THE BANKRUPTCY FILING of Steward Health Care doesn’t mean its hospitals will close, says Eric Gold, the former chief of the healthcare division at the attorney general’s office and currently a lawyer at the Mannat law firm.
“Steward’s lawyers, the judge, and really all the lawyers, including for the lenders, say again and again that they’re gonna work really hard to avoid any disruption to hospital services,” said Gold on an episode of The Codcast hosted by John McDonough, a professor at the T. H. Chan School of Public Health at Harvard University, and Paul Hattis, senior fellow at the Lown Institute. “That was clear from the beginning with getting the court’s approval to pay salaries for the doctors and nurses and other hospital staff. Even Steward’s lawyer, saying over and over again that [the company is] gonna work to keep the hospitals open.”
Steward – a for-profit health system that owns seven active hospitals in the state – filed for bankruptcy protection on May 7. The hospital system has been dealing with crippling debt and has failed to make payments to vendors for critical medical equipment.
All of the hospitals remain open for now, but there have been concerns about quality of patient care. The state has appointed five people to oversee the operations of Steward hospitals. Steward is seeking to sell its hospitals as early as late June, a date that many, even Steward’s own attorney, has called “not feasible.”
Gold laid out how the bankruptcy may unfold. First, Steward will propose its ideas for a restructuring and how debts should be paid. Such a plan will likely spur debate among creditors, hopefully leading to an acceptable compromise plan that will need to be approved by the bankruptcy judge, he said.
“Ultimately it’ll pay some, maybe reduce some, change some terms, maybe avoid some debts entirely,” said Gold.
Even though there was a tentative agreement for Steward to sell its physician group for an undisclosed price to Optum before the bankruptcy filing, there is no guarantee that sale will now go through, Gold said. He said it’s possible another bidder could enter the fray during the bankruptcy.
Before Steward, the same hospital system was run by the non-profit health care system Caritas Christi. When a private equity firm called Cerberus Capital Management acquired Caritas, the hospital system was already in financial trouble. Cerberus renamed the hospital system Steward and, after a 2016 sale of the real estate of the Massachusetts hospitals to Medical Properties Trust, the hospitals became responsible for making annual lease payments under a sale-leaseback agreement. Steward also had to pay off Cerberus as its sold its stake in the company.
Steward now owes Medical Properties Trust at least $50 million in unpaid lease payments and has other creditors, including its own physicians, clamoring for the money they are owed.
Last week, the Massachusetts House passed a sweeping hospital oversight and health care cost reform bill. According to Gold, it has some provisions that respond directly to the Steward crisis.
For one, it would require any company that’s going to repossess a hospital’s medical equipment or devices to first give notice to the Department of Public Health.
“My guess is that’s a response to the news reports about the situation at one of the Steward Hospitals where a patient lost their life because medical equipment was not available,” said Gold, referring to a Boston Globe report.
The bill will also regulate the relationship between hospital operators and their landlords, if the operators don’t own their own properties. “It’s an attempt to get at this concern around Steward’s finances related to its sale and lease back of its facilities,” said Gold.
When asked if this type of financial spiral could have been predicted and therefore avoided by the state, Gold said that it was hard to tell. He said the financial troubles for Steward are not new. “I think, moving forward, what the state is going to try to do is keep as many of the hospitals operating as they can,” he said.
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