State and Steward landlords are in a standoff as hospital sale date approaches - The Boston Globe (2024)

The concessions would make buying and running the hospitals more financially feasible for new owners, according to several parties briefed on the talks. They spoke on the condition of anonymity because they weren’t authorized to discuss private negotiations.

MPT and Macquarie, they said, have so far resisted calls to revamp the leases and may be waiting for a state commitment — which has yet to come — to provide financial backing to new hospital owners. Hanging in the balance are the fate of the hospitals and the shape of the health care market in Eastern Massachusetts.

Senators Elizabeth Warren and Ed Markey weighed in Tuesday with a letter to the property owners backing the state’s position and urging a “long-term reduction in lease payments, early termination of leases, or other concessions to ensure that new operators can be found to keep Steward’s Massachusetts hospitals open and viable.”

Hospital systems pondering bids for the Steward hospitals see the leases as a major obstacle, knowing many of the properties will also require investment for deferred maintenance such as upgrading parking garages and fixing broken elevators. As currently written, the leases obligate new owners to pay MPT and Macquarie substantial rents for the next 17 years, and are unusual in a state where most hospitals own their own real estate.

Some potential buyers have been talking directly to the landlords about restructuring the leases. In May, research firm Green Street Advisors estimated that the property owners would have to cut rents by 40 percent to “bring the hospitals to a reasonable rent position for likely new operators.”

“These leases are a ball and chain on any organization who would buy those hospitals,” said John McDonough, professor of public health practice at the Harvard School of Public Health. “It’s appropriate and smart for the Healey administration to play tough on this.”

MPT representatives didn’t respond to inquiries about the talks with the state. A spokesperson for Macquarie declined to comment. The parties briefed on the talks said the two property owners maintain it will take state financial aid to enable new owners to preserve the hospitals — while honoring existing lease obligations to the landlords.

“We believe that these hospitals can continue to pay rent at the contractual levels,” Edward Aldag, chief executive of MPT, a real estate investment firm based in Alabama, said on May 9.

Both sides have an interest in keeping hospitals on the properties. But pressure from workers and community leaders worried that the hospitals could close is falling on state officials, who have said their aim is to protect patients and jobs. Hospital closings would disrupt health care in working-class communities from Dorchester to Brockton to Haverhill.

At the same time, MPT and Macquarie face financial pressure. If no hospitals operate on the sites they own, they get no rent payments.

Governor Maura Healey has insisted that state money won’t go to Steward or MPT, which owns just under 10 percent of Steward, accusing them of mismanagement in controversial financial transactions at the expense of patients. Steward and MPT dispute those claims.

In an interview last week, the governor declined to say whether the state would provide financial support to operators that take over the hospitals.

The administration “has had many direct and pointed conversations with Steward, MPT, and all of the principals involved to ensure a smooth transition that protects access to care, jobs, and the stability of our health care system,” Olivia James, a spokesperson for the state Executive Office of Health and Human Services, said Tuesday.

State officials have a number of options, but they will require spending money. They could boost or advance MassHealth payments to new hospital operators. They could tap a distressed hospital fund being proposed in this year’s state budget or dip into a “rainy-day” emergency fund to help pay for hospital upgrades — though those moves would need legislative approval. Or they could seize the hospitals’ land and buildings through eminent domain, which would remove MPT and Macquarie from the equation, but require the state to pay fair market value for the real estate.

Of course, if the hospitals close, that could also prove to be expensive for the state and other health care providers, as more patients seek care elsewhere, straining hospital capacity and crowding emergency rooms. State law requires hospitals to give 120 days’ notice before closing.

“The state of health care in the Commonwealth is in a long-term crisis,” said Ellen Lutch Bender, a longtime Massachusetts health care consultant. “One way or another, the state is going to have a financial role in how this crisis is solved. At this point, it’s of paramount importance that the state works to ensure that we have a working acute care system post-Steward.”

Amid the standoff between the state and the landlords on the leases, Steward, which filed for bankruptcy May 6, has been marketing the hospitals. An auction is scheduled for July 18.

Up for sale are St. Elizabeth’s Medical Center and Carney Hospital in Boston, along with Good Samaritan Medical Center in Brockton, Holy Family Hospital in Methuen and Haverhill, Morton Hospital in Taunton, St. Anne’s Hospital in Fall River, and Nashoba Valley Medical Center in Ayer.

Steward-owned Norwood Hospital has been closed since 2021 due to a flood, and isn’t listed among the hospitals up for auction.

The names of few prospective bidders have surfaced so far. And the defection of some doctors and nurses from Steward hospitals in recent months will make the purchases even more challenging for buyers, who will need to recruit staff and reassure patients.

Steward, meanwhile, is engaged in separate talks, through a mediator appointed by the US Bankruptcy Court in Houston, over how to value the hospitals being sold and divvy up proceeds between the hospital system, the landlords, Steward’s lenders, and its scores of creditors.

Dallas-based Steward sold its hospital properties to MPT for $1.2 billion in 2016. As MPT took an equity stake in the for-profit hospital system, the two companies inked a sale-leaseback deal obligating the hospitals to pay rents to the landlord through 2041. But in January, MPT said Steward owed about $50 million in unpaid rent. MPT provided Steward with bridge loans and $75 million in “debtor in possession” financing when the system filed for bankruptcy.

Three years ago, when MPT sold a 50 percent interest in the Massachusetts leases to Australian infrastructure investment firm Macquarie, the leases were valued at $1.78 billion.

In the letter sent Tuesday to Aldag and Macquarie chief executive Karl Kuchel, Warren and Markey sought to add pressure to the property owners by asserting the landlords already earned a “substantial return” on their investment. They noted Aldag received more than $85 million in compensation over the last five years and was recently awarded a stock incentive plan that’s potentially worth tens of millions more.

The senators also released responses by MPT and Macquarie to inquiries their Senate offices had made to the property owners this spring. In the responses, sent in April and May before and after the bankruptcy filing, the landlords defended their actions and pushed back against the senators’ contention that they had “plundered” the hospitals.

Rent payments represent “only a small percentage” of hospitals’ revenue, Richard Strassberg, a lawyer for MPT, wrote on April 26. “If a hospital is struggling financially it is virtually never the consequence of its rent obligations,” he wrote. “It is because hospital operations are not generating sufficient revenue to offset aggregate costs.”

At the same time, the property owners maintained they were working to help Massachusetts assure a smooth transition to new operators of the Steward hospitals. Zainab Ahmad, an attorney for Macquarie, said in a letter to the senators on April 26 that her client wants the same thing they do.

“The best outcome for [Macquarie] is the same as the best outcome for the eight hospitals themselves,” she wrote. “For the hospitals to continue operating successfully.”

Robert Weisman can be reached at robert.weisman@globe.com.