Optum will not bid on Steward Health Care’s physician group, Stewardship Health, during the bankrupt health system’s upcoming auction, a Massachusetts state official has confirmed.
The news is a major setback for Steward, which has repeatedly identified selling Stewardship as critical for its financial stabilization.
Steward took out $150 million in loans to fund the transaction in February. Its attorneys have claimed during federal bankruptcy proceedings that the sale proceeds would be enough to cover debts to certain lenders and, as recently as June 13, the Dallas-based system tied $75 million of new debtor-in-possession financing — which funds operations during restructuring — to the successful completion of a Stewardship sale.
While Steward hammered the importance of selling Stewardship, it only had one public buyer at the table: UnitedHealth-owned Optum.
The parties began discussing terms of a deal in December, and signed a letter of intent to complete a sale in March. However, since that time progress stalled, according to representatives from the Massachusetts Health Policy Commission, the regulatory agency that reviews healthcare deals in the state. The parties never submitted a definitive agreement required to begin the approval process.
Steward’s attorneys told a U.S. federal bankruptcy court multiple times during hearings in May and June that the deal was on the precipice of closing. However, Optum never publicly commented on the matter.
Optum did not respond to a request for comment as to why it got cold feet about the deal. However, concerns about the regulatory review process may be to blame, according to Arielle Trzcinski, principal healthcare analyst at Forrester.
Prior to Steward entering bankruptcy, state and federal lawmakers called for close antitrust review of the deal, noting that Optum already employs or is affiliated with 10% of all physicians nationwide.
Last month, the Department of Justice piled on further, filing an objection to the sale timeline for Stewardship. The DOJ reminded the court that any sale would need to clear the regulatory review process.
“My suspicion is that [Optum] deemed potential regulatory challenges would be too great,” Trzcinksi said over email.
Without Optum in the mix, it’s unclear what parties might bid on Stewardship.
Steward attorneys have said in court that Stewardship is “very sought after” and “extremely valuable.” However, the health system earlier this month pushed back its auction timeline by three weeks without citing a reason.
The delay could be due to ongoing conversations with Steward’s landlord, Medical Properties Trust, about how to divvy up proceeds from asset sales, or it could be an indication of little interest in Steward’s assets, according to experts.
The Boston Globe first reported Optum was backing out of the deal.
