Massachusetts lawmakers seek to ban REITs from owning hospitals

Massachusetts lawmakers are taking aim at real estate investment trusts amid Dallas-based Steward Health Care's ongoing financial troubles. 

In response to Steward's bankruptcy filing in May, the Massachusetts House of Representatives  passed a sweeping healthcare oversight bill that includes a provision to ban hospitals from leasing their main campuses from real estate investment trusts, known as REITs, Bloomberg reported June 24. Massachusetts House Speaker Ronald Mariano has called the bill, "the most significant healthcare oversight and cost-containment legislation in more than a decade." 

The proposed legislation — which passed the House in a 154 to 1 vote — excludes existing leases and would preserve the ability for hospitals to seek other real estate financing sources, though they would be required to share more information about lease agreements as part of the licensing process with the state government. 

The move comes amid uncertainty over the future of Steward's eight hospitals in Massachusetts. The health system's landlord, Medical Properties Trust, is one of the world's largest hospital real estate owners. Cerberus Capital Management, the private equity firm that founded Steward, sold the system's hospital properties to Medical Properties Trust in 2016. Massachusetts lawmakers who introduced the bill have said the sale-leaseback deal triggered Steward's financial downfall. 

Real estate experts are divided on whether banning REITs alone from owning hospital property would do much to solve or prevent challenges like those faced by Steward. One expert who spoke to Bloomberg called the provision in the proposed Massachusetts law "odd and miss informed." 

"If a hospital has a poor operating model, that is a much riskier problem than the fact that it owes rent to a REIT every year," said Jacques Gordon, PhD, Massachusetts Institute of Technology's Center for Real Estate. 

Michael Rodrigues, chairman of the Massachusetts Senate Ways and Means committee, previously said he wants to, "take for-profit, equity-based companies out of the healthcare system," though he was not commenting directly on whether he would support the bill. 

Bloomberg reported that representatives for Steward, MPT, and Cerberus did not respond to its requests for comment. 

Earlier this month, Steward received approval from a U.S. bankruptcy judge to sell its 31 hospitals and its physician group, Stewardship Health, though questions remain surrounding what will happen if some of its hospitals do not receive bids during auctions set for June 24 and Aug. 12. Medical Properties Trust has said it does not have plans to fund hospitals that don't receive bids. 

More updates on Steward's ongoing financial saga can be found here

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