Prospect Medical Holdings Inc. says the pending Chapter 11 proceedings for its hospitals in California and Connecticut should keep two technology companies from demanding more than $1 million in payment for disputed software and IT contracts, according to Prospect's filings with a Texas bankruptcy court on Monday.

Prospect said that with sales or auctions pending for multiple facilities involved in the bankruptcy, the court should deny motions from Veradigm and Altera Digital Health Inc. to make the hospital operator pay $1.06 million in postpetition bills, accept or reject its contracts with the creditors, or lift the automatic stay on litigation, so the contractors can sue.

"The debtors cannot make final decisions on assumption or rejection until after finalization of the sale transactions when they can, in consultation with the eventual buyers, consider the possible benefits and burdens of each executory contract," Prospect's response to the movants' motion said. "Forcing this decision on the debtors now would prematurely risk the debtors either assuming a contract they ultimately do not need and saddling the estates with incremental costs, or rejecting a contract that an ultimate buyer would want to assume."

Prospect also said its business side was still negotiating a potential resolution of the disputed bills, which could resolve the matter without involving the court.

California-based Prospect had filed for Chapter 11 in Texas's Northern District in January, expressing an intent to sell off assets, including hospitals in Connecticut, Rhode Island, California and Pennsylvania, and refocus on its home state.

On Aug. 28, Veradigm and Altera filed a motion to compel payment of their administrative claim related to electronic health records software, arguing Prospect's hospitals had not been paying all their bills related to their ongoing use of the systems.

Prospect's response Monday said the companies were at odds over some of the payments, given issues that Prospect's hospitals had with the systems. About $796,000 was disputed, the response said.

"For Altera, the disputes relate to an agreement (the 'Sunrise Surgical Care agreement') never implemented in the California and Connecticut facilities and another agreement (the 'Touchworks Agreement') never implemented in the ECHN facility," the hospitals' response said. "For Veradigm, the disputes relate to the serious malfunction of the patient portal implementation (the 'FollowMyHealth portal agreement'), which deprived the debtors of the benefits of the FollowMyHealth portal agreement. Notwithstanding these disputes, the debtors are engaged in business discussions with Altera and Veradigm and hope to come to a resolution."

With a sale of six California hospitals to NOR Healthcare pending, it would be up to NOR to review which contracts would be kept and which would not, Prospect said, so the vendors' demand for an immediate choice was premature. The same applied to three Prospect hospitals in Connecticut, which were earlier in the bankruptcy sale process.

"While the Bankruptcy Code permits a counterparty to request the court to compel the debtor to decide whether to assume or reject a contract prior to plan confirmation, the counterparty bears the burden to establish cause for this relief," Prospect said. "...[The vendors'] argument rests on the belief that simply because they have not been immediately paid the full amounts they claim are due for the post-petition period, the factors as a whole weigh in their favor. Conclusory arguments like these are not sufficient to meet their burden."

Nor had Veradigm and Altera met the burden necessary for the court to lift the stay for them to file litigation over the contracts, Prospect argued. Payments for nondisputed amounts were being made, and the parties were negotiating over the disputed parts, the company said. But if the stay were lifted and the vendors were allowed to terminate their contracts, the hospitals would be left trying to find a replacement electronic health records system vendor while in the middle of a bankruptcy, the response added.

"Movants have likewise not established that the harm that they will experience if the stay is not lifted outweighs the harm to the debtors' estates if the stay is lifted such that 'cause' exists to stay relief," the response said.

Counsel for Prospect and the vendors did not immediately respond to requests for comment Tuesday.

Prospect Medical Holdings is represented by Thomas R. Califano, Rakhee V. Patel, Maegan Quejada, William E. Curtin, Patrick Venter and Anne G. Wallice of Sidley Austin LLP.

Veradigm and Altera are represented by Jeffrey K. Garfinkle of Buchalter.

The case is In Re: Prospect Medical Holdings Inc. et al., case number 25-80002, in the U.S. Bankruptcy Court for the Northern District of Texas.