Waterbury Hospital wrongful death suit stalls amid former owner's insurance snafu

Aug. 27—The three Connecticut hospitals caught up in the bankruptcy of for-profit operator Prospect Medical have moved on to new ownership, but a group of patients and doctors in the state are still waiting for relief as the case winds down.

"I'm going to say (it's) in a holding pattern right now," said Michael D'Amico, an attorney for Pamela Dorn, who is suing Prospect over her husband's death at Waterbury Hospital, now owned by UConn Health.

Dorn's malpractice lawsuit, which was filed in 2024 over events that allegedly led to Robert Dorn's death in 2022, is one of dozens of similar claims stalled in bankruptcy court as Prospect unwinds.

"She's very frustrated," D'Amico said of Pamela Dorn. "I mean it's bad enough that somebody has to lose a spouse related to medical negligence, but it's even more frustrating when any form of justice gets delayed inordinately and for such a long time — and it's going to be quite a bit longer."

Lawsuits caught up in insurance shortfall

What is stalling the malpractice claims of Dorn and others involves the interplay of Prospect's dwindling funds, a teetering "tower" of insurance coverage and a second bankruptcy proceeding now unfolding in the Cayman Islands.

When it bought Waterbury, Manchester and Rockville hospitals in Connecticut in 2016, Prospect opted to self-insure to cover its hospitals and doctors in case of malpractice lawsuits by creating a "captive" insurance company based in the Cayman Islands. That insurance captive was supposed to pay for malpractice legal fees and settlements up to $7.5 million per case, then turn to the second tier of its insurance tower, a group of reinsurance companies, to pay the rest.

All malpractice and other court cases were put on hold on January 11, 2025, when Prospect filed for bankruptcy and the judge issued a routine "stay" on pending lawsuits. When the stay was lifted that October to allow cases to go forward, it was discovered that Prospect hadn't allocated nearly enough money in its captive to cover outstanding malpractice actions against its hospitals and doctors.

On May 5 of this year, attorneys for Prospect's captive told the bankruptcy court it had filed for liquidation in the Cayman Islands. Soon after, a group of reinsurers offered $26.2 million to cover all outstanding claims, far short of the up to $1.5 billion that Prospect had estimated remained at stake in a range of cases alleging negligence and mistreatment at Prospect hospitals nationwide.

Lawyers for malpractice plaintiffs countered with a flurry of objections, and the settlement has yet to be approved.

"The amounts that are being suggested are just way too low to be considered," D'Amico said.

The North Texas Bankruptcy Court judge in Prospect's case could push the reinsurers to come up with more money to cover malpractice claims, said Thomas S. Marrion, a professor at UConn Law School and partner at Hinckley, Allen & Snyder LLP with expertise in hospital bankruptcies.

"There's nothing establishing that $26 million is all they can possibly afford to give," Marrion said.

In a status hearing in Dallas on August 6, Prospect representative Vincent Slusher told bankruptcy Judge Stacey Jernigan that the company was still negotiating with all parties in the malpractice cases.

"We are in continuous discussions with both the reinsurers and the plaintiffs," Slusher said. "We continue to negotiate in good faith, and we're trying as hard as we can to reach some resolution."

Slusher added that the company was winding down its transition services to the new owners of its hospitals and working on resolving 2,800 outstanding contracts.

In another update at the hearing, an attorney for Prospect's General Unsecured Creditors Trust reported on efforts to secure funds to repay the company's unsecured creditors, which include those with malpractice claims. The creditors' group has hired additional attorneys to hunt down any additional Prospect assets, Steven Yachik said.

"The investigation and prosecution process is ongoing... and it will take time," Yachik said.

With Prospect's hospitals all sold or closed and its Chapter 11 plan approved, the bankruptcy case will slowly move toward a conclusion over the coming months, Marrion said. Those still owed money by the company will likely settle for pennies on the dollar.

"Periodically as they accumulate enough money, they'll be able to make distributions from time to time to the creditors," Marrion said. "Sooner or later, those little dribbles of money will dry up because the estate has pursued and collected on all the claims."

Prospect lawyer, banker fees near $80 million

One set of Prospect creditors are being paid in full to the tune of tens of millions of dollars: The lawyers, investment bankers and other "bankruptcy professionals" who have worked on the case.

Fees from a list of seven of the bankruptcy professionals involved in the case topped $79.5 million as of June 30, according to a document filed by the case's plan administrator.

For a stint starting with the bankruptcy filing in January 2025 until December 12, 2025, New York law firm Sidley Austin billed $36.3 million in fees and $652,418.84 in expenses on the Prospect case, with lead attorney Thomas R. Califano alone banking $2.4 million.

In all, 16 different Sidley attorneys billed for at least $1 million in compensation each for representing the bankrupt hospital chain.

After Judge Jernigan expressed concern about soaring professional costs as Prospect's hospitals and patients faced deteriorating conditions, Sidley attorneys did scale back their expenses, shifting from $747-a-night to $471-a-night hotel rooms when they visited Dallas for court hearings.

In Sidley's final expense report filed with the court, the $400 limo rides to the airport that Califano regularly billed for most of the Prospect bankruptcy case had been downscaled by November to "Taxi/car service" at only $117.15 per trip.

Report: Prospect banked on 'facility fees' in CT

As the Prospect bankruptcy case enters its final phases, researchers at Georgetown University released a report last month that focused on how the company was able to make money from its Connecticut hospitals even as it cut services.

In addition to loading its hospitals with debt and selling their real estate, Prospect shifted medical care to outpatient settings to maximize revenue, the Georgetown researchers found. Revenue from "facility fees" added onto patient bills at surgery centers and other outpatient sites increased at Waterbury, Manchester and Rockville during Prospect's tenure even as hospital workers complained of understaffing and deteriorating conditions.

"While the hospitals were falling apart, their facility fee revenue stayed healthy and in some cases increased notably," said Karen Davenport, a senior research fellow at Georgetown's Center on Health Insurance Reforms.

Although Connecticut has passed laws in recent years to restrict some forms of hospital facility fees, Prospect was able to reap more cash from that source, especially from services by Waterbury Hospital clinicians. Waterbury Hospital facility revenue grew to $15 million in 2024, according to the researchers.

With all hospital systems pivoting to outpatient services, states need to scrutinize the use of facility fees and their impact on patients facing "surprise" out-of-pocket bills and overall healthcare costs, Davenport said. Boosting facility fees are only one of the tactics used to pull cash from hospitals that are being adopted by a range of systems including nonprofits, she added.

"I want to be optimistic that states can take really meaningful steps that are going to protect communities from the kind of predation that you see in the strategies that Prospect used," Davenport said. "Those are financialization strategies that you don't have to be private-equity-owned to be interested in, and that carry the same risks for the communities those hospitals serve."

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