News Analysis
Federal bankruptcy Judge Christopher Lopez has ordered the sale of Sebastian River Medical Center and two Brevard County hospitals to Orlando Health for $439.4 million, but the deal could still fall through if the Orlando nonprofit fails to close on its purchase of the hospital land and buildings.
Steward Health Care’s legal team announced an Oct. 23 expected closing date for the three local hospital operations, based on terms laid out in a 350-plus page Asset Purchase Agreement filed with the court, but Orlando Health must first negotiate a separate contract to acquire the real property owned by Steward’s mega-landlord Medical Properties Trust.
Steward said it will “net” $395 million from the Orlando Health payment of $439.4 million, and the agreement apparently envisages MPT getting whatever is left of the remaining $44.4 million after closing costs.
“The closing of the sale transaction is contingent upon the consummation of the real property transaction and the (lease) severance,” the purchase agreement states. “The severance and the real property transaction are an integral part of and are inextricably intertwined with the sale transaction.”
Should Steward and MPT fail to do what they promised each other they would do in a Global Settlement Agreement, prior to Oct. 23, Orlando Health can walk away from the entire deal.
“Buyer shall not be required to consummate the sale transaction if the MPT conditions are not met on or prior to the closing date. Buyer shall have no liability for, and shall not be subject to any actual, punitive or other damages, including forfeiture of its Good Faith Deposit as defined in the Asset Purchase Agreement, or any other penalty on account of the failure to satisfy the MPT conditions,” the court order states.
The settlement allows Orlando Health to purchase Sebastian River Medical Center and the real property “free and clear” of any liens, debts and liabilities, other than specific items detailed in the contract.
Steward will operate Sebastian River Medical Center in the meantime until the closing, allowing Orlando Health personnel onsite, with 48 hours notice, to visit, but not to conduct any inspections of the physical plant or property. “Prior to the closing date, sellers shall exercise complete control and supervision over its business, assets and operations,” the sales contract states.
Then during a transition period after the October closing, Orlando Health may operate under Steward’s licenses and permits while obtaining licensing for the Sebastian hospital, but Orlando Health must have full insurance coverage in effect to kick in at closing.
The Florida Agency for Health Care Administration must sign off on the sale to Orlando Health, and the U.S. government must approve the deal from an antitrust standpoint.
When asked if the company has set an anticipated closing date with Medical Properties Trust for the Sebastian land and buildings, Orlando Health corporate did not respond as of press time.
Orlando Health cautiously published only a brief statement last week saying, “Orlando Health expects to acquire Melbourne Regional Medical Center, Rockledge Regional Medical Center, Sebastian River Medical Center and their affiliated medical practices in the fall of 2024. We look forward to welcoming these teams to Orlando Health’s vibrant and growing network of care!”
Orlando’s original bid was for a total of $460 million, which included $439.4 million in cash, and assumption of certain liabilities including Steward employees’ accrued paid time off. Up to $245 million of that could have been allocated to pay for the Medical Properties Trust-owned land and buildings in Sebastian, Melbourne and Rockledge.
But in a side settlement designed to prevent the closure of hospitals in South Florida and in four other states, Steward turned over 15 hospitals to Medical Properties Trust and interim operators, in exchange for $9.1 million in cash so Steward could make payroll, plus another $5 million for general expenses.
“Without this, we do not have cash collateral use to continue operating the hospitals,” Steward’s lead attorney Ray Schrock said, adding that without the settlement, Steward would be forced into “likely closing several of the hospitals, something that from the get-go we had been desperately trying to avoid.”
Schrock said it took “heroic efforts” to negotiate the settlement while addressing all parties’ concerns. “I believe it’s in everyone’s best interests to move forward with this today,” Schrock said.
“By cutting off the losses associated with the hospitals, getting the $395 million that are coming into the estate, along with the other benefits, stopping the litigation, stopping the burn associated with, frankly, continuing to run the sales process, which was a very significant effort for 31 hospitals,” Schrock said it puts Steward on a path to paying back its major lenders.
“MPT is going to waive all claims that it has on the estate (Steward), the billions of dollars in claims they have against the estate are being waived,” Schrock said.
Provided the settlement is finalized, MPT can sell the 15 hospitals it is acquiring from Steward to operators who can pass muster with state and federal regulators, recover some of its losses and keep paying tenants in its buildings.
Judge Lopez approved the settlement on an interim emergency basis. A final hearing was scheduled for this Tuesday, as Lopez was set to leave the country on a long trip Wednesday.
Cash-strapped Steward has burned through nearly $300 million in loans extended in May – most of that going to cover payroll and legal fees – showing only $21 million in operating cash remaining as of Aug. 31. The state of Massachusetts extended $30 million in prepaid Medicaid funds to Steward in August and another $42 million this month, but all of that money must be spent on the six Massachusetts hospitals which have been auctioned and have closings pending.
The bidding process for Steward’s 31 hospitals did not go as well as hoped, with the first two hospitals selling for a pittance, two Massachusetts hospitals not receiving any actionable bids, and buyers wary of buying-in and having to negotiate lease terms with Medical Properties Trust.
Numerous delays and legal challenges caused Steward to simply run out of money before it could broker deals on the remaining 15 hospitals, so surrendering them to its landlord to walk away from massive lease cancellation penalties seemed the only option.
Interim managers took over the 15 hospitals at 12:01 a.m. on Sept. 11, operating with Steward under Steward’s licenses, and the influx of cash from MPT allows Steward to keep Sebastian River Medical Center and the two Brevard hospitals open pending the closing with Orlando Health.
The bankrupt hospital operator has stopped paying rent and owes billions to more than 100,000 vendors who provided everything from patient meals and elevator repair, to basic surgical supplies, housekeeping and grounds maintenance. Hospitals have been months behind on utility payments since 2023.
Steward even stopped paying into its medical liability insurance fund, but since Dallas-based TRACO insurance company is a wholly owned Steward company, TRACO booked the premiums as receivables and denied claims saying there was no money in the fund, referring claimants back to the bankrupt Steward hospitals to seek relief.
Orlando Health already has a footprint in Brevard County, with its Arnold Palmer Hospital Haley Center for Children’s Cancer and Blood Disorders, as well as satellite offices of its orthopedic hospital and its pediatric genetics clinic.
In addition to the three hospitals being purchased from Steward, Orlando Health is also in the process of taking control of Tenet Healthcare’s Brookwood Baptist Health in Alabama.
