Since Steward Health Care filed for Chapter 11 bankruptcy last month, the company has been steadfast about one thing: the provider’s 31 hospitals would remain open during restructuring.
That changed during a federal bankruptcy hearing on Thursday, when the court approved $225 million of new debtor-in-possession (DIP) financing with stringent terms attached.
The Dallas-based operator accepted a loan from its FILO lenders — WhiteHawk Finance, Owl Creek Investments, OneIM, MidOcean and Brigade Capital Management — after its landlord and initial DIP financier, Medical Properties Trust, declined to provide further capital to finance Steward’s restructuring.
The system’s lenders drove a hard bargain. In order to get the funds, Steward had to agree that it would “transition” or close hospitals that didn’t attract a qualified bidder during its summer sale process — which is set to kick off June 24 — within 10 business days of auction.
Steward accepted the deal because it needed the funds. Without the new loan, the health system would have been forced to liquidate, according to Steward’s attorneys.
But regulators for Massachusetts, where Steward operates eight hospitals, said they’re confused about the language of the terms.
“We don't know what [transition] means," Hugh McDonald, an attorney representing Massachusetts’ attorney general and healthcare department in the bankruptcy proceedings, said during Thursday’s hearing.
“We are obviously concerned,” McDonald said. “It seems very ambiguous to us what occurs if there’s no bids.”
For facilities that do close, McDonald reminded the court that there is a required 120-day notice period for hospital closures in Massachusetts, and that facilities need “adequate funding” for interim periods. Parties debated about who would be responsible for providing such funds.
MPT owns the land on which 30 of Steward’s 31 hospitals are situated, according to court filings, after the physician-owned network conducted a series of sale-leaseback transactions beginning in 2016. McDonald suggested that the landlord might provide capital for hospitals that need to wind down operations.
The real estate investment trust and Steward have a deep financial history, in which MPT has provided Steward multiple cash infusions to keep it afloat.
Yet despite that history, MPT’s legal counsel appeared to say it had no plans to bail out struggling facilities.
“MPT has made no ... commitment to provide working capital to hospitals that don’t have bids,” said MPT’s lawyer, Thomas Patterson, during the hearing.
However, MPT did commit to attending mediation sessions with Steward and other lenders about how to structure asset sales and allocate funds.
Mediation is set to begin later this month. However, U.S. Bankruptcy Court Judge Christopher Lopez cautioned the parties not to lose sight of the human impact.
“We’ve been talking about buildings today, and real estate and assets,” Lopez said. “But I look at the buildings and I see people. And they’re real.”
In response to the news of possible closures, a spokesperson for the Massachusetts Executive Office of Health and Human Services said the state will use tools allocated to it to “protect patients, ensure access to care, and preserve the stability of the healthcare system in Massachusetts and maintain jobs through the transition.”
However, unionized Steward workers want to ensure there are no closures, saying the system is stretched to its breaking point already.
“We need Governor Healey, Attorney General Campbell, and the Legislature to continue to ensure that a responsible not-for-profit buyer is in place for every Steward hospital in the state,” said Tim Foley, 1199SEIU executive vice president, over email. “The Massachusetts healthcare system is already stretched past the breaking point, and any hospital closure or service reduction would result in patients not receiving the life-saving care they need in their community.”
