Pre-closing talks could bump up state aid in Steward deals

BOSTON, Mass. (SHNS)–The importance of the significant state financial support for the transition of Steward Health Care’s remaining Massachusetts hospitals to other local operators came into better focus as the sales worked towards closing Monday, and it’s possible that a last-minute snag could cost Massachusetts a few million dollars more.

The sales of six Steward Health Care hospitals here can close as planned Monday, a U.S. Bankruptcy Court judge ruled, and Massachusetts state government has already committed nearly half a billion dollars to see Steward exit the Bay State’s health care landscape as it continues through the bankruptcy process. But when talks shifted Sunday to the need for someone to put up another $5 million to make everything final, all eyes in the virtual courtroom turned to the state to either pay up or otherwise make it happen.

The judge overseeing Steward’s case ruled early Monday morning that Massachusetts should “work with other parties” to make an additional $5 million available to the “first in, last out,” or FILO, lenders that pumped millions into the company as it headed towards bankruptcy but are not in line to receive a windfall from the hospital sales.

When Judge Christopher Lopez approved Steward’s plan to sell St. Anne’s Hospital in Fall River and Morton Hospital in Taunton to Lifespan for $175 million; the Holy Family Hospital facilities in Methuen and Haverhill to Lawrence General Hospital for $28 million; and Good Samaritan Medical Center and St. Elizabeth’s Medical Center to Boston Medical Center for as much as $140 million earlier this month, he held $17 million in proceeds aside and urged the parties involved to reach an agreement on how that money should be divvied up among the FILO lenders and the owners of the hospital real estate.

But the sides weren’t able to come to an agreement and Lopez held a Sunday afternoon hearing that featured stretches in recess during which the sides worked towards a solution. Ultimately, the judge put his signature on an order effectuating an arrangement that saw tweaks made to hospital sale agreements and a pledge that the “Commonwealth of Massachusetts will work with other parties on the proposed $5,000,000 of additional adequate protection for the FILO Secured Parties consistent with its representations on the record at the Sale Order Hearing.”

Asked about the state’s latest financial outlay to address the Steward situation, a spokesperson for the Executive Office of Health and Human Services said there was no agreement for the state to commit the additional $5 million and emphasized that the judge’s order did not require the state to pay the amount. But the administration otherwise did not address a series of questions about the development, including which “other parties” the state was working with and where the $5 million might come from.

“Bankruptcy is always a long and complicated process. The Healey-Driscoll administration remains confident that these sales will be finalized soon and the five Steward hospitals will transition to new operators,” Health and Human Services Secretary Kate Walsh said in a statement.

David Cohen, an attorney from Weil, Gotshal & Manges who represents Steward, said during Sunday’s hearing that the parties were working towards “a structure where we would try to find a way to have the commonwealth help us, especially other parties, help us deliver or put up, I’ll call [it] $5 million of value for the benefit of the FILO lenders.”

He said that the lawyers involved in those talks all still needed client sign-off on that dollar number in particular, and that they were “also dealing with the realities of the commonwealth not being a commercial actor that could just pull the trigger to promise $5 million on a Sunday afternoon.”

“But I know that Mr. Troop is working extremely hard behind the scenes to try to make that happen,” he said, referring to the attorney representing Massachusetts in the bankruptcy proceedings.

Cohen said in court Sunday that it was essential for the deals to close by Monday, in part because the last round of bridge funding from Beacon Hill is due to dry up.

“September 30 is the outside date in each of the three APAs that govern the sale of the six hospitals, following which, if we fail to close, each of the buyers could terminate the APAs. And second, the funding for the Massachusetts hospitals that was provided by the commonwealth only runs through the end of September. So if we can’t close the sales [Monday], the debtors will need to go back to the commonwealth with a request for additional funding, and we’ve gotten, at least to date, no sense that any additional funding will be forthcoming,” he said.

Massachusetts already paid $72 million to keep Steward’s hospitals open through August and now September, and earlier this month confirmed that it has committed to provide at least $417 million to help keep the Steward-sold hospitals open as they transition to their new owners. And that figure does not include state support for BMC’s take-over of St. Elizabeth’s Medical Center, which the administration said earlier this month would be announced at a later date.

Ross Kwasteniet, an attorney at Kirkland & Ellis who represented Boston Medical Center at Sunday’s hearing, said BMC specifically negotiated a separate deal for the hospital real estate and had bid $1 on the hospital operating assets, including the FILO lenders’ collateral that is at the heart of the $17 million dispute. He said the state’s promised funding is what makes BMC’s purchases work.

“It’s important to understand that our bid of $1 actually substantially overstates what we were willing to pay to take over the operations of the hospitals. BMC is a nonprofit, we have a charitable mission to provide health care to the residents of Massachusetts. And at the request of the government, we got involved and looked at our ability to take over some of the hospitals here that were adjacent to where BMC operates. And the reality is, your honor, our bid is expressly conditioned on receiving state support,” he said. “So the money that you’ve approved to come in to fund these operations over the last couple months, that is going to continue. So we are in a position, your honor, where, essentially, BMC, my client, is being paid substantial sums of money on a go-forward, post-closing basis by the state to take over these operations.”

If the state ends up footing the bill for the additional $5 million, it would bump the state’s total financial aid commitment to $494 million so far — more than the cumulative purchase price for Steward’s Massachusetts hospitals ($343 million).

For the latest news, weather, sports, and streaming video, head to WWLP.