Now that the parent company of Sebastian River Medical Center has managed to secure the first $75 million installment of a $225 million loan it needed keep operating while in bankruptcy, attorneys over the next two months must sort out exactly what bidders for the local hospital and 30 others will be buying.
An influx of cash was approved by Federal Bankruptcy Judge Christopher Lopez the afternoon of June 13, enabling the nurses and other employees at the Sebastian hospital to be paid on time last week. Steward attorneys had told Lopez the company would be out of money on June 14 without that cash.
“I can confirm that there are no payroll issues anywhere in the system,” said Alex Macfarlane, Steward’s Vice President, Public Affairs, “and that includes Sebastian.”
All operations appeared to be continuing normally at Sebastian River Medical Center this past week. Patients and visitors went in and out for procedures or visits, and vendors picked up and dropped off specimens on normal schedules.
Now that the cash-flow crisis has been temporarily solved, Judge Lopez has sent Steward into mediation with its landlord, Medical Properties Trust, to determine which assets are part of the real property owned by MPT, and which fixtures, equipment and improvements convey with the business of operating each hospital.
Soon after Sebastian River Medical Center was purchased by Steward in 2017, Steward sold the land and physical plant of the hospital to Medical Properties Trust, then immediately leased that real property back, with MPT as the landlord.
But unlike the sale of a home, where the contract identifies which items like appliances, window treatments or chandeliers convey with the house, Steward and MPT appear to have no document detailing what assets inside the hospital were sold to MPT, and what assets were retained by Steward as part of the day-to-day operation of the hospital.
Medical Properties Trust holds what Steward’s attorneys call a “global lease” on Sebastian River Medical Center and the other 30 hospitals. So now that Steward is trying to negotiate a sale price for each of its hospitals, which are scheduled to be auctioned off over the next two months, buyers are having trouble coming up with offers when they don’t know exactly what they’re buying, and what they would be leasing from MPT.
Steward’s attorneys say the bidding “cannot go forward” until they can provide those details.
As a result, over the next week or so, Steward, MPT, Steward’s creditors and major lenders will be fleshing out that detail for all the hospitals, with the help of another federal bankruptcy judge serving as mediator.
When the process is complete and bidders interested in Sebastian River Medical Center put their proposals together, one thing is certain – the new owner will hope to turn a profit operating the North County hospital.
Sebastian River Medical Center is licensed for 145 beds, compared to Cleveland Clinic Indian River Hospital’s 332-bed capacity. It’s relatively easy for patients and visitors to find their way around the Sebastian hospital, even with the 90,000 square-foot expansion which opened in 2020. The “tower,” houses six state-of-the-art operating rooms, with space to ramp up to eight in the future, and 48 private patient rooms, and it’s billed as being constructed to withstand a Category 5 hurricane.
The facility opened during the Summer of Covid, and became a popular site for elective surgeries. During the height of the pandemic, SRMC reportedly transferred the bulk of its Covid patients to its sister Steward hospital in Melbourne to maintain staffing and capacity for these inpatient and outpatient surgeries.
In 2021 when other hospitals were struggling financially, Sebastian would have turned a profit had it not been for nearly $500,000 in payments on taxes that Steward Health corporate had deferred from 2020 when that was permitted due to the emergency orders in place.
This was despite the fact that the overwhelming majority of Sebastian River Medical Center’s patients are Medicare and Medicaid recipients – those government programs known as being slow payers, and skimpy on the reimbursements when compared to private insurance.
Could the new owner of Sebastian River Medical Center capitalize on the smaller size of the hospital, the not-yet four-year old tower with its ample operating theatres and its cozy private rooms, by transforming SRMC into a boutique hospital, catering to upscale clientele who either have platinum insurance or pay cash?
Boutique hospitals are quite popular in the Miami area, and they get around the walk-in and ambulance trade (i.e. indigent, Medicare and Medicaid clients) by not having an Emergency Department. All admissions are pre-arranged through physicians and surgeons.
Indian River County has a growing number of primary care doctors and surgeons who have cut ties with Cleveland Clinic Indian River Hospital, and who have established concierge practices. Those doctors might be enticed to refer their patients to a local boutique hospital for outpatient procedures, elective surgeries and planned non-elective surgeries.
Florida hospitals also benefit from a good amount of medical tourism, where wealthy patients from outside the United States fly in for a surgery or treatment they can’t get in their home country, or for access to American medical and surgical talent. Could this area become the next medical tourism destination?
Former Indian River Shores mayor and former School Board member Brian Barefoot has been a huge backer of Cleveland Clinic since the famed hospital company entered the bidding process to take over Indian River Medical Center. Barefoot has served on the Indian River Hospital Foundation board and has remained stalwartly bullish on Cleveland Clinic despite the challenges the corporation has faced in its ill-timed transition on the eve of the Covid pandemic.
When asked if he thought a re-tooled Sebastian River Medical Center aimed at attracting a high-end clientele from Vero Beach and elsewhere might give Cleveland Clinic some serious competition, Barefoot said on Sunday, “Perhaps in a specialty, but not in cardiac or cancer where it would be very difficult to compete.”
Cleveland Clinic’s claim to fame is its cardiac care, though the Vero hospital has lost some rock-star cardiothoracic surgeons in the takeover. And the hospital’s Scully-Walsh Cancer Center has an excellent reputation. But that leaves a lot of room for other specialties, as Barefoot mentioned.
While the current deadline for potential buyers to bid on Steward’s eight Florida hospitals is in early August, with a hearing for Judge Lopez to approve the buyers on Aug. 22, the infusion of cash last week may have paved the way for further slippage in these dates.
Ralph de la Torre, Steward CEO, said the new loans allow Steward to extend the marketing process if it maximizes value, meaning that the company now won’t be forced into a shotgun early sale at any price, but can negotiate for better offers for its hospitals and physician practices.
“Securing this additional financing from a group of our secured lenders not only speaks to our asset value but more importantly provides Steward with a long runway to continue to stabilize our operations,” de la Torre said in a statement distributed on BusinessWire
Pieter VanBennekom contributed to this story.
