Editor's note: This story has been updated with additional quotes from and context for Thursday's hearing.
A Thursday afternoon sale hearing scheduled for several Steward Health Care hospitals was shelved in favor of an amended bankruptcy court itinerary hashing out multiple disputes related to the company's pending deals for hospitals in Florida and Pennsylvania.
One of these “emergency” items related to Orlando Health’s recently announced $439 million bid for three “Space Coast” Florida properties. Steward’s filing designating Orlando Health a “stalking horse bidder” was contested by the facilities’ landlord, Medical Properties Trust, which filed an objection over concerns that the language in the filing would force the landlord to accept a collective purchase price negotiated by Orlando Health.
However, legal barbs exchanged between MPT and Steward Thursday morning—which included Steward’s counsel disclosing in filings a confidential purchase price MPT gave to another potential bidder—were put to rest shortly before the hearing, with the companies’ legal counsels characterizing the dispute as a misunderstanding over language.
Steward’s counsel told the court they had no intention of binding MPT to the buyer’s obligation, and the parties agreed to amend the designation filing for U.S. Bankruptcy Judge Christopher Lopez’s signature.
Though not yet a sale of the Space Coast properties, the granted emergency consideration of the stalking horse designation and proposed procedures “is an important step in getting to a proposed sale,” Lopez said during Thursday’s hearing.
The other, more contentious point of debate during the hearing is related to Sharon Regional Medical Center in Pennsylvania. The facility has been bleeding funds from Steward’s limited supply—about $1 million to $1.5 million per month, according to testimony—and is at risk of closure without a buyer.
A notice filed by Pennsylvania’s Office of Attorney General in the bankruptcy court disclosed that Steward asked the state for $1.5 million by Friday to cover the losses, or it would be forced to submit a closure notice for the hospital. In response, the office filed an objection Thursday morning to a procedural motion from Steward on its plans covering facility closures.
"The demand for funding is heavy handed and seeks to exploit the situation of the damages that ensue when a closure notice is sent," the attorney general's office wrote in the filed objection.
"There are a number of assertions in the Commonwealth's objection that, for the record, we do not agree with, and frankly [we] believe are destabilizing to the process of us trying to find a solution to us saving this hospital, Candace Arthur, who represents Steward, said of the objection during Thursday's hearing.
Nearby Meadville Medical Center has emerged as an interested buyer for Sharon, representatives of Meadville and the attorney general’s office testified Thursday, and have been working over the past few weeks to finance an offer and gauge necessary investments in restoring Sharon’s staffing and facilities, such as the installation of a new air conditioner system and roof.
James Donahue, first deputy attorney general for the office, told the court that the state could likely get the money together to keep Sharon afloat until a potential purchase but said it would first need to obtain and review the hospital’s finances from Steward before securing and giving away the money. Legal counsels floated a roughly two-week freeze on Steward issuing a potential closure notice during that process, noting that a closure notice could be irreparably damage efforts to save the hospital.
"The closure letter—especially given the fact that we've done a lot of work to get Meadville to the point where it could acquire this hospital—it would cause a lot of the medical professionals to leave," Donahue said. "It would change doctors' referral patterns. It would do a whole lot of damage that would make it much more expensive to try to save the hospital and protect these assets, because not only would you be doing the physical repairs, ... you're now recruiting for all the doctors who are there who might leave."
Counsel for Steward and its bankruptcy financiers petitioned against the delay, arguing that the hospital was beyond its initial bid deadline and that the state had already had weeks to assist Meadville in pulling together an offer. Further delay, loosely described as a de facto injunction, would take away Steward’s autonomy and would pull from the funds being used to support other hospitals, they said.
"You have one party urging relief with respect to one hospital," Andrew Leblanc, who represents Steward's first in last out (FILO) lenders, said during the hearing. "It is a limited pool of assets the debtors have that they have to choose how to allocate to hospitals across the country. ... That means that the Commonwealth of Pennsylvania will be dictating that another hospital will have to go without funding; that another hospital in a different jurisdiction, in a different state, may have to not provide patient services, not order medical supplies, because, the debtor doesn't have money to serve all of these needs—that's why it's before the court."
After a lengthy back and forth, Lopez ultimately decided to split the difference. Recognizing the “serious” efforts of Meadville and the state to build a purchase, he ordered Steward to hold off on any closure notices for Sharon until after Aug. 30—after which, he specified, the company is not compelled to accept whatever proposal is put together.
“This may have consequences for the debtor’s estate, and I realize it,” he said. “It may also have consequences for Sharon.”
Sharon aside, Lopez permitted Steward to move forward with its closure plans for its other unsold hospitals.
Though not the focus of Thursday’s hearing, Steward’s counsel also opened the hearing with quick updates on developments in Massachusetts and Ohio.
For the former, Arthur said that Steward's estate is “very close to the finish line and still fully engaged in mediation” regarding the deal announced last week.
As for Ohio, where closure notices were issued Wednesday for two Steward hospitals, Arthur described those filings as “a deadline thing.”
Steward is six weeks beyond the deadline set for those facilities and doesn’t yet have a binding agreement for the hospitals with a third party. Filing the notices “was the responsible thing for the debtors to do for all stakeholders,” she said.
On the other hand, Steward is in “active discussions with multiple parties” on a potential deal for the hospitals and doesn’t intend the notices to cut off a transaction, Arthur said.
“Despite the closure notice, we are still very, very active in pursuing saving these hospitals,” she said. “The debtor will transact on actionable offers,” she noted.
WARN notices filed Wednesday and Thursday regarding the Ohio hospitals and other satellite facilities show that 944 employees could be laid off should the closures come to pass.