Steward Health hospital bids tied up in tangle of rules, bankruptcy court

Monday evening brings the deadline for bids on the Massachusetts hospitals operated by the bankrupt Steward Health Care, but exactly how the smoldering crisis unfolds from here could hinge upon whether any hospital receives no bids and moves towards a closure that officials said could put residents' safety at risk.

Bids are due by 6 p.m., and Gov. Maura Healey and much of Beacon Hill has made clear that the most desirable result is for all the company's hospitals to be transferred into the hands of other operators that could keep them open and serving patients. But some of the same financial issues that drove Steward into bankruptcy -- especially exorbitant rent payments owed to landlord Medical Properties Trust for years to come -- also make the hospitals riskier bets for other operators.

And state officials said ahead of the deadline Monday that they expect things will evolve over the coming weeks. Definitive answers might be unavailable until the sale hearing scheduled in U.S. Bankruptcy Court for July 31.

State officials have been unwilling to publicly discuss what might happen should any Massachusetts hospital receive no bids or otherwise not be spoken for in Steward's court-led offloading process. But they have also repeatedly assured the public that the state has been planning for all contingencies with a focus on protecting jobs and preserving access to care.

Steward is taking bids on its seven hospitals operating in Massachusetts: Good Samaritan Medical Center in Brockton, Morton Hospital in Taunton, St. Anne's Hospital in Fall River, St. Elizabeth's Hospital in Brighton, Carney Hospital in Dorchester, Holy Family Hospital with campuses in Methuen and Haverhill, and Nashoba Valley Medical Center in Ayer. Norwood Hospital, which was being rebuilt after a 2020 flood, is not included in the sale process.

But while state officials have been mum about specifics, they have all been staying in close contact as the Executive Office of Health and Human Services drives the bus.

House Speaker Ron Mariano said late last month that he talks with Health and Human Services Secretary Kate Walsh "multiple times a week," and that the secretary has "kept me informed on who they're talking to and what they're talking about" as it relates to Steward.

And Healey's calendar from June, shared by her office Friday, shows that the governor and HHS secretary had a scheduled meeting or call six times between June 11 and June 24, including two on June 18 -- the day that Steward pushed back the deadline for bids on Massachusetts hospitals from June 24 to July 15.

State officials are expected to discuss the situation more later this week. The Public Health Council, whose meetings have featured updates and discussion of the Steward situation, meets Wednesday. And on Thursday, the Health Policy Commission meets, featuring an update on the sale of Steward's hospitals and its physician network, Stewardship Health. The HPC said last month that the proposed deal for Steward to sell the network to Optum was off and the parties never submitted information regulators needed to review the transaction.

The Executive Office of Health and Human Service said late Monday that the next step in the process with be an auction scheduled for Thursday, July 18. At that point, qualified bidders will have a chance to sweeten their offers for a hospital or group of hospitals until a final and best offer is determined for each facility. Those final and best bids are what will be submitted for Bankruptcy Court approval during the July 31 hearing, EOHHS said.

The secretariat said that it is closely following Steward’s sale process, but that it is the company's responsibility to negotiate with potential buyers and announce the next steps in its process. Steward declined to comment Monday ahead of the bid deadline.

Attorney General Andrea Campbell's office said it has no formal role in the bidding process but will work with EOHHS to protect jobs and access to care. Steward declined to comment on the bidding ahead of Monday's deadline.

Public Health Commissioner Dr. Robbie Goldstein said in a May bankruptcy court filing that Steward's Massachusetts hospitals "play a critical role" in addressing inpatient medical and surgical capacity, inpatient behavioral health, maternal and newborn health services, emergency department treatment, health care generally across the South Shore region, and health care for MassHealth patients.

"The discontinuation of any of these services at one or more of the Steward Massachusetts Hospitals could exacerbate Massachusetts’s hospital capacity crisis and jeopardize the health and safety of Massachusetts residents."

State law and regulations require any provider planning to close an essential service to notify the Department of Public Health at least 120 days in advance and then provide a formal notice 90 days before the planned closure.

There is a litany of checkpoints along the way. DPH must publish a notice of a public hearing on the closure at least 81 days out and hold the hearing at least 60 days before the closure would take effect.

Within 15 days of that public hearing, DPH is to provide the hospital with a determination as to whether the service provided by the hospital is necessary for preserving access and health status within the hospital’s service area. If DPH deems the service necessary, the hospital is required to submit a plan to DPH for assuring access within 15 days, and the two sides can go back and forth a bit until there are 10 days remaining until the closure, according to the Division of Health Care Facility Licensure and Certification at DPH.

However, even if regulators find the service is crucial to maintaining care, they cannot legally require a hospital to keep a service open to the public. DPH can only call for a provider to submit a plan outlining what patients will do after a closure and conduct post-closure monitoring, not block any service from shutting down.

In a court filing that pushed back on part of Steward's latest plan to secure financing it needs while going through the bankruptcy process, Campbell's office this month raised the subject of post-deadline transfers, sales, closures or the potential that a hospital gets no bids.

Massachusetts health care regulations require that hospital operators like Steward transition or close their hospitals "in a safe manner and in accordance with specified timeframes," the office wrote. But Steward's bankruptcy financing terms create confusion by referencing transition plans and closure plans without explaining how they will comply with the Department of Public Health requirements, the AG's office argued.

"Despite Massachusetts raising this concern, there has been no discernable commitment by any party to address these ambiguities. To be clear, Steward, as the licensed operator, must comply with all regulatory requirements, including funding, staffing and transitioning through closure or a change in owner/operator," Campbell wrote.

The attorney general added a direct reference to the potential of a no-bid situation, pointing out that Steward is required under its financing terms "to deliver a proposed 'transition plan' within ten (10) business days of the Bid Deadline if no Qualified Bid is received by the applicable Bid Deadline."

The attorney general's office also put Steward on notice that Massachusetts could use all options at its disposal in bankruptcy court if it or other companies won't commit to fund ongoing operations and transitions in accordance with state rules.

"Steward’s obligation to ensure a smooth transition is not only imposed on Steward by Massachusetts health care regulations, but it is also an obligation on Steward as a chapter 11 debtor. The actual and necessary costs and expenses to operate, transition or close any hospitals, including obligations to its vendors and employees, must be funded on a current basis as a post-petition administrative expense," Campbell's office wrote. "If Steward or other stakeholders in these cases remain unwilling to commit to fund ongoing operations and transitions, Massachusetts believes it will be a clear indication that Steward is unable to pay its post-petition obligations as they come due. Massachusetts thus reserves all rights to seek appropriate remedies at that time."