While no one in the know is talking right now about the future of the bankrupt Sebastian River Medical Center, especially on the vital questions of who’s likely to buy it and when, operations at the 145-bed facility in northern Indian River County actually seem to have improved for the moment.
The Sebastian hospital’s corporate owner, Steward Health Systems of Dallas, declared a Chapter 11 reorganization bankruptcy in May, listing debts of over $9 billion on annual revenues of about $6 billion. Steward has put all of its 31 hospitals, eight of them in Florida, up for sale, to settle its debts.
The bankruptcy reorganization is being overseen by the U.S. Bankruptcy Court for the Southern District of Texas in Houston. Under the proposed timeline, buyers will have until July 26 to submit bids for Steward’s Florida hospitals for a sale hearing on Aug. 2. Bankruptcy Judge Christopher Lopez will determine whether to approve this timeline at a June 3 hearing.
The Sebastian hospital is the only alternative in the county to the Indian River Medical Center in Vero Beach, which has been run since 2019 by Cleveland Clinic. Vero Beach’s Cleveland Clinic hospital just lost its second chief executive in as many years, and is also still plagued by an exodus of doctors who seem to have a hard time adapting to the corporate healthcare model being imposed on them by Cleveland Clinic.
Observers of the healthcare scene say they expect some of the interested parties who lost out to Cleveland Clinic in the 2019 competitive bidding for the Vero Beach hospital to make another play to enter Indian River County by putting in an offer for the Sebastian hospital.
Those potential bidders would include the giant Hospital Corporation of America (HCA), which owns Lawnwood Hospital in nearby Fort Pierce as well as St. Lucie Hospital. HCA in 2019 opened a stand-alone Emergency Room facility on U.S. 1 in Southern Indian River County in direct competition with Cleveland Clinic’s Indian River Hospital.
Other potential bidders who earlier showed interest in taking over the Indian River Medical Center include Advent Health, a nonprofit owned by the Seventh Day Adventist church and headquartered in the Orlando suburb of Altamonte Springs that operates 52 hospitals in nine states, as well as Orlando Health. Both Advent and Orlando Health operate large hospitals in Orlando, and have been expanding aggressively throughout Central Florida.
Meanwhile, morale seems to have improved somewhat among Sebastian River hospital staff, many of whom had complained about stressful working conditions, increased workloads and long hours due to a hiring freeze in recent months.
“They’ve told us not to say anything about the bankruptcy,” one employee said during a brief break from work on a recent weekday. “Everything’s fine,” said another employee. “We’re working and that’s good. Of course we know about it, but we really haven’t noticed anything because of the bankruptcy.”
Hospital officials declined comment on all aspects of the bankruptcy and pending sale, referring all questions to Cathy Pague, director of marketing for Steward’s Space Coast area hospitals who is based in Rockledge.
“Sebastian River Medical Center continues to provide high-quality healthcare to our community,” Pague said. “We are open and fully committed to our valued patients, physicians and employees.”
On a typical work day last week, all spaces reserved for doctors in the Sebastian hospital’s parking lot were full, patients arriving from ambulances were being attended to in the emergency room, and the main waiting room was busy with relatives waiting for news of patients undergoing procedures.
“I know they’re bankrupt, but apparently my wife’s surgeon saw no problem operating on her here,” said one man who added that he was confident his wife would receive adequate care.
Fellsmere City Manager Mark Mathes, a member of the Board of Trustees of the hospital, said he was told that the Sebastian hospital was fully functioning and was now “hiring normally,” replacing departing staff members as needed.
Perhaps that was thanks to the $75 million debtor-in-possession financing that Steward Health Systems obtained from its landlord, Medical Properties Trust (MPT), which is not in bankruptcy and owns the physical plants of its hospitals, including the Sebastian facility. The relationship between Steward and MPT has come under scrutiny from regulators in Massachusetts for possible self-dealing.
It is not known if the existing lease agreements between MPT and the Steward hospitals will be an impediment or a benefit to conclude the hospital sales. The MPT loan is secured, meaning it will be repaid first out of any sale proceeds, before any unsecured creditors see any portion of their claims.
Mathes noted that the local Board of Trustees, although it is vitally interested in having an excellent hospital to attend to the health needs of the community in Northern Indian River County, has little influence over the sale process.
“That’s all happening at corporate levels,” Mathes said.
It means that the bankruptcy reorganization and sale negotiations are happening mostly at law firms and accounting offices up north and involve examinations of balance sheets, income statements and vendor contracts, and don’t seem to be centered around due diligence of actually inspecting the facilities up for sale. That may explain why local employees at Sebastian have not seen any teams of “suits” traipsing through the hospital’s hallways asking questions and taking notes.
Steward has said it is confident of being able to find buyers for most of its hospitals, and the company would enter into talks with “stakeholders,” including local authorities, on how to provide some continuing care in the areas where no buyers could be found.
Like most health systems, Steward had been buying up physician practices in the areas around its hospitals, and just prior to the bankruptcy filing, Steward had been in an advanced state of negotiation to sell its physician practices to Optum, a subsidiary of UnitedHealth Group. That sale would now have to be approved by the bankruptcy court.
Steward ran into significant financial problems in the Covid pandemic when many patients postponed or canceled elective procedures. The company also complained of low reimbursement levels from government programs like Medicare and Medicaid for the population it serves in low- and middle-income areas.
