Steward Health goes bankrupt after mounting financial problems

(Bloomberg) — Steward Health Care System LLC filed for bankruptcy early Monday after a period of mounting financial challenges and government scrutiny over the impact of hospital closures on patients.

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The Dallas-based company is finalizing a rescue loan with owner Medical Properties Trust Inc., according to the filing. It sought Chapter 11 protection in the Southern District Court of Texas and listed assets and liabilities worth between $1 billion and $10 billion.

The bankruptcy filing allows Steward Health to continue operating while it seeks approval for a restructuring plan. Steward operates more than 30 hospitals in eight states and employs about 30,000 people, according to its bankruptcy website. It is the largest for-profit private hospital chain in the country.

Steward’s cash crunch deepened this year as it struggled to pay vendors and manage operations at its locations. The system has moved to close hospitals, including several in Massachusetts, to cut costs. This led to significant opposition and an investigation by state politicians, including US Senator Elizabeth Warren.

The company also moved to sell its managed services organization and hired consulting firm AlixPartners for operational assistance, Bloomberg reported.

Medicinal properties

As part of the restructuring deal, Medical Properties – a US real estate fund focused on healthcare facilities – is set to provide initial debtor-in-possession financing of $75 million and an additional loan of up to $225 million if certain conditions are met. She said in a statement. In January, Medical Properties provided Steward Health with a $60 million bridge loan and deferred some of its rent arrears.

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Medical Properties shares were down as much as 11.5% in Monday trading as of 11:20 a.m. New York time. MPT has been the subject of a brief attack over its finances and exposure to Steward.

Democratic lawmakers including Warren also wrote to Cerberus Capital Management about concerns about the private equity firm’s role in Steward’s finances. Private equity firm Cerberus created Steward after purchasing St. Elizabeth’s Hospital and five other Catholic hospitals in Massachusetts in 2010.

Cerberus made a profit of about $800 million on its investment before selling its remaining stake to doctors in the company, including current Steward CEO Ralph de la Torre, Bloomberg reported in 2021.

The company blamed rising costs and inadequate reimbursement for government programs among the factors that led to the Chapter 11 filing. A delay in the sale of its Stewardship Health physician business unit forced it to look for an alternative source of financing.

Through the bankruptcy process, “Steward will be better positioned to responsibly transfer ownership of its Massachusetts hospitals, keep all of its hospitals open to treat patients, and ensure continuity of care and service for our patients and communities,” De La Torre said in a statement.

The case is before Steward Health Care System LLC, No. 24-90213, U.S. Bankruptcy Court for the Southern District of Texas.

–With assistance from Bree Bradham.

(Updates with additional context throughout. Previous version of company operations base and number of hospitals has been corrected.)

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