While there are still issues to iron out, U.S. Bankruptcy Court Judge Christopher Lopez authorized an interim settlement agreement for Dallas-based Steward Health Care to transition many of its remaining hospitals to its landlord, Medical Properties Trust, or applicable designated operators, effective Sept. 11.
"We believe we have a path that hopefully should keep all of the remaining hospitals open and provide much needed liquidity for this company immediately, a basis that we would not be here without," Steward attorney Ray Schrock said during a Sept. 11 hearing. "Without this, we do not have cash collateral to continue operating the hospitals."
Under the agreement, Steward will continue to operate the hospitals with various management teams given the for-profit health system is still bound by contracts. The new managers will also fund operating expenses for the hospitals.
Healthcare Systems of America, an affiliate of Glendale, Calif.-based American Healthcare Systems, is taking on interim management for eight of the Steward hospitals under the settlement. "Healthcare Systems of America is devoted to providing these communities the quality healthcare they deserve while saving the jobs of the employees that give so much to these hospitals and their patients," Mike Sarian, CEO of Healthcare Systems of America, said in a Sept. 11 news release shared with Becker's. "Making sure that these communities have access to the critical care they need is our top priority."
Medical Properties Trust will set up a $5 million escrow account to cover near-term incidental expenses. MPT and/or the interim managers will also fund at least $9.1 million in payroll obligations, according to Sept. 11 court documents obtained by Becker's.
"MPT is going to waive all claims against the estate, so all the claims that they have, the billions of dollars of claims that they have against the estate, are being waived. The unsecured creditors, we believe, should have a significant recovery when it's all said and done," Mr. Schrock said.
Steward will also retain $395 million from its $439 million sale of three Florida hospitals to Orlando (Fla.) Health and "promptly transfer to MPT any and all proceeds in excess" after it pays any post-closing obligations following the sale completion.
A spokesperson for Medical Properties Trust said during the hearing that the case has created "a set of extraordinary challenges" and that Steward's landlord has been at the center of a perfect storm created by Steward, which sought Chapter 11 protection May 6.
"MPT wanted to keep as many hospitals open as possible," the spokesperson said. "Another objective was to help the debtors [Steward] transition to new operators who were financially viable, so that the situation and the crisis could be averted and we could have operators who could continue to meet obligations going forward."
Medical Properties Trust expects to receive around $160 million in aggregate annualized cash rental payments for the around $2 billion lease portfolio based on the new lease agreements in place, according to a Sept. 11 news release.
"To expedite the re-tenanting process and minimize any disruption to patient care as new operators are ramping up, cash rent payments will not be due for the remainder of 2024 for all 15 properties," the MPT release said. "Cash rent payments are generally expected to commence in the first quarter of 2025, reach approximately 50% of aggregate fully stabilized rent by the end of 2025 and achieve full stabilization in the fourth quarter of 2026."
Of note, Steward's Sharon (Pa.) Regional Medical Center is not listed because it received a letter of intent from Meadville Medical Center. Steward's Texarkana, Texas-based Wadley Regional Medical Center is not listed because the health system has entered into a binding asset purchase agreement with Christus Health Ark-La-Tex, part of Irving, Texas-based Christus Health.
"MPT is in active discussions regarding solutions related to its ongoing Norwood, Massachusetts and Texarkana, Texas construction projects, as well as, separately, four hospitals closed well before Steward’s bankruptcy and two that recently closed or otherwise became subject to uncertainty during the restructuring process," the MPT release said. "These six facilities have an aggregate lease base of approximately $300 million."
A final hearing date is set for Sept. 17 to make the interim management permanent.
Below are the interim managers listed for Steward's remaining hospitals:
Arizona
1. Scottsdale, Ariz.-based HonorHealth was named during the hearing as the interim manager for Steward's Florence Hospital, Mesa-based Mountain Vista Medical Center, and Tempe St. Luke's Hospital, and multiple outpatient physician practices.
"HonorHealth continues to invest in responsible healthcare development where there is a proven need, and we believe assuming operations of these existing facilities is an effective way to optimize our resources," Todd LaPorte, CEO of HonorHealth, said in a Sept. 11 news release shared with Becker's. "We’re excited to work with the Steward Health Care professionals to ensure access to high quality, essential care for these communities."
Florida
1. Healthcare Systems of America-Florida on an interim basis will manage Coral Gables Hospital, Lauderdale Lakes-based Florida Medical Center, Hialeah Hospital, Miami-based North Shore Medical Center and Hialeah-based Palmetto General Hospital.
Louisiana
1. HSA Glenwood will interim manage West Monroe-based Glenwood Regional Medical Center.
Ohio
1. Flint, Mich.-based Insight Health System will interim manage Warren-based Hillside Rehabilitation Hospital. Steward initially shared Sept. 20 that the hospital was set to close on or around Sept. 20.
2. Insight Health System will also take over interim management of Warren-based Trumbull Regional Medical Center. Steward initially shared Sept. 20 that the hospital was set to close on or around Sept. 20.
Texas
1. HSA Port Arthur was named as the interim manager for Medical Center SE Texas-Port Arthur.
2. HSA St. Joseph will be the interim manager for Houston-based St. Joseph's Medical Center.
3. Brentwood, Tenn.-based Quorum Health will manage Odessa Regional Medical Center.
4. Quorum Health will manage Big Springs-based Scenic Mountain Medical Center.
"After careful consideration, we agreed that Quorum Health is a natural fit as an operator of these community hospitals," a spokesperson for Quorum Health said in a Sept. 12 statement shared with Becker's.
Editor's note: This story has been updated as of Sept. 12 at 2 p.m. CT.