Steward Inks Deal To Slash Debt, Keep Most Remaining Hospitals Open

Steward Health Care exited a federal bankruptcy court hearing on Wednesday, Sept. 11th, absolved of billions of dollars in outstanding lease agreements and with a plan to keep the majority of its remaining hospitals open.

Under the deal, Steward’s landlord, Medical Properties Trust, will forgive approximately $7.5 billion in outstanding obligations and allow Steward to receive $395 million in proceeds from a recent hospital sale in Florida in order to pay its lenders and unsecured creditors, according to testimony from the health system’s chief restructuring advisor, John Castellano. In exchange, Steward will waive its rights to pursue lawsuits against the real estate investment trust.

Steward will also immediately receive assistance operating 15 hospitals. Four new management teams will come on as interim operators under the settlement. MPT will foot some of the bill for operations, including offering at least $9.1 million for an account that funds workers’ payrolls, according to the filed court documents.

MPT will bring in some rent from the hospitals during the interim management period — approximately $160 million annually. The figure is about 95% of the rent Steward would have owed for the same properties in the fourth quarter of 2026, based on minimum rent escalators, according to MPT.

MPT has agreed to take cash rent payments and will defer collections until the end of the year. Attorneys for Steward said the system desperately needed this deal to prevent further hospital closures.

“Without this deal we do not have cash collateral to continue operating the hospitals,” Ray Schrock, an attorney with New York-based law firm Weil, Gotshal & Manges who is representing Steward, told the court.

As of Sept. 4, Steward had only $21 million of cash on hand. For context, accrued payroll alone added up to $27 million.

More than half of the 15 hospitals included in the deal will be run on an interim basis by hospital operator Healthcare Systems of America. The company is affiliated with California-based American Healthcare Systems, another hospital operator that wants to purchase Glenwood Regional Medical Center from Steward. Healthcare Systems of America is set to manage hospitals in Louisania, Texas and Florida.

In a news release, Mike Sarian, CEO of Healthcare Systems of America and American Healthcare Services, called maintaining care a “top priority” and nodded to preserving Steward jobs in a news release shared with Texas local news outlet, 12 News Now.

Arizona-based nonprofit health system HonorHealth will manage Steward’s open Arizona hospitals, expanding its current six-hospital portfolio. St. Luke’s Behavioral Health Center, a Steward facility that was shut down by the Arizona health department in August due to unsafe temperatures, remains closed. HonorHealth plans to take on full operational ownership of the hospitals after the interim period, according to a Sept. 11 news release.

Insight Foundation of Hillside will manage Ohio-based Hillside Rehabilitation Hospital and Trumbull Regional Medical Center in the interim. The facilities were initially set to close on Sept. 20 due to a lack of qualified bidders. The reversal of fortune was cheered by labor groups, including the Ohio Nurses Association.

“Today’s judgment to keep Hillside Rehabilitation Hospital and Trumbull Regional Medical Center open is lifesaving for the patients and employees of those hospitals,” said Rick Lucas, president and executive director of the ONA.

Meanwhile in Texas, Tennessee-based Quorum Health will take over Odessa Regional Medical Center and Scenic Mountain Medical Center.

The sweeping deal took months to finalize. Steward and its creditors, including MPT, say they have been working around the clock to determine how to appropriately allocate proceeds from the hospital sales and keep hospitals open.

At times, negotiations appeared at risk of ending without a resolution. Last month, Steward sued its landlord, alleging MPT had purposefully held up sales to advance its own position. MPT filed objections of its own, noting its legal right to object to sale closures that do not appropriately value hospitals’ underlying real estate.

Parties negotiated until the final hour on Wednesday, pushing the scheduled hearing three times before appearing in front of U.S. Federal Judge Christopher Lopez with terms. Lopez, who approved the deal on an interim basis and is expected to finalize it later this month, called the multi-party settlement “nothing short of remarkable.”

“It helps keep hospitals open, so everyone has kept their eye on the ball,” Lopez said.

Still, not all parties were happy with the agreement. Steward’s unsecured creditors were displeased the health system waived its right to pursue claims against MPT. During their investigation, the unsecured creditor committee said they found potential evidence that more than a billion dollars Steward allegedly owed to MPT were “fraudulent or preferential transfers.” The committee accused MPT of engaging in “disguised financing” before and after Steward declared bankruptcy and said MPT was leveraging Steward’s “desperate liquidity situation” to force a deal.

While Steward celebrates its continued hospital sales, its CEO rebuffed a congressional subpoena, electing to skip a hearing held by the Senate Committee on Healthcare, Education, Labor and Pensions.

Ralph de la Torre was asked to appear in front of the subcommittee to testify about his alleged role in Steward’s financial mismanagement. However, earlier this month the executive said he would not attend the hearing.

At the close of the meeting, Chair Sen. Bernie Sanders, I-Vt., vowed to investigate the CEO’s absence and possibly pursue charges of contempt.

“Dr. de la Torre thinks that he is comfortable by not being here today,” Sanders said. “Dr. de la Torre, if you’re watching, this will be pursued.”

Source: HealthcareDIVE