BY MICHELLE MARCHANTE
Steward Health is trying to sell all of its hospitals to help thin debt. GETTY IMAGES
The future of several Florida hospitals owned by a healthcare system in bankruptcy is hanging by a financial and legal dispute.
Steward Health Care System, considered to be the largest physician-owned health care network in the country, this week sued Medical Property Trust, one of the largest hospital landlords in the nation. Steward accuses its landlord of “undermining behavior” and tactics jeopardizing the sale of its hospitals.
In the suit, filed in Houston bankruptcy court, Steward says that the hospital landlord has “engaged in calculated efforts to undermine” the health system’s sale process “by attempting to siphon all value from” its hospitals “into its own coffers.”
The landlord disputes the claims and accuses Steward of delaying the hospital sales in an effort to make more money.
Steward Health has put its 31 U.S. hospitals up for sale, including eight in Florida, to thin debt since filing for Chapter 11 bankruptcy in May. Complicating the sales: Steward doesn’t own the land under its hospitals. The health company sold the real estate in Florida and elsewhere to Medical Property Trust several years ago, and has since paid more than $870 million in rent and other payments under the lease agreement for the properties it used to own, according to court records.
That means potential buyers would need to make a deal with Steward for its hospital buildings and operations and also strike a lease or purchase agreement with Medical Property Trust for the real estate.
STEWARD HEALTH VS. HOSPITAL LANDLORD: WHAT TO KNOW
Steward Health has five South Florida hospitals. Miami Herald staff
In court documents, Steward claims its landlord has “imposed daunting requirements” on buyers interested in its hospitals and has interfered in the bidding and sales process to make more money at the expense of the health company and its creditors.
The landlord has communicated with bidders without Steward’s consent in a way that violates the court-approved rules for the sales and has also directed bidders, “many of which have prior and ongoing relationships with MPT or otherwise seek to enter into revised leases with MPT as their future landlord, to allocate all of the value of their bids to MPT’s real estate,” Steward alleges in court documents.
Steward says the landlord has also pressured the health system to comply with its demands that “all value be siphoned to MPT, leaving the estates bare and risking the debtors’ ability to maintain and sell their operations in a manner that maximizes value and safeguards patient health and safety.”
Land owner Medical Property Trust has clapped back against the health system, and says Steward has violated the court-approved procedures during the sales process to exclude it from the negotiating table to make more money.
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Under the court-approved bidding procedures to sell Steward’s hospitals, potential buyers need to indicate in their bids how much they are willing to rent or buy the property from the landlord and how much they’re willing to pay for Steward’s hospital operations, the landlord states in court documents.
Instead, Steward has directed bidders to submit a “single ‘total enterprise value’ bid for operations and real estate combined, rather than separate bids for separate property interest,” which goes against the agreed-upon terms, according to court documents filed by the landlord.
Steward is asking the bankruptcy judge to determine how much Steward’s hospital operations are worth versus the landlord’s property.
One of the sales that could be affected by the judge’s decision is the recent agreement Steward has made to sell its northern Florida operations to Orlando Health. Possible buyers have until Aug. 26 to try and one-up Orlando Health’s bid.
The health company also is asking the court to reject the master lease it has with the landlord for its hospitals in Florida and several other states, similar to how the master lease for its Massachusetts hospitals was rejected in July.
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The health system owns five hospitals in South Florida and three elsewhere in the state. Miami-Dade and Broward hospitals are Palmetto General in Hialeah, Coral Gables Hospital, Hialeah Hospital, North Shore Medical Center and Florida Medical Center in Lauderdale Lakes. The other Florida hospitals are Rockledge Regional Medical Center, Melbourne Regional Medical Center, and Sebastian River Medical Center.
Nearly every bidder for the hospitals in Florida and other states have asked the landlord for “significant rent concessions or to acquire the underlying real property at a significant discount to the lease base,” Steward’s filing states, noting that the payments Steward has made under the lease agreements are “substantial and have crippled” its operations for years.
Medical Property Trust, in court records, says that Steward’s new proposal to sell and then have a judge divvy up the money would be “an abuse of the bankruptcy process” and would force it to sell the properties for the amount Steward and the buyer determine the real estate is worth. The landlord claims Steward is trying to change the sales process because the real estate would “generate much higher bids” than its operations, which are “generally unprofitable.” Steward’s attorneys have previously indicated in court that Florida is the health system’s most profitable asset.
“So [Steward] is saying, ‘We want the court to figure out what each side is entitled to by attributing the value to the operations and to the real estate.’ And the landlord is saying, ‘No, I own the real estate. I’m not a debtor in bankruptcy, you can’t decide what my property is worth,’” attorney Linda Worton Jackson told the Miami Herald. Worton Jackson, who is not involved in the case but is monitoring developments, specializes in bankruptcy cases and is the chair of the corporate and restructuring department at Pardo Jackson Gainsburg & Shelowitz, PL in Miami.
Linda Worton Jackson, chair of the corporate and restructuring department at Pardo Jackson Gainsburg & Shelowitz, PL in Miami. Courtesy Linda Worton Jackson
Medical Property Trust is asking the court to not let Steward change the terms of the bidding procedures and reject the potential sale of Steward’s northern Florida operations to Orlando Health due to the bid not distinguishing how much of the offer is for the real estate and how much is for the operations.
Steward has entered into a purchase agreement with the Central Florida health system for Rockledge Regional Medical Center, Melbourne Regional Medical Center, Sebastian River Medical Center, as well as its Steward Medical Group Practices in northern Florida. Other interested buyers still have until Aug. 26 to make their own bids, but they must be higher or better then Orlando Health’s offer of up to $439.4 million in cash. It’s South Florida hospitals are still up for sale.
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WHAT HAPPENS NOW WITH THE HOSPITALS FOR SALE?
How will this legal dispute get fixed?
The squabble between Steward and its hospital landlord, and whether the sale of Steward’s Space Coast hospitals can continue, is set to be decided by the judge during a hearing on Aug. 22.
“A bankruptcy judge is always most interested in seeing the debtor reorganize and succeed, but they have to do that within the confines of the law and the bankruptcy code,” said Worton Jackson, the Miami attorney.
“Real estate owners and investors are all going to be watching this case very closely to see what happens because it may set a precedent for future cases, both in the healthcare industry and outside the healthcare industry,” she said.
This story was originally published August 21, 2024, 9:44 AM.
MICHELLE MARCHANTE
MIAMI HERALD
305-376-2708
Michelle Marchante covers the pulse of healthcare in South Florida. Before that, she covered the COVID-19 pandemic, hurricanes, crime, education, entertainment and other topics in South Florida for the Herald as a breaking news reporter. She recently won second place in the 73rd annual Green Eyeshade Awards for her consumer-focused healthcare stories and was part of the team of reporters who won a 2022 Pulitzer Prize For Breaking News in the Herald’s coverage of the Surfside condo collapse. Michelle graduated with honors from Florida International University and was a 2020-2021 Poynter-Koch Media & Journalism fellow.