Yale Says In Suit It Wants Out Of Deal For ECHN, Waterbury Hospitals

VERNON/MANCHESTER, CT — A lawsuit filed in Hartford by Yale New Haven Health states that the healthcare giant cannot proceed with its acquisition of Rockville General Hospital, Manchester Memorial Hospital and Waterbury Hospital "as it stands" because parent company not only owes back taxes, but has failed to maintain "safe" conditions at its facilities.

Meanwhile, Eastern Connecticut Health Network, a subsidiary of Prospect Medical Holdings and the operator of the Manchester and Vernon hospitals, countered with an accusation that the lawsuit is "an 11th-hour attempt by Yale Health to back out of the commitment they made more than two years ago to the communities served byProspect’s Eastern Connecticut Health Network facilities and Waterbury Hospital."

Waterbury Hospital is also under the Prospect banner.

Said Yale in a statement sent to Patch, "A year-and-a half ago, Yale New Haven Health announced our intention to acquire Prospect Medical Holdings' Connecticut hospitals and medical group. In September 2023, we requested adjustments to the purchase price to reflect the current value of the hospitals in light of Prospect’s recent, serious mismanagement. Prospect has proven unwilling to make a good faith effort to reach an agreement, leaving YNHHS no choice but to pursue a complaint to obtain a declaration that Prospect is in breach of the Asset Purchase Agreement (APA) and that Yale New Haven Health does not have an obligation to close the transaction on the original terms.

"Prospect’s mismanagement of the assets is a clear violation of the APA. The value of the assets has declined dramatically due to Prospect's failure to pay physicians and vendors including Yale Medicine, the non-payment of state provider and municipal taxes, and the impact of a massive cyber security event caused in part by a lack of investment in technology which exposed patient, employee and dependent data and rendered Prospect CT unable to bill for services. At the current price, we would not be able to devote adequate resources to ensure these facilities meet their communities’ needs while also maintaining the financial stability of our current hospitals.

"Yale New Haven Health has acted in good faith throughout this process in order to find a responsible path forward that would allow us to maintain access to care and extend the benefits of non-profit, academic medicine to communities currently served by a for-profit entity. We simply cannot jeopardize the sustainability of our health system by moving forward with the acquisition as it stands."

In October 2022, the parties were negotiating terms of a $435 million acquisition by Yale.

But the matter is now in court.

The complaint says that Prospect has "failed to satisfy the obligations and closing conditions set forth by the Asset Purchase Agreement signed by both parties in October 2022. It follows a letter, sent by Yale New Haven Health on March 27 of this year after the transaction received approval from the state Office of Health Strategy, that informed Prospect that it was "in breach of the APA."

The letter was "sent in hopes that Prospect would rectify the breaches and satisfy the
closing conditions," according to the complaint.

"Prospect’s response to this letter was to delay the closing date under the APA,
without taking any steps to rectify the breaches or satisfy the closing conditions."

Yale is seeking a declaratory judgment that the closing conditions "have not been — cannot be —satisfied and that it is therefore not obliged under the APA to close the contemplated transaction."

In a statement sent to Patch, Prospect said it "believes Yale is in breach of the Asset Purchase Agreement that was signed by both parties more than two years ago and we will be seeking legal remedies, including completion of the transaction, to ensure Yale keeps its word to our communities."

The statement continued, "Despite the claims made by Yale in its complaint, Yale only notified Prospect for the first time of its concern that there had been a material adverse effect on the hospitals' finances and operations on March 27, 2024. In response, and following Yale’s failure to obtain an $80 million grant from the state, we offered Yale a good-faith price reduction in an attempt to move the negotiations forward and complete the transaction."

Prospect said patient volumes and finances at its Connecticut hospitals have "rebounded significantly," marking a "successful recovery" from an August 2023 "data
security incident" that disrupted operations.

"In fact, our hospitals’ performance has returned to levels comparable to those reported in the months leading up to February 2022 — the Material Adverse Change measurement date in the APA), the month of February 2022 — and the subsequent financial periods through signing on October 5, 2022, at which point Yale committed to the deal," Prospect said.

Prospect officials said the cyber attack was not unique to its operations.

"Yale’s attempt to use the temporary impact of the cyber attack on our Connecticut facilities as an excuse to renege on its obligations is contemptible," Yale officials said.

Prospect's Connecticut hospitals also "continue to provide safe, quality care" to its patients, officials said.

"Our facilities are monitored by the state Department of Health on a continuous basis and continue to meet the DOH’s requirements. It is within the DOH's authority — not Yale's — to determine whether the care we provide is up to standard."

Prospect officials continued, "This lawsuit was filed as Yale and Prospect have both been working hard to complete the transaction and transfer the hospitals’ operations to Yale. In recent months, Yale has been demanding more information and cooperation from Prospect regarding transition activities post transaction. Those demands now appear to have been in bad faith. The state has already given its approval to the sale of the Prospect hospitals to Yale, so we see no reason for any further delay. Prospect remains committed to completing the transaction in a timely manner. It's time for Yale to live up to its commitment."

State Rep. Jeff Gordon (R-Woodstock), member of the legislative Public Health Committee and a medical doctor himself, released the following statement regarding the suit:

"I've been in ongoing communications with Yale-New Haven Health and local leaders of Prospect Medical Holdings. While I cannot speak to the legal components of this matter, Yale-New Haven announced today that its good-faith negotiations with Prospect to purchase Rockville General Hospital in Vernon and the Eastern CT Health Network have stalled due to Prospect's lack of communication.

"This is an issue that must be resolved in a timely manner. Delays in Yale-New Haven’s state-approved opportunity to acquire our local hospitals will impact our entire community. That includes families, women, and seniors in need of medical care, and hundreds of local, dedicated employees working hard to make ends meet. I remain available to all stakeholders to assist with a swift resolution on this matter. Our community’s health and jobs depend on it."

Vernon Town Administrator Michael Purcaro, who has worked closely with the hospitals in his dual role as emergency and risk manager said it's about the community.

"While the town of Vernon is not a party to any of the negotiations, we have maintained our strong interest for Rockville General Hospital to be a vibrant center for health and wellness," he said. "In addition, while this initial news is disappointing, the statements made by Yale New Haven concern me and are not surprising."