Mass. is paying dearly to save its hospitals from bankrupt Steward, a fate R.I. AG wants to avoid

Carney Hospital in Dorchester, Mass., part of the bankrupt Steward Health Care system, will close by the end of the month because there were no 'qualified bids” from prospective buyers, Massachusetts Gov. Maura Healey said. (Photo by Maddie Meyer/Getty Images)

Massachusetts officials on Friday welcomed the prospect of new stewards to take over five of the state’s community hospitals from their bankrupt owner. But Rhode Island Attorney General Peter Neronha has adopted a more cautious tone.

“This is really expensive for Massachusetts taxpayers,” Neronha said in an interview on Monday, pointing to the millions the Bay State has committed to spend to seize one of the troubled hospitals in Brighton by eminent domain and to cover transitional operations and payroll at the other four hospitals.

Not to mention, the entire plan hinges upon the approval of a Houston federal bankruptcy judge, who, as Neronha pointed out, “doesn’t know anything about St. Anne’s in Fall River.”

To Neronha, the toll Steward Health Care’s financial woes have taken on Massachusetts “safety net” hospitals offers a cautionary tale for what he hopes to avoid in Rhode Island. Already, he’s gone toe-to-toe with another financially troubled hospital operator, Prospect Medical Holdings, over its management of Roger Williams Medical Center and Our Lady of Fatima Hospital.

The good news: While Massachusetts is digging into its own pockets to save Steward’s hospitals from closing, Neronha’s office has forced Prospect to put up $80 million of its own money to keep Roger Williams and Fatima afloat. Meanwhile, Prospect appears to be moving closer to meeting the conditions set by regulators in approving a proposal to sell off its Rhode Island assets to an Atlanta nonprofit.

“We’re definitely closer than we were six weeks ago,” Neronha said, adding that Prospect appears to be more willing and able to put up the extra money his office required under its conditional sale approval.

A spokesperson for CharterCARE Health Partners, Prospect’s Rhode Island subsidiary, did not respond to inquiries for comment on Monday.

‘Deals in principle’

Massachusetts Gov. Maura Healey announced Friday that tentative “deals in principle” had been reached to sell five of the Commonwealth’s safety net hospitals to new owners, including, potentially, Rhode Island’s Lifespan Corp.

A $30 million state bridge loan would cover payroll and operating costs during the transition, with the promise of “more than” $80 million a year for the next three years through state or federal funding, or through extra payments through the state Medicaid program, MassHealth. Other funding sources are also being considered, according to the announcement.

“Today, we are taking steps to save and keep operating the five remaining Steward Hospitals, protecting access to care in those communities and preserving the jobs of the hard-working women and men who work at those hospitals,” Healey said in a statement.

Massachusetts is also paying an undisclosed amount to seize one of the five hospitals – St. Elizabeth’s Medical Center in Brighton — by eminent domain. The other four will be bought by private owners under the proposed sales, including two in Bristol County — St. Anne’s Hospital in Fall River and Morton Hospital in Taunton — that would be bought by Lifespan.

Details of the agreements, including purchase prices, were not available, and depend upon court approval as well as state and federal regulators, Jessica Wharton, a Lifespan spokesperson, said in an email.

Neronha acknowledged Massachusetts and Rhode Island stand to benefit from putting the pair of southeastern Massachusetts hospitals under Lifespan’s umbrella. As the state’s largest hospital operator, with over 1,100 beds and 17,000 employees, more business for Lifespan also means more money flowing into the pockets of a key state company, especially because Massachusetts offers higher provider reimbursement rates than Rhode Island.

“Doctors can get up and leave the state, but hospitals can’t do that,” Neronha said. “Massachusetts patients may end up pulling the ox cart for Lifespan in Rhode Island.”

And if the 211-bed St. Anne’s Hospital or 144-bed Morton Hospital can’t accommodate a patient or lack the needed clinical expertise, Lifespan could refer Massachusetts patients to one of its five Rhode Island hospitals, Neronha said.

