Connecticut is unlikely to recover all of the $127 million in unpaid hospital provider taxes owed by Prospect Medical Holdings, state officials acknowledged last week following the completion of the bankrupt company’s final Connecticut hospital sale.
Gov. Ned Lamont said at a ribbon-cutting ceremony at Waterbury Hospital on March 4 that it remains unclear how much of the tax debt the state will ever recoup. “We’ll try to collect what we can,” Lamont said, while acknowledging the uncertain prospects given the company’s bankruptcy status.
The acknowledgment came days after Waterbury Hospital officially joined the UConn Health Community Network on March 1, 2026, marking the end of Prospect Medical Holdings’ presence in Connecticut.
The Tax Claim Reclassification
The $127 million represents years of unpaid hospital provider taxes — a charge Connecticut levies on hospitals as part of its strategy to draw down federal Medicaid matching funds. Prospect stopped paying those taxes more than three years ago.
In February 2026, as part of negotiations over the Waterbury Hospital sale, the state agreed to reclassify its tax claim from a priority status to a “general unsecured claim.” The move pushed Connecticut further back in the line of creditors seeking repayment from Prospect’s bankruptcy estate — behind secured lenders and priority claimants — making full recovery unlikely.
State officials said the reclassification was necessary to finalize the UConn Health deal and ensure continuity of care at Waterbury Hospital. No alternative strategies for preserving the state’s higher-priority claim were disclosed publicly.
How Connecticut Got Here
The financial entanglement between Connecticut and Prospect Medical Holdings dates to at least 2022, when Yale New Haven Health signed a $435 million agreement to acquire three Prospect-owned Connecticut hospitals: Waterbury Hospital, Manchester Memorial Hospital, and Rockville General Hospital.
The deal began to unravel in 2023 after a cyberattack hobbled Prospect’s California operations. Yale New Haven Health executives asked the state for $80 million over five years — about $16 million annually — to help support the acquisition. Lamont declined. “This is an agreement between Yale New Haven and Prospect,” he said at the time. “I don’t know why they need the taxpayers to step in.”
The Yale deal ultimately collapsed. The health system paid Prospect $45 million to settle the dispute and walked away.
Prospect Medical Holdings filed for bankruptcy in January 2025. Through late 2025 and early 2026, state officials negotiated separately with Prospect and its landlord, Medical Properties Trust, over the future of the Connecticut hospitals. Hartford HealthCare acquired Manchester Memorial Hospital and Rockville General Hospital in January 2026. UConn Health’s acquisition of Waterbury Hospital followed in March.