MANCHESTER, Conn.

A big game of chicken may determine what becomes of Waterbury (Conn.) Hospital, Manchester (Conn.) Memorial Hospital, and Rockville General Hospital, in Vernon, Conn.

Yale New Haven Health, which two years ago agreed to buy the three struggling hospitals from Prospect Medical Holdings for $435 million, now is suing Prospect to nullify the agreement. Yale New Haven Health contends that Prospect has substantially impaired the hospitals by mismanagement since the agreement was made. 

Prospect's Connecticut hospitals were already in terrible financial condition, most of their equity having been stripped from them and liquidated by their parent company, Leonard Green and Partners, a private-equity investment firm based in California. The Prospect hospitals no longer own their own real estate but must pay rent to a real-estate company. 

Connecticut law never should have allowed nonprofit hospitals, which Waterbury, Manchester and Rockville were, to be acquired by investment companies like Prospect. The state now has a big interest in keeping the hospitals operating, restoring their solvency, and returning them to nonprofit status.

But Yale New Haven Health has a big interest in not overpaying for an operation that may be on the verge of collapse and bankruptcy. After all, Yale New Haven Health runs four hospitals in Connecticut, all nonprofits, and they could be critically weakened if their parent company pays too much for the Prospect hospitals. 

As the condition of the Prospect hospitals deteriorated after Yale New Haven Health agreed to acquire them, Yale New Haven Health asked state government to subsidize its purchase by $80 million. Gov. Ned Lamont didn't want to do that and urged the two sides to keep negotiating. But with the acquisition unfulfilled after two years and the lawsuit charging bad faith, negotiations have failed and seem unlikely to resume soon. The Prospect hospitals are far behind in paying bills and state and municipal taxes. They may not have any net worth left at all.

But the Prospect hospitals serve large communities and their closure would be a disaster for Connecticut. Other hospitals are not prepared to take up the displaced patient load, and even if they could handle it, many patients of the failing hospitals and the doctors who treat them would have far to travel. The disruption to medical care in the state would be immense. Despite Prospect's awful ownership and top management, its hospitals employ hundreds of dedicated professionals striving to provide excellent care under worsening financial stress.

State government's financial intervention in support of an acquisition by Yale New Haven Health strikes many as the obvious solution.

But a state subsidy for the purchase will ratify Prospect's looting of its three hospitals and the real-estate company's purchase of the hospitals' property. The real-estate company now may think it has decisive leverage over whoever acquires the hospitals and intends to keep them operating. But if the hospitals fail and go out of business, their buildings probably would lose much of their value, since they have practical use only as hospitals.

The best mechanism for saving the hospitals may be to let them fail and go into bankruptcy. Bankruptcy is exclusively a federal court process but with the court's approval state government could become a party to the case and assist the financial reorganization of the hospitals from the moment of their bankruptcy filing. Bankruptcy could relieve the hospitals of their burdensome property rental obligations.

In any case state government should do more than what it long has been doing about this problem -- just hoping that Yale New Haven Health and Prospect will work things out eventually before the Prospect hospitals collapse and close. Hope is not a strategy or plan. 

So the governor should assemble a team ready to assist a bankruptcy proceeding, the General Assembly should make millions of dollars in an emergency loan available to a new owner of the hospitals, and the legislature and governor should give Connecticut a law to prevent nonprofit hospitals from falling into the hands of predators ever again, and thus to prevent the theft of decades of community charity that state government's negligence allowed here.

Chris Powell has written about Connecticut government and politics for many years (CPowell@cox.net).