Steward hospital sales face regulatory time crunch as cash runs low

But the deals still are subject to review by the state Department of Public Health, the state Health Policy Commission, the US Department of Justice, and the Federal Trade Commission in a compressed timetable dictated in large part by the hospitals’ precarious finances.

Some of those agencies are already familiar with the high-profile Steward health care crisis. Whether that will enable them to act more swiftly than they typically do remains to be seen.

“Time is of the essence,” said Paul Hattis, senior fellow at the Lown Institute, a health care think tank in Needham. “Money is running low. Given the stakes, I don’t think there’ll be an extensive government review process. Nobody wants to risk these deals falling by the wayside.”

Two factors are putting pressure on regulators to quickly stamp their approval on the Steward hospital sales. Under the terms of the deals outlined in bankruptcy court filings late last week, either Steward or the nonprofit buyers can back out if the deals don’t close by Sept. 30.

Just as important, a separate court filing last Monday made it clear that Steward, which filed for bankruptcy in May, has exhausted its own financing and is relying on monthly payments from the state of Massachusetts — totaling $72 million to date — to meet its payrolls and keep the doors open to patients until the hospitals change hands.

“Without the September funding [from Massachusetts],” the debtors have insufficient liquidity to continue funding the losses of these hospitals,” Steward’s bankruptcy lawyers wrote in the filing.

If the deals aren’t consummated by the end of the month, the Healey administration would be pressed to provide a third tranche of bridge financing to keep the six hospitals afloat or risk a scenario in which Steward liquidates its holdings and shutters the hospitals.

Such a scenario isn’t far-fetched. Two other Steward hospitals, Carney Hospital in Dorchester and Nashoba Valley Medical Center in Ayer, closed Aug. 31 after failing to attract bids that Steward deemed qualified. The shutdowns idled 1,400 workers and disrupted care in low-income Boston neighborhoods and rural north central Massachusetts.

Federal inquiries into mergers and acquisitions, which focus on antitrust concerns such as competition and market concentration, typically take between six months and a year — and sometimes run longer. The state Health Policy Commission, which examines issues ranging from health care cost and quality to access and equity, can take up to nine months if it decides to launch a full “cost and market impact review.”

One agency seems ready to act quickly. The state DPH, which issues hospital licenses sought through “determination of need” applications, evaluates operators’ suitability along with the physical standards of the hospitals. The department has been monitoring the Steward hospitals for months, and an administration spokesperson said the approval process “should not alter the timeline for sales and transfer of ownership.”

For the Healey administration, the meter is running. The bridge financing is only one part of the state’s financial commitment to the surviving hospitals, which will immediately need to offset financial losses and make substantial repairs and upgrades after years of neglect.

In addition to the $72 million, Healey administration officials have said it would spend $417 million over the next three years to support five of the hospitals being purchased by Boston Medical Center, Lifespan Health System, and Lawrence General Hospital. Some of those dollars will come from federal reimbursements to the state Medicaid program, called MassHealth, and from assessments on other hospitals.

The administration didn’t specify whether the state funds would be used for transition costs, operating expenses, renovations, or making up financial shortfalls. And it didn’t disclose its financial backing for the largest Steward hospital, St. Elizabeth’s. In addition to that support, the administration may be on the hook for a big payout to a Wall Street investment firm that controls the hospital’s Brighton Center property.

State officials have begun steps to seize the St. Elizabeth’s land by eminent domain to turn over hospital operations to BMC. But the firm, Apollo Global Management, has rejected the state’s financial offer as inadequate and indicated it will challenge the valuation in court.

As the financial collapse of Steward became public early this year, state officials and lawmakers promised reforms and held legislative hearings on measures to restrict for-profit health care in Massachusetts. Attorney General Campbell said she’d carefully review Steward’s deal, unveiled in March, to sell its doctors’ group to a unit of United Healthcare, pledging to use “every tool available” to scrutinize the for-profit giant.

Eight months later, bills to place limits on private equity ownership of health care assets in the state have failed to pass the Legislature. United backed away from the buyout of Steward’s doctors group, Stewardship Health, after the bankruptcy filing. But a new deal to sell the group to private equity firm Kinderhook Industries, announced last month, has quickly passed muster with the attorney general’s office.

Rushing regulatory reviews of acquisitions can lead to problems down the road. But in the case of Stewardship, as with the hospitals, getting Massachusetts health care assets out of the hands of Steward has become a top priority for state officials, including the attorney general.

“Working with our state partners, our office has reviewed the hospital and Stewardship sales, and supports the implementation of these agreements to protect public health,” a spokesperson for the attorney general said Thursday. “No further review is contemplated.”

The state’s Health Policy Commission, called the HPC, will review the sale of St. Elizabeth’s and Good Samaritan to BMC, the sale of the Holy Family hospitals to Lawrence General, and the sale of St. Anne’s and Morton to Providence-based Lifespan, a HPC spokesperson said.

HPC officials have yet to receive formal “notices of material change,” the HPC said. Once it does, the agency “will conduct its reviews as expeditiously as possible to support a smooth and orderly transition to new hospital operators, minimizing further disruption.” The commission has begun a review of the Stewardship sale to a Kinderhook affiliate, but it has yet to receive all requested information, the spokesperson said.

How federal agencies will approach their reviews of Steward’s hospital sales in Massachusetts remains unclear. Representatives of the Justice Department, which is investigating Steward’s financial dealing, declined to comment. A spokeswoman for the Federal Trade Commission said the agency doesn’t discuss pending mergers or acquisitions.

Robert Weisman can be reached at [email protected].