigation happening outside of bankruptcy court paused, including Yale’s lawsuit. Yale New Haven has asked the bankruptcy judge to allow that lawsuit to proceed in Connecticut state court. The judge will also rule on Yale’s motion during the hearing scheduled for Sept. 23.
“Based on Prospect’s history of mismanagement of the Connecticut hospitals, it remains clear that they have never been in a position to close the transaction on the terms set in our 2022 asset purchase agreement,” a spokesperson with Yale New Haven Health stated in emailed comments.
On Wednesday, the judge encouraged Yale and Prospect to enter into mediation talks. A lawyer for Prospect said they “would be happy” to, while a lawyer for Yale said they’d need time to make a decision.
“Any discussions that have happened between the parties prior to this point have not been fruitful, so we’re not encouraged that there’s a mutually acceptable resolution,” Yale New Haven’s lawyer told the judge, but added that he’d still take the question to his client.
The judge asked the parties to let her know within a week whether they will move forward with mediation.
The Yale New Haven spokesperson declined to comment on what options the health system might be open to in mediation, including purchasing the hospitals at a revised price or paying damages to Prospect in order to officially exit the contract.
This isn’t the first time Prospect has claimed the auction was close to launching. Roughly a month after filing for bankruptcy, Prospect told the court it expected to finalize the sale of the Connecticut hospitals by June 5. During a July 23 hearing, Prospect lawyers told the judge the auction would take place soon.
In Pennsylvania, Prospect shuttered two hospitals because it couldn’t find viable buyers. Blanchard said the governor is hopeful Connecticut won’t face a similar outcome.
“We too have been frustrated with the length of this ordeal and sympathize with the health care workers at each hospital and the communities who rely on them for care,” he said. “It is our hope that through our involvement, we do not end up in a scenario with no viable buyers for these facilities.”
