Sebastian River Medical Center, Indian River County’s northern hospital and fifth-largest private-sector employer, along with its parent company Steward and 165 other hospitals clinics and physician groups around the country filed for Chapter 11 bankruptcy protection Monday, and the company hurtled into damage-control mode.
A memo to doctors with privileges at the hospital read like a slick marketing piece, attempting to paint Monday’s events as a mere housekeeping matter.
“This is a voluntary process that allows Steward to address its affairs, debts, and operations in a controlled environment under the protection of the court,” Dr. Michael Callum, executive vice president for physician services for Steward Health Care, emailed physicians at 9:27 a.m. Eastern.
“To be clear – all of our hospitals remain open and filing for Chapter 11 does not mean we are reducing our scope of services. This process will have no impact on the quality of care our patients receive. We remain committed to our patients, staff, and communities, and will continue to partner with you to provide safe, high-quality care every day,” Callum wrote.
But will vendors of expensive medical equipment and supplies continue to ship product out to Steward hospitals? Will patients continue to choose Sebastian River Medical Center for their non-emergency, elective and outpatient care? Will the 750 doctors, nurses and other clinical and support staff remain at Sebastian River Medical Center when the healthcare job market is red hot?
Cleveland Clinic Indian River Hospital offered the following statement when asked if the hospital was prepared for a potential influx of patients, or even doctors and employees opting to bail on SRMC and Steward Health Care.
“We are constantly looking for ways to increase capacity and serve our community. Over the last five years, we’ve invested in expanding quality medical services to meet the needs of the people we serve,” spokesperson Raquel Gonzalez Rivas said.
Indian River County Hospital District Executive Director Frank Isele also has been monitoring the deteriorating situation with Sebastian River Medical Center and Steward corporate.
“At this time we are uncertain of how this will directly impact Sebastian River Medical Center’s provision of services to our residents in Indian River County,” Isele said. “However, Indian River County Hospital District stands ready to convene our community providers and partners and Cleveland Clinic Indian River to be sure the healthcare needs of Indian River County residents are met.”
Callum tried to reassure the doctors by, in part by saying hey, Chapter 11 isn’t so bad. In fact, it’s a popular thing to do.
“This is an action that many organizations before Steward have undertaken, and one that many after Steward will undertake,” the memo said.
For months, the truth about Steward Health Care’s financial woes has been seeping out in news headlines, with the Boston Globe leading the pack, uncovering plans to close or liquidate hospitals seen as most valuable to stave off the inevitable reckoning with its creditors.
Vero Beach 32963 began digging around about SRMC’s financial situation in 2023, reporting in January that the hospital was six months behind in its water and sewer utility bills, and that cash-flow issues were forcing the delay or cancellation of surgeries due to missing orthopedic equipment.
In February, we reported on the hospital’s most recent audited financial statements from 2021, that Steward was years behind on paying its taxes, and that millions flowing upward to corporate in fees, rent and debt service payments was leaving the local hospitals in the red, or only marginally profitable.
Court documents show that Steward and its hospitals owe between $1 billion and $10 billion to more than 100,000 vendors, subsidiaries, individuals and to its powerful landlord, the publicly traded Medical Properties Trust, which is, coincidentally, one of its own affiliated companies.
The separate 200-page pleadings Steward filed for each of its entities state, amid the muck of legalese, that it’s using the federal bankruptcy mechanism to restructure its debt to its largest creditor, MPT.
To expand, Steward purchased hospitals in Florida, Texas and other states. To buy each new hospital, the company showed that it already owned numerous hospitals worth hundreds of millions of dollars, and took out Asset-Based Loans. Then Steward sold hospital properties to MPT and leased the hospitals back.
Steward then billed each hospital the lease payment to MPT, plus monthly payments toward a portion of Steward’s debt. On top of that, the hospitals pay Steward hefty management fees for doing things like facilities maintenance, legal work, accounting and paying the bills for the local hospitals.
Money was going up the food chain – siphoned out of each hospital’s bank accounts on a nightly basis – but it was not coming back down quite as rapidly, so the bills at Sebastian River Medical Center were not getting paid. Recently, Steward and SRMC defaulted on lawsuits filed by its landscaping service and a fresh-food delivery company. Only after the court awarded a judgment to the plaintiffs did the vendors get their invoices paid.
Will the court see through what many in the industry have called an elaborate shell game to allow Steward to settle up with MPT, while leaving many of the other 99,999-plus creditors high and dry, or waiting months or even years to get paid?
While Steward’s public relations department launched a colorful, ready-to-go website explaining the Chapter 11 proceeding to the largely financially illiterate media touting variations on the “everything is going to be OK” talking point, the court documents filed on Monday reveal some very early casualties of the proceedings.
Section 5 of the document on Page 7 is entitled, “Termination of the Deferred Compensation Plans and Notification of Insolvency to Trustees of Trusts.”
Steward is asking the bankruptcy court to accept its declaration that its two deferred compensation plans, one which appears to involve regular employees and one that’s strictly for executives, are “insolvent” and thus, are hereby “irrevocably terminated.” That doesn’t sound like business as usual for the people who were promised deferred compensation benefits.
Sebastian River Medical Center Board of Trustees member Wesley Davis, who has served on the hospital board since he was a county commissioner, said he was not given a heads up about the Chapter 11 filing. Presumably employees were notified on Monday about the Chapter 11 filing and how it will impact them. The phone of Steward’s marketing director, went straight to voicemail, and questions emailed to spokesperson Cathy Pague went unanswered as of press time.
