When Prospect Medical Holdings filed for bankruptcy in January 2025, Manchester Memorial, Waterbury Hospital and Rockville General had already seen years of inadequate staffing and financial challenges.
Lawmakers are now considering legislation that would evaluate whether the attorney general should have the authority to appoint a receiver to manage hospitals in distress or operational crisis, in cases such as the Prospect hospitals.
“This bill allows us to explore another tool to ensure the protection of patients in the event a hospital is struggling or in crisis,” Rep. Cristin McCarthy Vahey, a Fairfield Democrat and co-chair of the Public Health Committee, said in an email. “We want to help our hospitals avoid being in this position in the first place. But if they are, we’d like to have more avenues to ensure quality and safety for the people relying on hospitals for lifesaving care.”
McCarthy Vahey said the bill is in response to “the greed and mismanagement by Prospect that impacted thousands of patients and multiple hospitals in our state.
“This bill alone won’t solve all of the problems we have seen with the role of private equity in health care, but it is another tool,” she said. “It won’t be the only one we need to use.”
The Office of Health Strategy’s latest annual report on the financial status of Connecticut hospitals reported that Prospect’s total expenses were $651 million with a loss of $43 million and a negative operating margin of 7.1%. The OHS reported in fiscal year 2023 that Prospect lost $86.4 million.
Prospect, a private equity company, has spurred scrutiny about the role of private equity in health care companies and concerns that such firms strip equity and cut costs to the detriment of the hospital and its patients. The United States Senate Committee on the Budget conducted a study which included Prospect that found that private equity in health care prioritized profits over patient care.
Senate President Pro Tem Martin Looney has said that “what has happened with Prospect is a cautionary example of what happens when you have someone motivated exclusively by maximizing profits and sucking the resources out of an entity in order to maximize profits. And the collateral damage as a result of that is really staggering and sobering.”
Sen. Saud Anwar, co-chair of the Public Health Committee, also supported the bill.
“At the end of the day, health care isn’t optional,” said Anwar. “It’s where people go in their most vulnerable moments. When a hospital starts to struggle financially, the community feels it. This bill makes sure that the state can step in, not to point fingers, but to protect patients and keep care within reach.”
Karen Buckley, vice president of advocacy for the Connecticut Hospital Association, said the legislation is another tool in managing a crisis but that it is also integral that the state focus on how to prevent hospitals from ending up in financial distress.
She said the state does not adequately fund Medicaid, which is a major funding source of hospitals.
“What are we doing to address the financial concerns of hospitals and what are we doing to address the policy issues like Medicaid underfunding that got hospitals to this point?” Buckley said. “We need to fix that problem because that flows into all of the other long-term problems we have.”
The Hospital Association has said that Connecticut’s “distressingly low Medicaid reimbursement rates lag significantly behind other states and create barriers to health care access for low-income residents.”
The Office of Health Strategy’s latest annual report on the financial status of Connecticut hospitals found that health system losses totaled “nearly $505 million, an increase from the $473 million in operating losses reported by health systems in fiscal year 2023.”
In addition to low Medicaid reimbursement rates, an estimated 100,000 Connecticut residents could next year lose Medicaid coverage under the implementation of HR 1, President Donald Trump’s “Big Beautiful Bill Act,” increasing uncompensated care and deepening hospitals’ financial problems.
Hospitals incur a $1.5 billion deficit per year due to Medicaid, according to the Connecticut Hospital Association.
The Finance Committee advanced a hospital tax model that increases federal revenue in the state for Medicaid payments.
Asked about what caused Prospect to declare bankruptcy, Buckley said there are a number of unique characteristics in its situation, including private equity ownership, that affected its funding. But Medicaid underfunding also played a role, she said.
“Fundamentally the Medicaid underfunding and the inability to have money to cover the actual cost of the provision of care creates a financial environment that has folks looking for ways to make cuts and maintain access, finding additional ways to bring in revenue so they can stay solvent,” she said.