Yale New Haven Health (YNHH) has agreed to pay $45 million to settle a lawsuit with bankrupt Prospect Medical Holdings over a bungled $435 million deal to acquire three Connecticut hospitals.
YNHH had sought to back out of the deal for Waterbury Hospital, Manchester Memorial Hospital and Rockville General Hospital in late 2024, when it filed a lawsuit citing concerns over the conditions of the facilities. Prospect filed for Chapter 11 in early 2025, freezing the litigation.
Last month Prospect told a bankruptcy judge said it was receiving interest in the three hospitals, but still hoped to preserve YNNH's $435 million offer as an "involuntary stalking horse." Two of the hospitals have since received an $86.1 million purchase bid from Hartford HealthCare, with the remaining Waterbury being eyed by UConn Health.
YNHH and Prospect shared earlier this month an agreement in principle to settle the dispute and, on Friday, filed an emergency motion with the bankruptcy court seeking approval of a $45 million settlement agreement.
The arrangement, they wrote, "resolves time-consuming and expensive litigation ... allowing the Debtors and their advisors to better focus on other pressing issues in these chapter 11 cases. ... Also, it provides clarity to the Debtors and potential bidders in connection with the Debtors' ongoing sale process from the Debtors' [Connecticut] Assets."
The settlement, if approved by the court after an Oct. 10 hearing, ends pending litigation between the systems and Prospect's landlord, Medical Properties Trust. The latter, in a release, said it expects the settlement's $45 million will be used to reduce a standing debtor-in-possession loan.
Aug. 22, 2025
Prospect Medical Holdings asks bankruptcy judge to preserve Yale New Haven Health's $435M hospital purchase agreement
Prospect Medical Holdings told a bankruptcy judge this week that it will soon announce stalking horse bids for its Connecticut hospitals, while also asking to consider a botched $435 million deal with Yale New Haven Health (YNHH) from 2022 its leading offer.
The for-profit system, which filed for Chapter 11 in January, runs three hospitals in the state: Waterbury Hospital, Manchester Memorial Hospital and Rockville General Hospital.
The company ran 16 hospitals and other care sites in Connecticut, Pennsylvania, Rhode Island and California at the time of its declaration, and has been working to find buyers for those assets with decidedly mixed results. A system it owned in Pennsylvania was forced to close its doors when emergency funding ran out before a new operator could be secured.
The Connecticut hospitals remain open and are attracting interest, Prospect’s legal representation told a judge during a Wednesday hearing. The company anticipates multiple stalking horse bids—initial offers that set the ground floor for auction—by the end of this week. As of early afternoon Friday, no updates have been made to the company’s bankruptcy court docket outlining those bids.
However, the offers won’t be as lucrative for Prospect, and subsequently its creditors, as a $435 million deal the company previously had in place with YNHH. In 2024 the latter organization filed a lawsuit to back out of that arrangement, citing concerns with surrounding the conditions of the three Prospect hospitals. That lawsuit was put on ice once Prospect declared bankruptcy in early 2025.
On Monday, the company filed a motion asking the court to hold YNHH to the deal, writing that “although the Debtors have other interested parties, the [asset purchase agreement] offers the highest purchase price for the Debtors’ Connecticut assets.” In prior hearings, Prospect’s legal representation likened YNHH—a five-hospital nonprofit with more than $7.2 billion of annual total revenue—to an “involuntary stalking horse.”
YNHH filed its objection the same day, and the issue was raised during Wednesday’s hearing. Prospect’s representation specified its hope that the court would allow YNHH’s prior purchase price to be considered as the first bid over the stalking horses’ floor and given the option to close. Should YNHH refuse to purchase, Prospect would turn to the next highest bidder but seek damages from YNHH under terms included in the original contract covering a default, the lawyer said.
Though the parties could still enter mediation, another bankruptcy court hearing to settle the dispute has been scheduled for Sept. 23. An auction for the hospitals is also set to be held in September, the results of which the court would give final approval during a scheduled Oct. 3 hearing.
The bankruptcy court updates landed as Prospect again came under attack for its ties to private equity.
On Wednesday, Connecticut Senator Chris Murphy, a Democrat, released a report highlighting deteriorating conditions at the hospitals amid financial struggles. It also reiterated the findings of media reports and a prior bipartisan investigation that tied facility closures and service suspensions to the involvement of Leonard Green & Partners, which majority owned Prospect from 2010 to 2021. The firm’s investors received hundreds of millions in dividends and preferred stock redemption during that period and in 2019 signed off on a $1.55 billion sale-leaseback deal stripping ownership of hospital real estate from the company.
“It’s a wealth transfer from some of the poorest hospitals in America to some of the richest people on the planet, plain and simple,” Murphy’s report (PDF) reads. “These hospitals are pillars of their community, treating Medicaid patients and often serving as the only place to go in high-need areas with limited transportation. And the details of how private equity dupes these vulnerable hospitals, mistreats staff, and compromises patients are horrifying.”
Murphy’s report pointed to other high-profile examples of private equity’s involvement in a healthcare provider’s financial distress—most notably, Steward Health Care—and suggested that lobbyists working in the interest of these firms have blocked state-level regulations and oversight to address such practices.