Two Steward hospitals acquired by private equity-owned system

On October 11, U.S. Bankruptcy Court Judge Christopher Lopez approved the sale of two Steward Health Care hospitals to Quorum Health Corporation,[1] a private equity-owned[2] hospital system that following the acquisition, now has 12 hospitals across nine states.[3] The approval comes even as Quorum Health Corporation is at risk for default, according to Moody’s Investors Service, which points out that Quorum could offset its challenges by selling hospital assets.[4] This sale demonstrates the failure of the current legal and regulatory system in protecting US healthcare infrastructure and access to quality care for patients.

The two hospitals – Odessa Regional Medical Center and Scenic Mountain Medical Center – are both located in west Texas. Their real estate is owned by hospital landlord Medical Properties Trust (MPT). Cerberus Capital Management, Steward’s former private equity owner, worked with Medical Properties Trust to extract hundreds of millions of dollars from Steward Health Care in a controversial sale-leaseback of the hospitals’ real estate and associated debt-funded dividend in 2016.[5] As the system expanded outside of Massachusetts in later years, MPT effectively financed the expansion by purchasing the real estate.[6] MPT continues to own the majority of Steward hospital real estate post-bankruptcy filing. [7]

The fact that Steward’s real estate is mostly owned by MPT has made selling the hospitals’ operations during the bankruptcy difficult. Because of the separation of operations and real estate, bidders interested in the hospitals have had to negotiate with both Steward and MPT.[8] Steward and MPT have required mediation around how to split up proceeds from the sales,[9] and Steward even sued MPT in August over how many of the bankruptcy sales were hampered by the complicated process.[10]

MPT continues to own the real estate of Odessa Regional and Scenic Mountain Medical Centers following Quorum’s acquisition of the operations.[11] Quorum’s acquisition will mark the second time Scenic Mountain has been owned by a private equity firm, and the third time for Odessa Regional. Prior to Steward’s ownership, Odessa was owned by TPG-backed IASIS, which siphoned hundreds of millions of dividends out of the health system before merging it with Cerberus-owned Steward.[12]

Quorum Health was a publicly traded company with 22 hospitals across 13 states that itself underwent a Chapter 11 bankruptcy in 2020. When it first went public in 2016, it had 38 hospitals, but closed three and sold 11 by the time it filed for bankruptcy. [13] According to HealthcareDive, at the time of Quorum’s 2020 bankruptcy, private equity firm KKR was the largest holder of the company’s debt and owned 9% of the company’s shares.[14]

Two of the company’s other debt holders, private equity firms Davidson Kempner Capital Management and Goldentree Asset Management,[15] established control of the company out of bankruptcy.[16] Quorum Health was no longer publicly traded and as of August 2024, Goldentree owns the majority stake.[17]

Since exiting bankruptcy, Quorum Health has continued to face financial issues, closing and selling hospitals in recent years. By March 2024, it had only 10 hospitals, down from the 22 it held at the time of its 2020 bankruptcy.[18] It also sold off its hospital management & advisory subsidiary, QHR Health, to private equity firm Grant Avenue Capital in June 2021.[19] QHR Health has since been rebranded to Ovation Health.[20]

In August 2023, Quorum closed Martin General Hospital, a rural hospital in eastern North Carolina that it leased from Martin County. It cited $30 million in losses since 2016, $13 million of which occurred in 2022, as the reason for closure.[21] After the closure, it came out that Martin General had not submitted annual compliance reports, as required by the state, for five years.[22]

The private equity firms behind Quorum Health have prior ties to MPT. Under the ownership of Davidson Kempner and two other firms, hospital chain Pipeline Health sold four California hospitals to MPT in 2021 in a $215 million sale-leaseback transaction.[23] Pipeline Health declared Chapter 11 bankruptcy the following year.[24] Goldentree Asset Management has been an investor in MPT’s stock, although it sold thousands of shares in August 2024, decreasing its position by 70.69% that quarter. [25]

It remains to be seen how the two former Steward hospitals in Texas now operated by Quorum will fare given their parent company’s poor track record and financial issues. In a story that is becoming all too familiar, struggling and bankrupt hospitals that are lucky enough not to close are simply punted from one investor-backed company to another, with little oversight or conditions from regulators to protect patients and community access to critical healthcare services.

Resources

[1] Ashley, Madeline. “Judge OKs Sale of 2 Steward Texas Hospitals to Quorum Health.” Becker’s Hospital Review, October 11, 2024. https://www.beckershospitalreview.com/hospital-transactions-and-valuation/judge-oks-sale-of-2-steward-texas-hospitals-to-quorum-health.html.

[2] Moody’s Investors Service. “Moody’s Ratings Appends Limited Default (LD) to Quorum Health’s PDR Following Missed Interest Payment | Announcement,” August 12, 2024. https://www.moodys.com/research/Moodys-Ratings-appends-limited-default-LD-to-Quorum-Healths-PDR-Announcement–PR_494260.

[3] Quorum Health. “Locations.” Accessed October 16, 2024. https://quorumhealth.com/locations/.

[4] Moody’s Investors Service. “Moody’s Ratings Announces Completion of a Periodic Review of Ratings of Quorum Health Corporation,” October 4, 2024. https://www.moodys.com/research/Moodys-Ratings-announces-completion-of-a-periodic-review-of-ratings-Announcement-of-Periodic-Review–PR_496701; Moody’s Investors Service. “Moody’s Ratings Appends Limited Default (LD) to Quorum Health’s PDR Following Missed Interest Payment | Announcement,” August 12, 2024. https://www.moodys.com/research/Moodys-Ratings-appends-limited-default-LD-to-Quorum-Healths-PDR-Announcement–PR_494260.

