State may spend hundreds of millions to shore up Steward hospitals

Massachusetts taxpayers may be on the hook for hundreds of millions of dollars over the next few years to help new owners take over hospitals that were operated by Steward Health Care. The national, for-profit company is selling the hospitals in an attempt to restructure through bankruptcy.

According to people with knowledge of the negotiations for five Steward hospitals in Massachusetts, the state may have to spend as much as $700 million over the next three years to stabilize the facilities.

The state's Health and Human Services Secretary Kate Walsh declined to state a specific figure, but said the state would provide "some financial assistance" to ensure a smooth transition of ownership at the hospitals and continued care for patients.

Walsh said the aid would include "advancing some of the funds the hospitals would receive anyway" by caring for patients on MassHealth, the state Medicaid program.

"The state’s financial assistance will not require additional legislative appropriation," Walsh said, adding that details will become public once deals to sell the hospitals have been completed.

At least some of the funding may be needed to make upgrades to facilities that have suffered as Steward descended into bankruptcy. In court filings, state officials and a bankruptcy court monitor noted problems including elevators and cabinets in disrepair, shabby carpets and other needs at several Steward hospitals

"What I understand is that there are lots of unattended capital needs, and facilities and equipment are in a difficult shape," said John McDonough, a professor at Harvard's T.H. Chan School of Public Health, who is not involved in the sale talks.

Steward declined to comment Friday.

Gov. Maura Healey last week outlined a plan for three hospital systems to take over the Steward hospitals. Healey said there were deals in principle for Boston Medical Center to operate St. Elizabeth's Medical Center in Brighton and Good Samaritan Hospital in Brockton; Lifespan in Rhode Island would take over St. Anne's Hospital in Fall River and Morton Hospital in Taunton; and Lawrence General Hospital would assume control of Holy Family Hospital with campuses in Haverhill and Methuen.

The deals have been complicated, partly because the hospital real estate is owned separately from the hospital operations. Steward's landlords recently agreed to turn the properties over to their mortgage holder, a subsidiary of Apollo Global Management, to facilitate sales.

The cost to the state for Healey's plan includes paying $4.5 million for St. Elizabeth's Medical Center and taking the property by eminent domain. She said the move was necessary because a sale agreement could not be reached for the real estate beneath Steward's flagship hospital.

An attorney for Apollo has said the company will "vigorously challenge" the taking of the hospital by eminent domain.

Despite Healey's announcement, a lawyer for Steward told a bankruptcy judge yesterday that sales agreements for the Massachusetts hospitals are not yet complete. A bankruptcy court hearing on the sales was postponed until Tuesday.

Two other Steward facilities, Carney Hospital in Dorchester and Nashoba Valley Medical Center in Ayer are slated to close next week because Steward said there were no qualified buyers for them.

McDonough said it's no surprise that the failure of Massachusetts third largest hospital system is going to be expensive for the state.

"The state is on the hook no matter what, because these are licensed acute care facilities, part of the system that are still needed to be in operation in some way," McDonough said. "The state is in it, like it or not. And the state has been in this since it first became clear that there was significant financial jeopardy and risk late last year."

In January, Steward said it's financial losses were jeopardizing its operations. The company filed for bankruptcy in May.

Editor's note: This post has been updated to include comments from state Secretary of Health and Human Services Kate Walsh that were provided after the article was published, and additional information about Steward facilities.