Steward files lawsuit against landlord over hospital sales

Dallas-based Steward Health Care filed a lawsuit Aug. 19 against its landlord Medical Properties Trust claiming that the efforts to sell its remaining hospitals to new operators have been disrupted by "parties who have refused to follow the clear ground rules."

In the lawsuit, obtained by Becker's, Steward shared that 30 of its 31 hospitals are under master leases with Medical Properties Trust and that the two parties have "competing interests" regarding the value attributed to Stewards operating assets versus "the value allocated to the real estate owned by MPT or the proposed terms of a new lease with MPT."

"MPT’s sales process interference and brinksmanship jeopardizes the future of dozens of hospitals, tens of thousands of jobs, and the safety of patients — not to mention wrongfully taking value from the estate," Steward said in the lawsuit.

Steward also shared that its sale process for the hospitals has been successful in bringing bidder interest, but that in "virtually every case," Steward and Medical Properties Trust have had a dispute over the hospital's value which have prevented sales from occurring.

"The Debtors can be expected to lash out at MPT and try to blame MPT for the poor progress of these cases and the delays in the sale process," a Medical Properties Trust emergency motion filed Aug. 19, and obtained by Becker's, said. "In reality, it is the Debtors who have prevented sales from going forward, not to protect public health or the like but to attempt to force MPT to transfer real-estate value to the Debtors and their lenders as the price of allowing sales to go forward that are necessary to avoid closures."

Medical Properties Trust's emergency motion also argued that the global bidding procedures do not give Steward the green light to sell its landlord's property. 

"The procedures make clear that MPT alone (as the fee owner) will negotiate any disposition of its real estate, confirming expressly that MPT will 'discuss and negotiate directly with any Potential Bidder regarding the treatment of any lease pertaining to the real estate owned by MPT Lessors,'" the Medical Properties motion said. 

The lawsuit comes after Steward filed a motion Aug. 16, also obtained by Becker's, asking U.S. Bankruptcy Court Judge Chris Lopez to reject 144 "Master Lease I" agreements with its landlord Medical Properties Trust in an effort to help the system sell its remaining hospitals. 

The agreements are tied to Steward's hospitals in Pennsylvania, Ohio, Louisiana, Arizona, Arkansas, Texas and Florida, according to an Aug. 16 motion filed by Steward and obtained by Becker's

The system's "Master Lease II" agreements pertain to Steward's Massachusetts hospitals. 

"Even setting aside MPT's interference with the sale process, the terms of Master Lease I are expensive and burdensome, with significantly above-market rental obligations," the motion said. "The rent and other payment obligations under the Master Leases are substantial and have crippled the Debtors' operations for years."

The motion claimed that Steward has paid Medical Properties more than $870 million between its two master leases, with $605 million under Master Lease I and $265 million under Master Lease II. 

Steward also claimed that MPT had "disappointedly" communicated with hospital bidders without its consent and violated the bidding procedures, directed bidders to distribute bid values to Medical Properties' real estate and pressured Steward, which has "limited liquidity runway" to consent to MPT's demands that "all value be siphoned" to the landlord, putting the for-profit health system at risk of maintaining and selling its operations in a "safe and value-maximizing manner."

A Medical Properties spokesperson told Becker's in an Aug. 19 statement that the company has been "collaborative and accommodating" to help ensure that Steward's hospitals stay open, and that it rejects any acquisitions that MPT has interfered with sale and marketing efforts for the health system.

 "We have proactively worked with potential bidders to address real estate-related matters," the spokesperson said. "Steward's lawyers are wrongly blaming MPT for holding up sales when in fact Steward has refused to sell hospitals in order to extract value from MPT. The rent that Steward agreed to pay in the leases with MPT is a small fraction of Steward’s revenues, and in fact is dwarfed by the fees being charged by the professionals in this bankruptcy case. Despite Steward's recent attempts to rewrite history, their own statements at the outset of the bankruptcy process make clear their financial stress is a product of their own operating failures — not rent obligations."

News of the lawsuit and motion comes as Steward, which sought Chapter 11 protection May 6, received approval during an Aug. 16 hearing to sell its physician group, Stewardship Health, to Nashville, Tenn.-based Rural Healthcare Group for $245 million. 

Orlando (Fla.) Health also recently entered into a binding asset purchase agreement for Steward's Northern Florida assets for $439.42 million. 

In Massachusetts, Gov. Maura Healey shared that deals "in principle" have been reached for four Steward state hospitals. Under the deals, Providence, R.I.-based Lifespan will take over Taunton, Mass.-based Morton Hospital and Fall River, Mass.-based St. Anne's Hospital, Boston Medical Center will operate Brockton, Mass.-based Good Samaritan, and Lawrence (Mass.) General Hospital will acquire Holy Family Hospital in Methuen (Mass.) and Holy Family Hospital in Haverhill (Mass.). 

The state of Massachusetts will take over Brighton, Mass.-based St. Elizabeth's Medical Center through eminent domain and plans to make Boston Medical Center the new owner. 

Steward's Boston-based Carney Hospital and Ayer-based Nashoba Valley Medical Center received bankruptcy court approval to close by Aug. 31.

"The Governor has used the power of eminent domain to keep St. Elizabeth Medical Center open," an Aug. 19 Mass-Care news release shared with Becker's said regarding the two state hospital closures. "That leaves Carney Hospital in Dorchester and Nashoba Valley Hospital waiting to be taken over so they can continue to serve the local populations. If the State can take one, they can take the other two hospitals." 

Editor's note: This story was updated Aug. 20 at 9:40 a.m. CT.

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