Bankrupt Steward Health Care sells physician network as Massachusetts hospital seized

By Dietrich Knauth

NEW YORK (Reuters) – Bankrupt hospital operator Steward Health Care received a bankruptcy judge’s approval on Friday to sell its nationwide physician network to a private equity buyer while its stalled efforts to sell Massachusetts hospitals caused the state to step in and seize one hospital.

U.S. Bankruptcy Judge Christopher Lopez on Friday approved a $245 million sale of physician network Stewardship Health to Rural Healthcare Group, a Kinderhook Industries-owned network of primary care providers that operates in Tennessee and North Carolina. Lopez said at a court hearing in Houston that the deal was the best offer available to Steward, which is trying to sell all of its roughly 30 hospitals separately from the physician network.

Steward had previously planned to sell the physician network to a UnitedHealth Group (NYSE:) subsidiary, but that deal fell apart after Steward filed for bankruptcy in May.

Steward told Lopez it has found a buyer for three of its Florida hospitals and it is making progress on efforts to sell six hospitals in Massachusetts.

Steward put all its 31 hospitals up for sale when it filed for bankruptcy in an effort to address its $9 billion debt.

Steward has a $439.4 million offer from Orlando Health Inc for Steward Melbourne Hospital, Steward Rockledge Hospital, and Steward Sebastian River Medical Center, according to court documents. That offer is still subject to higher and better offers.

Steward’s attorney Ray Schrock said on Friday the company was “very, very close” to finalizing deals for Massachusetts hospitals, but state officials, unhappy with delays, acted to seize one hospital on Friday.

Massachusetts governor Maura Healey said on Friday the state will take control of Saint Elizabeth’s Medical Center in Boston through eminent domain, to facilitate the transition to a new owner and keep the hospital open.

Steward declined to comment on the state’s seizure of Saint Elizabeth’s

Steward previously decided to close two hospitals in Massachusetts, and plans to transition its remaining hospitals to new operators.

The company’s bankruptcy has drawn scrutiny from Massachusetts officials and U.S. Senators, who criticized the company and its former private equity owners for selling the land under its hospitals to a real estate company, saddling the company with over $6.6 billion in long-term rent obligations and leaving it on shaky financial footing.

A U.S. Senate committee intends to question the company’s CEO about Steward’s decline at a public hearing in September.