A federal judge approved on Wednesday Steward Health Care’s plan to close two Massachusetts hospitals: Carney Hospital and Nashoba Valley Medical Center. The judge called the decision legally appropriate and proper, yet “painful.”
Since Steward entered Chapter 11 restructuring in May, the Dallas-based health system has sought to sell its portfolio of assets, including its 31 hospitals and its physician group, Stewardship Health, to pay back its $9 billion in outstanding debt.
From the start, Steward lawyers said the task would be an uphill battle, noting some hospitals were more profitable and thus more attractive than others.
Steward’s Carney Hospital in Dorchester and Nashoba Valley Medical Center in Ayer are among the system’s least profitable facilities, according to documents filed by Steward’s legal team last week.
Carney, which employs approximately 903 workers, had a year to date earnings before interest, taxes, depreciation and amortization loss of $14.7 million through May. Nashoba, which employs 562 workers, had an EBITDA loss through May of $2.3 million.
The hospitals, which primarily serve low-income communities, have had low volumes for years, according to statements from Massachusetts officials. In July, Gov. Maura Healey’s office reported Carney filled an average of just 13 of its 83 medical beds, while Nashoba filled 11 of its 46.
Steward said in the filing last week it received no qualified bids for Carney and Nashoba, despite heavily marketing the properties during a months-long sale process. Steward sought approval from the court to close the facilities by the end of August, even though Massachusetts requires 120 days notice to close hospitals.
During a hearing that ran for nearly three hours, federal Judge Christopher Lopez heard from Steward that the system is — once again — nearly out of money. Steward says it does not have the funds to continue to operate the hospitals past August.
Attorneys for the Massachusetts Nurses Association countered that patients could die if the facilities close and patients have to travel further for care, calling the decision a matter of life or death that shouldn’t be expedited.
“What we're faced with is a situation where the debtor is going to pull the plug on two of these hospitals in the areas that desperately need healthcare,” said Sam Alberts, counsel for the MNA. “I do not say this lightly, but if this occurs, people will die. It happens when you have to travel too far to get care, when hospitals are overcrowded.”
The judge said “the importance of every individual who's in [the hospitals] weighs on me.” However, he decided it was appropriate for the facilities to close, concluding that if they remained open the financial strain could threaten the existence of the broader health system. He approved an Aug. 31 closing, saying that pushing the date by two weeks wouldn’t alleviate the nurses association’s concerns.
Representatives from the Commonwealth of Massachusetts told the court they were disappointed with the closures, but had been preparing for the possible outcome.
Hugh McDonald, a lawyer representing Massachusetts, said state officials are disappointed about the closures but will work with Steward to relocate the patients at Carney and Nashoba Valley.
“We have seen this coming,” said McDonald. “We have prepared for this. We are trying our very best to make sure, through cooperation, we are going to get these patients into safe facilities.”
Steward’s attorneys also used the hearing to provide the judge with a status update on the rest of the sale process, which has been bumpy.
Steward has pushed back its sales timeline several times and had would-be bidders publicly walk away from the bargaining table in recent weeks.
The health system said it’s in the process of finalizing sales agreements for its Louisiana and Arkansas hospitals, as well as its other six Massachusetts hospitals. It has received late bids for its Pennsylvania and Ohio facilities. Steward plans to hold auctions on Aug. 6 for its Florida and Stewardship facilities and said it has received “multiple bids” for Stewardship.
However, Steward said it cannot finalize asset purchase agreements for the hospitals until it finishes mediation with its landlord, Medical Properties Trust, about how to allocate proceeds from sales.
The mediations have grown increasingly contentious, according to comments in court from attorneys on both sides.
No bidders want to take on Steward’s leases after purchase, according to Steward. Steward contends the leases run at higher than market rates and asked the court to reject the leases. The court approved the request, noting the leases have been a major sticking point for would-be bidders.
Steward first sold its real estate to MPT in 2016 and has since rented from the real estate investment trust. In Massachusetts, the facilities are now jointly owned by MPT and Macquarie Asset Management.
Steward is negotiating with MPT, Macquarie and its lender, Apollo Global Management, about how much of the asset sale proceeds will go to the real estate players.
“It’s an immensely complex negotiation,” said Ray Schrock, a lawyer representing Steward. The parties will meet in New York to continue negotiations, and Schrock does not expect it to be quick.
“We will stay there as long as we need to. People should bring clothes because we have to get this done,” Schrock said. “We’re already in overtime, effectively.”
Other parties are sick of MPT and Steward’s fighting holding up sales. McDonald and labor representatives alleged MPT is trying to strong arm Steward at the expense of patients.
“The infighting, this brinkmanship … has led us to the place where we are today. The commonwealth is losing its patience,” said McDonald.
“It’s clear through the bankruptcy process that Steward’s decision to sell properties to Medical Properties Trust has jeopardized community care,” said Tim Foley, executive vice president of 1199SEIU, a labor union representing Steward workers.
