Attorneys for Steward Health Care want a federal judge to bless the company's proposed process for selling or auctioning its 31 hospitals, including eight in Massachusetts, over the next seven weeks.
A late Wednesday night filing in the U.S. Bankruptcy Court case that started last week proposes "global bidding and auction procedures" to govern the sale of Steward's hospitals and its physician network, Stewardship Health. If Judge Christopher Lopez approves the company's motion, bids for Steward's Massachusetts hospitals (and hospitals in other states aside from Florida) would be due June 24 and sale hearings would be held July 2. A hearing on the motion is planned for June 3 at 2 p.m.
Steward's lawyers said the proposed sale process is "designed to continue to promote a competitive and robust bidding process, while allowing the Debtors to implement sale transactions on an expedited basis."
Gov. Maura Healey, Attorney General Andrea Campbell and other state leaders want Steward out of Massachusetts, but the company has not secured buyers for its Bay State hospitals in the months since its financial predicament came to light.
Steward began marketing some of its hospitals in January, relying on the investment bank Cain Brothers to execute a strategy with the goal of "continuing critical operations at the Debtors’ core Hospitals while maximizing value by selling certain non-core Hospitals, including the Debtors’ Hospitals in Arizona, Arkansas, Louisiana, Ohio, Pennsylvania, and Southern Massachusetts." Leerink Partners was tapped in February to market Steward's "Northern Massachusetts" hospitals.
By the time Steward filed for bankruptcy on May 6, Cain had contacted 179 potential buyers and Leerink had contacted 80 potential buyers, including for-profit and not-for-profit organizations, the company said. Steward's lawyers said the company "received numerous indications of interest for their Hospitals" before filing for bankruptcy, but also that it expects more potential bidders to become aware of the sale through the bankruptcy proceeding, "thus driving more interest in the Hospitals."
Lawyers for Steward said the company has "received attractive indications of interest from multiple potential buyers for its Southern Massachusetts and Arizona hospital operations" and also is "in discussions with various third-parties interested in purchasing and operating the Debtors’ hospitals in Northern Massachusetts, as well as with state officials and regulators to facilitate the transition of such hospitals to new operators."
The company's lawyers and Massachusetts state officials have acknowledged that selling the hospitals could be difficult thanks to the sale-leaseback transaction that saw Medical Properties Trust (MPT) buy the land beneath Steward's hospitals in 2016.
In Wednesday night's filing, Steward confirmed that "substantially all" of its hospital operations are subject to master leases with MPT that "are not severable as to any particular property absent the consent of the applicable MPT Lessor(s)." The company said it "intend[s]to solicit Bids for the Debtors’ operations separately from real estate" and that bidders could "indicate the proposed treatment of such real property in their bid."
Last week, a lawyer for Steward told the bankruptcy court that the company faces a June 25 deadline to auction its hospitals in Massachusetts and other states except for Florida under the terms of a loan it got from its landlord, MPT, worth up to $300 million. But he also said that timeline was "not feasible." The company's Wednesday night filing said that "[i]t cannot be overemphasized that time is of the essence" in the sale process given that Steward's ability to keep its hospitals open is contingent on the loan (also referred to as debtor-in-possession or DIP financing) from MPT.
"Access to the DIP Facility is critical to the Debtors’ ability to continue their operations and manage their bankruptcy estates through the conclusion of the sale process. Failure to adhere to the Milestones could jeopardize the Debtors’ access to cash under the DIP Facility and, in turn, compromise the Debtors’ chapter 11 strategy and ability to maximize recoveries for creditors," Steward's filing said. "In light of the foregoing, the Debtors believe that the proposed timeline is both reasonable and necessary under the circumstances of these chapter 11 cases."
On Wednesday, Public Health Commissioner Robbie Goldstein raised the same topic when he cautioned that patient-sourced revenue would drop if people stopped seeking care at Steward facilities and the maximum of $300 million in DIP financing Steward received from its landlord to keep its hospitals open during the bankruptcy case would dry up sooner.
"The question that is outstanding for many of us is just that ... knowledge that $300 million is a set dollar amount, and hospitals can be expensive to operate. And if clinical volume decreases and the hospital's clinical revenue will decrease, and therefore the $300 million will go faster. The bankruptcy process provides us transparency, and will allow us to understand how quickly those dollars are being spent, how those dollars are being spent, and help us think through a plan of what happens at the end," the commissioner said Wednesday.
Steward's lawyers also fired back at Campbell's office, which was critical of the sale process Steward undertook before its bankruptcy in a filing last week, saying that "[a]s with all things Steward, this too was horribly mismanaged."
"Yet notwithstanding that there are experienced professionals overseeing and leading the process, certain parties, including the Commonwealth of Massachusetts, have elected to lodge completely unsubstantiated criticisms about the Debtors’ sale process," Steward's lawyers wrote. "Although frustration with the Debtors’ financial circumstances and the need to commence these chapter 11 cases is understandable, filing unfounded and unsubstantiated pleadings at a time when a team of experienced and independent professionals and directors have been and are continuing to run a process (and who have managed similar processes across multiple venues in a myriad of complex chapter 11 cases) that will benefit all stakeholders, is neither appropriate nor will it be tolerated by the Debtors."
Campbell's office said that the Executive Office of Health and Human Services here was informed by potential buyers "that they were being excluded from participating and the separate processes made it difficult for any single bidder to bid for all of the hospitals." Steward's latest filing contended that the company "encouraged bids from all interested parties and did not exclude any parties from the process, nor preclude any potential transaction structure."
Massachusetts was the only state that had its officials (the attorney general's office and the Executive Office of Health and Human Services) listed as "interested parties" in Steward's bankruptcy case until Tuesday, when the Texas Health and Human Services Commission filed an appearance in the case.
Officials in other states are beginning to pay closer attention to the floundering health system as well.
On Friday, Arizona Attorney General Kris Mayes announced that she was launching an investigation into the circumstances leading up to Steward's bankruptcy filing and is considering intervening in the court proceeding "due to its potential negative effects on Arizona patients, providers, healthcare workers, and vendors."
"Arizonans deserve to know more about the circumstances that led to Steward’s bankruptcy filing. I am deeply concerned about the potential impact this could have on Arizona patients and medical providers," Mayes said in a statement. "No matter who ultimately ends up owning and operating these facilities, I am committed to ensuring that no Arizonan is harmed by this bankruptcy, and I will fight to ensure that these hospitals remain open at all times to care for patients without any degradation of service."
Steward operates four hospitals and numerous medical practices in Arizona. Mayes' office said the Democrat "will also fight to ensure that prospective buyers do not take advantage of Steward’s bankruptcy to acquire hospitals or medical practices when those buyers would otherwise be barred from acquiring them due to the antitrust laws."
In Massachusetts, Steward operates St. Elizabeth's in Brighton, Carney Hospital in Dorchester, Good Samaritan Medical Center in Brockton, Holy Family Hospital in Methuen and Haverhill Hospital in Haverhill, Morton Hospital in Taunton, Nashoba Valley Medical Center in Ayer, Norwood Hospital, and St. Anne's in Fall River.
