Steward files for bankruptcy, leaving its eight Massachusetts hospitals in limbo - The Boston Globe

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As part of the bankruptcy process, Steward said it is "finalizing the terms" of $75 million in new financing from Medical Properties Trust, an Alabama real estate company that bought its Massachusetts hospital buildings in 2016. Steward said in a release it expects to receive $225 million more if it meets unspecified conditions acceptable to the hospital landlord, however on Monday evening, MPT said in a release it had not committed to any more financing beyond the $75 million.

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The filing said Steward's board named John Castellano, managing director of New York consulting firm AlixPartners, as chief restructuring officer, managing the company's bankruptcy process. It said Steward had more than 100,000 creditors. It listed the company's liabilities as between $1 billion and $10 billion, and its assets in the same range.

Steward filed in US Bankruptcy Court in Houston, after missing a payment deadline from a consortium of private credit firms that provided a loan of about $600 million last year, followed by a second "bridge" loan of $150 million in January.

The company said it was forced into bankruptcy because of a delay in a plan to sell its nationwide physicians group, called Stewardship Health, which would have brought additional capital to pay off its lenders.

It also blamed "insufficient reimbursement" from Medicare and Medicaid, the federal health insurance programs for seniors and low-income residents, and higher costs of labor and medical supplies. However a recent analysis showed that Steward hospitals are paid the same as if not better than many Massachusetts hospitals.

"Steward Health Care has done everything in its power to operate successfully in a highly challenging health care environment," chief executive Ralph de la Torre said in a statement.

The fate of the hospitals' hundreds of thousands of patients, and its nearly 16,000 employees in Massachusetts, will be determined by a process in which Steward's lenders, deemed secured creditors, will hold an interest in the system as collateral. Some Steward hospitals have already seen employee departures and service cuts. Good Samaritan temporarily closed its Brockton cancer infusion center last month.

In a hastily called press conference Monday morning, Governor Maura Healey and other state officials stressed the continuity of hospital care while acknowledging there could be some "disruptions or inconveniences." The governor said she hoped bankruptcy would clear the way for "getting Steward out of Massachusetts" while offering transparency about the company's debts and liabilities.

"One of the good things about bankruptcy is that Steward and its CEO and its management team will no longer be able to lie," Healey said, accusing them of "greed and mismanagement."

State officials launched a public-facing Steward Health Care Resources website. The state also opened a patient hotline at 617-468-2189.

In bankruptcy court, a US trustee working for the Justice Department will appoint a panel of unsecured creditors, from staffing contractors to medical supply firms, who will negotiate with Steward and secured creditors on how to resolve its debts.

De la Torre, in a letter to Steward employees, took no responsibility for the hospital system's financial problems, blaming inflation and a tough business environment for hospitals.

He acknowledged "the term 'bankruptcy' can raise some questions," adding, "We fully expect that there will be some distracting local and media commentary as a result of this announcement."

Independent bankruptcy experts said Steward will be required to come up with a plan that could involve raising new capital and replacing management, in addition to selling its hospitals.

The plan would have to be filed within 120 days and approved by the bankruptcy judge, they said. If that doesn't happen, other parties — including the state of Massachusetts — could submit alternative plans to reorganize the hospital system and let it emerge from bankruptcy.

"Getting into bankruptcy is easy," said D. Ethan Jeffery, an attorney for Boston law firm Murphy & King, who has represented debtors, trustees, and creditors in Chapter 11 cases. "Getting out is the trick."

State Attorney General Andrea Campbell said she would ask the court to name an ombudsman to watch out for the interest of patients.

While the state has a clear interest in keeping the hospitals open, and preventing a patient influx to other resource-strained hospitals, its role in the bankruptcy process will initially be limited.

Last week, state officials activated a command center to manage the fallout on the Massachusetts health system from the anticipated breakup of Steward's system.

In a statement, the Massachusetts Nurses Association and health care workers union 1199SEIU said that the state should use the bankruptcy process to protect health care assets.

"The bankruptcy declaration should only embolden the administration, the legislature, the healthcare industry, and all those who value the health of our communities to immediately take whatever steps are needed to ensure the preservation of these facilities and the safe transition to more stable and responsible not for profit ownership," the unions said.

Steward operates two Boston hospitals, St. Elizabeth's Medical Center in Brighton and Carney Hospital in Dorchester. It also runs Good Samaritan in Brockton, Holy Family in Methuen and Haverhill, Morton Hospital in Taunton, Nashoba Valley in Ayer, and Saint Anne's in Fall River.

Steward-operated Norwood Hospital was temporarily shut down because of flooding in 2020. A rebuilding effort stalled earlier this year when contractors halted work, saying they hadn't been paid.

Most of the hospitals were formerly part of the Caritas Christi Health Care, a Catholic system run for decades by the Boston Archdiocese. Steward, backed by private equity firm Cerberus Capital Management of New York, acquired the Caritas hospitals in 2010, converting them into for-profit institutions before launching a national expansion.

Under the bankruptcy procedure, Steward will likely be obliged to disclose far more detailed financial information than it has in the past. The company has not publicly filed financials since 2020, when Steward Health Care System reported a $407 million loss.

Court filings will also shine a spotlight on the multimillion-dollar rent obligations Steward hospitals have incurred to MPT, the real estate investment trust that bought the Massachusetts hospital buildings in 2016 for $1.2 billion. In 2021, Steward paid out a $111 million dividend to equity owners, including de la Torre, according to a lawsuit filed against the company by a California medical staffing firm.

Steward's cash crunch came to light in January when MPT disclosed that the health system hadn't been paying full rent for months. The company, which moved its headquarters from Boston to Dallas in 2018, has also been sued by at least two dozen vendors alleging they weren't paid for supplies and services.

One big question hovering over the future of the hospitals is whether any new operators would inherit the rents Steward agreed to pay MPT, a major disincentive for would-be buyers of its hospitals.

Another question is how the bankruptcy will affect Steward's plan to sell its doctors network, Stewardship Health, to the Optum unit of insurance giant UnitedHealth.

Before the bankruptcy, Steward had been counting on the transaction to help pay off lenders. But a state review process won't formally begin until Steward and Optum finalize their purchase agreement and submit it to the Health Policy Commission, and it could take as long as nine months.

Regulators from other agencies, including the Massachusetts attorney general, the Federal Trade Commission, and the US Justice Department, were also expected to review the deal.

Robert Weisman can be reached at robert.weisman@globe.com. Jessica Bartlett can be reached at jessica.bartlett@globe.com. Follow her @ByJessBartlett.