Prospect Medical Holdings focus of DOJ probe

The Justice Department opened an investigation into potential fraud at Prospect Medical Holdings, according to recent court filings in a legal battle between Yale New Haven Health and Prospect.

The DOJ on Nov. 3 sent a civil investigative demand to Prospect, the for-profit health system confirmed in a June 27 filing in the Superior Court for the Judicial District of Hartford. The filing was part of a lawsuit in which Yale New Haven alleges the Justice Department's fraud investigation is grounds to dissolve its agreement to buy three Prospect hospitals.

Related: Yale New Haven Health sues to get out of proposed Prospect deal

The Justice Department uses a civil investigative demand to reveal documents or information related to a False Claims Act investigation.

Los Angeles-based Prospect and the DOJ did not immediately return requests for comment.

New Haven, Connecticut-based Yale sued Prospect on May 30, alleging the health system should be released from its proposed acquisition of Prospect’s Connecticut hospitals in Manchester, Rockville and Waterbury because Prospect violated the purchase agreement.

The DOJ’s involvement in the investigation was redacted in the complaint, which references alleged unresolved investigations that Yale argues invalidate the agreement. Prospect counter-sued on June 6, alleging any regulatory violations “have been remedied or are in the process of being remedied," and shouldn't prevent the acquisition from going through.

In addition to the DOJ investigation, Connecticut Attorney General William Tong (D) sent Prospect a civil investigative demand on April 19, 2023, Prospect confirmed in the June 27 filing. Yale's complaint alleges the inquiry was connected to Prospect’s hospital funding practices that may violate the Connecticut Unfair Trade Practices Act. Prospect denies the allegation.

Prospect, which is linked to private equity firm Leonard Green & Partners, has been hit with multiple lawsuits over the past year.

On June 12, Rhode Island Superior Court Judge Brian Stern ordered Prospect to pay $17.3 million in unpaid bills to vendors. The order followed Rhode Island Attorney General Peter Neronha's (D) November lawsuit against Prospect, alleging the health system violated the conditional approval terms for Prospect’s 2021 acquisition of Roger Williams Medical Center and Our Lady of Fatima Hospital, both of which are based in Providence.

Last month, Neronha conditionally approved the sale of those hospitals to the Centurion Foundation, which works with nonprofits to finance and lease facilities.