New documents in Steward Health Care's bankruptcy proceeding have shed a touch more light on Massachusetts state government's engagement as the financially-floundering network looks to offload its hospitals, and the company's proposal to take bids on its assets in less than a month is getting some pushback from the U.S. Department of Justice.
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. Since filing for bankruptcy protection May 6, Steward has outlined the process it wants to use to sell or auction its 31 hospitals nationwide by early July.
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Steward is proposing to sell its physician services network, Stewardship Health, along the same timeline. Before filing for bankruptcy, Steward reached an initial agreement to sell Stewardship Health to Optum, but that transaction has not advanced. A hearing on the proposed timeline is scheduled for Monday.
There are two investment banks working with Steward to market its hospitals in Massachusetts and elsewhere.
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Cain Brothers is handling the "Southern Massachusetts" hospitals (Good Samaritan Medical Center in Brockton, Morton Hospital in Taunton and St. Anne's Hospital in Fall River) while Leerink Partners handles the "Northern Massachusetts" hospitals (St. Elizabeth's Hospital in Brighton, Carney Hospital in Dorchester, Holy Family Hospital in Methuen and Haverhill Hospital in Haverhill, and Nashoba Valley Medical Center in Ayer.) Norwood Hospital, which was being rebuilt after a 2020 flood, is not mentioned in the latest documents.
In separate filings made Monday, representatives of both Cain and Leerink described how those efforts have been going, and the information suggests that the transitions of Steward's Massachusetts hospitals will not all be handled the same way.
Cain described a fairly straightforward process for the hospitals it is marketing. The firm said it has contacted 45 parties to gauge potential interest in buying Steward's hospitals in the southern part of Massachusetts, with 20 of those potential buyers agreeing to sign non-disclosure agreements to receive access to "diligence materials." The firm also said it has received "a number of indications of interest ('IOIs') that ... describe the proposed transaction structure and range of value for some or all of the Debtors’ assets located in the Southern Massachusetts market."
Leerink's filing described a slightly different process and spoke directly to state government's involvement. While the firm said that it initially reached out in late February to five groups it determined might have an interest in acquiring the hospitals, the firm later pivoted to "a broader marketing effort with a particular focus on not-for-profit (NFP) hospital owners or systems."
In all, the firm said it has been in touch with 40 potential buyers, including at least 25 not-for-profit hospitals, "to gauge their interest in a transaction to acquire or otherwise assume ownership of" Steward's hospitals in northern Massachusetts. Thirteen possible buyers have signed NDAs and received diligence materials, the filing said.
"In addition, the Debtors have been engaged with the Commonwealth of Massachusetts regarding securing a buyer to continue operating the Northern Massachusetts Hospitals with the support of the Commonwealth," the firm wrote. "In that regard, Leerink Partners has engaged in discussions with potentially interested parties and such discussions remain ongoing."
No similar language was included in Cain's filing on the efforts around the other Massachusetts hospitals, but a spokesperson for the Executive Office of Health and Human Services told the News Service on Wednesday that the state's role is the same for Steward's hospitals statewide.
"Massachusetts is using all the tools available to protect patients, ensure access to care, and preserve jobs through the transition of all Steward facilities across the state. If Steward enters into a transaction to sell some or all of its hospital assets, the state procedures and standards for reviewing the proposed transaction would apply," the spokesperson said in a statement shared in response to questions about what kind of state support is being discussed.
The Health and Human Services spokesperson pointed out that the transactions being contemplated would be between private parties and noted that Massachusetts provides support for safety-net providers, including Steward hospitals, and any successor operators that qualify.
Two weeks ago, lawyers for Steward described Massachusetts state government's role slightly differently, saying Steward was "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."
Healey, House Speaker Ron Mariano and Senate President Karen Spilka have all ruled out a bailout of Steward. But their comments have also not ruled out that the state might need or want to provide some other kind of assistance to make the transition from Steward to other operators a smooth one.
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.
The day after Steward filed for bankruptcy, one of its lawyers told the 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 lawyer told the court 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."
But that timeline, especially as it applies to the sale of Stewardship Health, is not entirely acceptable to the U.S. government. The Justice Department on Tuesday filed a "limited objection" to Steward's proposed sale schedule, saying that the milestones Steward agreed to with MPT could "interfere with the exercise of United States regulatory rights concerning any proposed sales of the Debtors’ assets" like an ongoing antitrust review of the proposed Stewardship sale.
"The United States’ ongoing review is in its early stages and may require extensive production of documents and data before the United States determines whether to oppose the transaction," the federal government wrote. "The DIP milestones make no mention of this review and, in fact, could be construed to undercut the United States’ regulatory rights by permitting MPT to impose hasty sale procedures for Stewardship Health and terminate financing if the Debtors fail to close the sale by a date acceptable to MPT."
The Justice Department added, "Moreover, it is questionable whether the Debtors are properly exercising their business judgment in agreeing to the milestones because they plainly leave inadequate time for compliance with the antitrust review prior to the sale hearing on July 2, 2024."
While the Justice Department asked the bankruptcy judge to ensure that any order authorizing Steward's DIP financing and sale schedule include a provision acknowledging that the Stewardship Health sale is subject to the federal government's enforcement rights, its filing also suggested that the DOJ could take some action of its own depending upon how the transaction unfolds.
"At the very least, the United States reserves its rights to conduct a full antitrust review and, if necessary, file an enforcement action concerning the proposed sale regardless of any milestones agreed to by the Debtors and MPT," the Justice Department wrote.
