The three Connecticut hospitals linked to Prospect Medical Holdings are at risk of disruptions in deliveries of crucial medical supplies thanks to a payment dispute in California, an attorney told a judge on Wednesday.
“We need to deal with this now, your honor, and it is a mounting issue,” Prospect chief attorney Thomas Califano told North Texas bankruptcy court Judge Stacey Jernigan. “If there's an issue in California, one of these enterprise contract parties cuts us off, cuts off Connecticut.”
“We are in a very, very tense situation and I don't like it, with people's lives in the balance,” Jernigan said.
At issue is $11.6 million overdue payments by NOR Healthcare Systems, the purchaser of six of Prospect’s hospitals in California. In an emergency motion, Prospect asked Jernigan at a live-streamed emergency hearing to compel NOR to honor its agreements.
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Waterbury Hospital, still under Prospect’s management until the closing of its acquisition by UConn Health, was not yet experiencing vendor disruptions, a spokesman said on Wednesday.
UConn Health is seeking approval from state health regulator the Office of Health Strategy for its purchase of Waterbury, with a deadline for a decision on the deal set for Feb. 9.
“We are awaiting the Office of Health Strategy’s determination on the Certificate of Need. In the meantime, we continue to work closely with Waterbury Health toward a successful transition focused on patients, staff and the community,” UConn Health said in a statement on Wednesday.
Hartford HealthCare, which bought Prospect’s Manchester Memorial and Rockville General hospitals, said IT services and operations were running as normal at the former Prospect hospitals as of Thursday.
“We are not aware of any disruption impacting services,” Hartford HealthCare said in a statement. The two hospitals are fully under new ownership but could be impacted due to vendor contracts in transition, Califano said at the hearing.
Payment fight starts at closing
The day after the California hospital sale closed in December, NOR stopped paying debts owed to Prospect and failed to pay medical supply vendors, including Boston Scientific, according to Prospect's emergency motion.
“The actions of NOR Healthcare Systems Corp. over the past month have put the Debtors’ estate at risk of administrative insolvency,” the Jan. 11 motion reads. “Notwithstanding repeated attempts by the Debtors to force compliance, NOR has repeatedly failed to pay amounts due to the Debtors and third parties.”
NOR fired back in a motion on Jan. 19, accusing Prospect's lawyers of diverting the hospital chain's funds prior to the closing to pay themselves.
"Debtors purposefully slowed down paying vendors in order to pay its own professional fees," NOR said in its motion.
Fees for lawyers, bankers and consultants in the Prospect bankruptcy are expected to top $120 million by the time the case wraps up, with the surging administrative costs worrying the bankruptcy judge. Prospect declared bankruptcy on Jan. 11, 2025, and hired top-tier bankruptcy professionals, including Califano, who is paid $2,120 an hour and bills Prospect at least $400 every time he needs a ride to the airport from his home.
Califano called NOR’s claims relating to fees “outrageous” and said the dispute was endangering pending hospital sales, ownership transitions and the completion of the bankruptcy process.
NOR, a shell company formed by American Healthcare Systems and led by a former Prospect executive, was singled out by a vendor’s attorney at a court hearing in August for its shaky financial status. Due to cash flow issues, NOR had asked the court to be allowed to pay only half of an $8.5 million deposit to buy a portfolio of six hospitals worth more than $600 million.
By the end of Wednesday’s hearing, the two sides said they had made progress toward a deal where NOR would pay $11 million toward the amount owed, with the negotiations continuing until another hearing in bankruptcy court next week.
Prospect is under increasing pressure as it wraps up its bankruptcy process, with more than 10,000 creditors on record seeking a share of hospital sale proceeds and the company’s remaining funds.
After failing to secure a sale to a nonprofit foundation by a Jan. 15 deadline, Prospect’s two Rhode Island hospitals are in the process of being taken over by the state and could also face supply disruptions due to the NOR dispute, Califano said.
Speaking of NOR, Califano said, “It's bad enough that they're putting at risk hospitals that they purchased ... but they're also putting at risk the other buyers.”