Wharton declined to comment on operational details of Lifespan’s proposed purchase of St. Anne’s and Morton.

Challenges on the hospital landscape

Like hospital operations nationwide, Lifespan has struggled to regain its financial footing in the wake of the pandemic. An attempt to shore up multimillion-dollar annual operating losses through a proposed merger with Care New England was denied by federal and state regulators in 2022.

More recently, the company found new ways to pad its balance sheet, including through an expanded partnership with Brown University. The new agreement, announced in June, includes a $150 million investment from Brown to Lifespan over the next seven years, alongside a pending name change to Brown University Health.

Meanwhile, Steward, a Dallas-based private company with 31 hospitals — making it the nation’s largest private, for- profit hospital chain — filed for Chapter 11 bankruptcy in May, declaring between $1 and $10 billion in debt to more than 100,000 creditors. It has since been working to pay off creditors and restructure its debt, which includes a court-ordered auction of its hospitals in order to access $75 million in new financing.

Healey blasted Steward, along with Apollo Global Management, the New York private equity firm in charge of the leases for the hospital properties, for stalling sale agreements.

“When it comes to finalizing a deal for Saint Elizabeth’s, MPT, Macquarie and Apollo have repeatedly chosen to put their own interests above the health and wellbeing of the people of Massachusetts,” Healey said. “Enough is enough.”

Two other Massachusetts hospitals under Steward’s ownership, Carney Hospital and Nashoba Valley Medical Center, will close by the end of the month because there were no “qualified bids” from prospective buyers, Healey said.

Doctors can get up and leave the state, but hospitals can’t do that. Massachusetts patients may end up pulling the ox cart for Lifespan in Rhode Island.

– Rhode Island Attorney General Peter Neronha

Neronha hoped to avoid reaching that point with Roger Williams or Fatima. Prospect has threatened, but not actually filed for bankruptcy. It faces lawsuits in multiple states over hospital operations, as well as a federal investigation through the U.S. Department of Justice.

Neronha’s office was locked in a legal battle with Prospect for nearly a year over $17 million unpaid vendor bills at its Rhode Island hospitals. On Monday, his office withdrew its motion asking a judge to hold the company in contempt of court , citing additional proof the company provided that it paid its bills, according to a statement from Brian Hodge, a spokesperson for Neronha’s office.

Yet the proposed sale of Roger Williams and Fatima to Atlanta-based The Centurion Foundation may not be the magic fix. Neronha echoed critics’ concerns over Centurion’s lack of experience in hospital operations, which may make it even harder to overcome years of operational and financial shortfalls.

“We’re definitely not out of the woods,” Neronha said.

Supporters of the proposed sale have pointed out that Centurion was the only qualified buyer to express interest in buying the safety net hospitals from Prospect. If the parties decide not to proceed with the sale, which requires meeting a list of 85 conditions set by Neronha’s office and the Rhode Island Department of Health, it’s back to square one.

Would Lifespan ever take an interest?

Probably not, Neronha said, naming the same antitrust laws that stopped Lifespan from successfully merging with Care New England in 2022, along with the state’s uncompetitive reimbursement rates.

Neronha’s office will also take a look at the proposed Lifespan agreement with Steward for state antitrust protections once the deal is approved by a federal judge, Neronha said. The Rhode Island Department of Health would need to review the agreement to determine if it has a role in approving the transaction as well, Annemarie Beardsworth, a department spokesperson, said in an email on Monday.

Steward did not immediately respond to requests for comment on Monday, including details on other bids received for its Massachusetts hospitals up for auction.

A hearing is scheduled for Thursday, Aug. 22, in U.S. Bankruptcy Court in Houston, at which time a judge will consider approving the proposed sale agreements.

A $245 million, all-cash deal to sell Steward’s physician network to a Nashville-based company was approved by a federal bankruptcy judge on Friday.

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