Will 5 South Florida hospitals be sold? It’s complicated as owner battles with landlord

Will Palmetto General, North Shore Medical Center and other South Florida hospitals owned by troubled Steward Health Care System get a new owner?

It looks like employees and patients will have to wait a bit longer to find out.

None of the court documents filed Thursday indicate whether Steward Health has received any “qualified bids” for its Miami-Dade and Broward hospitals, even though the deadline for interested buyers to bid on Steward’s hospitals was Aug. 26.

Steward also hasn’t made any announcements, nor answered Miami Herald questions, on whether the company has found buyers for its five South Florida hospitals up for sale as part of a plan to thin debt during Chapter 11 bankruptcy.

The company’s three Space Coast hospitals have found a buyer in Central Florida’s Orlando Health, with the hearing to finalize the sale scheduled for September. If Steward has found buyers for its South Florida hospitals, the expected sale hearing would also be scheduled for September.

Steward Health has previously extended the bid deadline for its hospitals in Florida and other states, but there’s no word yet on whether it will do so again. The company previously told the Miami Herald it wanted to emerge from bankruptcy more stable and focused on the Florida market, which its attorneys have described as the “most profitable” in its portfolio.

However, there’s another factor in this bankruptcy saga that could affect the future of Steward Health’s Palmetto General Hospital in Hialeah, Coral Gables Hospital, Hialeah Hospital, North Shore Medical Center in North Miami-Dade and Florida Medical Center in Lauderdale Lakes.

Steward Health has asked the judge to free the company from a lease with the company that owns the land under the hospitals in Florida and several other states.

Steward says the millions in payments it has made under the lease agreements are “substantial and have crippled” operations for years. The health company also said that nearly every bidder for hospitals in Florida and other states has asked the landlord for “significant rent concessions or to acquire the underlying real property at a significant discount to the lease base.”

Hospital landlord Medical Property Trust, in court filings, said if Steward wants to get out of its lease, the health system must be ready to “surrender the properties “immediately”’ and pay rent in full “until their rejection is effective.”

“It is frivolous for the Debtors to claim that they can continue to operate their businesses in MPT’s property, generate revenue for the benefit of the estate and secured lenders, but not pay any rent,” the landlord wrote in response to Steward’s request. The landlord says Steward has not paid any rent in August for its Florida hospitals and said it has “no intention of paying rent in the foreseeable future.”

What will happen to Steward’s South Florida hospitals?

Medical Property Trust said kicking out Steward doesn’t mean “the hospitals have to close and stop serving patients and communities.” The landlord, in court filings, said it’s “ready and willing to help find replacement operators for as many hospitals as possible and to facilitate a safe and orderly transition to those interim operators.” It also “believes the interim operators for various hospitals could be identified in a short time and that certain state authorities would support transitions to interim operators as an alternative to closures.”

Steward Health has “made clear that they are no longer capable of operating hospitals in a safe and appropriate manner,” and doesn’t have enough money to improve conditions, the landlord added, listing problems at Steward’s hospitals across the country. The landlord cited a “catastrophic failure” of an HVAC system at an Arizona hospital that led to the state suspending the facility’s license due to “dangerously high temperatures” and a bat infestation at one of its Space Coast Florida hospitals, which has since been fixed.

While the company’s Florida hospitals have signs of disrepair, no risks were found in patient care, according to recent reports filed by two experts appointed to monitor care during the Chapter 11 process.

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The dispute over the lease is the latest bad blood between the health giant and Medical Property Trust, one of the largest hospital landlords in the nation.

Steward sold the real estate of its Florida hospitals to Medical Property Trust several years ago and has since paid rent to the landlord to operate hospitals on property it used to own. It made similar real estate deals with the landlord for hospitals in other states. Then in May, Steward filed for Chapter 11 bankruptcy with $9 billion debt.

Steward, which fell behind in rent payments last year, initially found support in its landlord. Medical Property Trust gave Steward millions in financing to help support restructuring, which included plans to sell all of its U.S. hospitals.

The landlord says it even made an agreement with Steward to let it delay paying “one-half” of lease payments for its operations in Florida and several other states as long as the “remaining lease payments” were made on time.

But Steward’s feel-good relationship with the landlord has come to a bitter end.

Because Steward doesn’t own the land its Florida hospitals sit on, potential buyers need to make a deal with Steward for its hospital buildings and operations and also strike a lease or purchase agreement with Medical Property Trust for the real estate.

And that’s led to problems, with both Steward and the landlord accusing each other of interfering with the hospital transactions to try and make more money, including with the sale of Steward’s northern Florida operations to Orlando Health.

Steward sued Medical Property Trust last week in Houston bankruptcy court, saying that the landlord had “engaged in calculated efforts to undermine” the health system’s sale process “by attempting to siphon all value from” its hospitals “into its own coffers.”

The landlord disputed the claims and accused Steward of delaying hospital sales and violating court-approved procedures during the sales process with Orlando Health to exclude it from the negotiating table to make more money.

The landlord, Steward and Orlando Health have since reached an agreement to lock in the sale. A court hearing to finalize the sale of Steward’s Space Coast hospitals to Orlando Health is scheduled for Sept. 10, just a few days before Steward’s CEO Dr. Ralph de la Torre is expected to respond to a subpoena and testify in front of Congress about the healthcare system’s financial crisis.

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