[5] Weil, Jonathan. “Exclusive | How a Private-Equity Payday Drained a Hospital Chain of Cash.” WSJ, September 11, 2024, sec. Markets. https://www.wsj.com/finance/how-a-private-equity-payday-drained-a-hospital-chain-of-cash-35a5cb35; Weil, Jonathan. “The Private-Equity Deal That Flattened a Hospital Chain and Its Landlord.” WSJ, May 7, 2024, sec. Markets. https://www.wsj.com/finance/the-private-equity-deal-that-flattened-a-hospital-chain-and-its-landlord-3096747d.

[6] See pgs. 6 and 11 of Bugbee, Mary. “The Pillaging of Steward Health Care: How a Privat Equity Firm and Hospital Landlord Contributed to Steward’s Bankruptcy.” Private Equity Stakeholder Project, June 26, 2024. https://pestakeholder.org/reports/the-pillaging-of-steward-health-care/.

[7] Ashley, Madeline. “Steward Files Lawsuit against Landlord over Hospital Sales.” Becker’s Hospital Review, August 19, 2024. https://www.beckershospitalreview.com/legal-regulatory-issues/steward-landlord-has-crippled-hospital-sales-motion-claims.html.

[8] Vogel, Susanna. “Steward Further Extends Asset Sale Timeline. More Delays Could Follow.” Healthcare Dive, June 21, 2024. https://www.healthcaredive.com/news/steward-delays-asset-sale-timeline-again/719518/.

[9] Vogel, Susanna. “Judge Approves Steward’s Plan to Close 2 Hospitals by Month’s End.” Healthcare Dive, August 1, 2024. https://www.healthcaredive.com/news/steward-health-care-close-2-massachusetts-hospitals-judge-approval/723045/.

[10] Ashley, Madeline. “Steward Files Lawsuit against Landlord over Hospital Sales.” Becker’s Hospital Review, August 19, 2024. https://www.beckershospitalreview.com/legal-regulatory-issues/steward-landlord-has-crippled-hospital-sales-motion-claims.html.

[11] Medical Properties Trust. “Medical Properties Trust Takes Control of Its Real Estate From Steward Health Care,” September 11, 2024. https://www.medicalpropertiestrust.com/press-release?page=https://medicalpropertiestrust.gcs-web.com/news-releases/news-release-details/medical-properties-trust-takes-control-its-real-estate-steward.

[12] See pgs. 11 and 28 of Bugbee, Mary. “The Pillaging of Steward Health Care: How a Privat Equity Firm and Hospital Landlord Contributed to Steward’s Bankruptcy.” Private Equity Stakeholder Project, June 26, 2024. https://pestakeholder.org/wp-content/uploads/2024/07/PESP_report_Steward-Bankruptcy_2024.pdf.

[13] Pifer, Rebecca. “Troubled Quorum Health Mulls Going Private with PE Firm KKR.” Healthcare Dive, December 3, 2019. https://www.healthcaredive.com/news/troubled-quorum-health-mulls-going-private-with-pe-firm-kkr/568332/.

[14] Mensik, Hailey. “Quorum Completes Bankruptcy Process, Taps New CEO.” Healthcare Dive, June 30, 2020. https://www.healthcaredive.com/news/quorum-bankruptcy-approval-emerging-in-july/580805/.

[15] Lombaerde, Geert De. “Quorum Pencils in Final Post-Bankruptcy Director.” Nashville Post, June 8, 2020. https://www.nashvillepost.com/quorum-pencils-in-final-post-bankruptcy-director/article_34fd960c-8133-5da9-9dc2-4e58c738d2f7.html.

[16] Hill, Jeremy. “Quorum Health Topples Mudrick, Clearing Path to Bankruptcy Exit.” Bloomberg Law, June 29, 2020. https://news.bloomberglaw.com/bankruptcy-law/quorum-health-topples-mudrick-clearing-path-to-bankruptcy-exit; Case M.9845 – DAVIDSON KEMPNER CAPITAL MANAGEMENT / GOLDEN TREE ASSET MANAGEMENT / QUORUM HEALTH CORPORATION, No. 32020M9845 (European Commission, Directorate-General for Competition May 28, 2020). https://ec.europa.eu/competition/mergers/cases/decisions/m9845_112_3.pdf

[17] Moody’s Investors Service. “Moody’s Ratings Appends Limited Default (LD) to Quorum Health’s PDR Following Missed Interest Payment | Announcement,” August 12, 2024. https://www.moodys.com/research/Moodys-Ratings-appends-limited-default-LD-to-Quorum-Healths-PDR-Announcement–PR_494260.

[18] Moody’s Investors Service. “Moody’s Ratings Appends Limited Default (LD) to Quorum Health’s PDR Following Missed Interest Payment | Announcement,” August 12, 2024. https://www.moodys.com/research/Moodys-Ratings-appends-limited-default-LD-to-Quorum-Healths-PDR-Announcement–PR_494260.

[19] QHR Health. “QHR Health Becomes Independent Company Through Acquisition by Grant Avenue Capital,” June 1, 2021. https://qhr.com/news/qhr/qhr-health-becomes-independent-company-through-acquisition-by-grant-avenue-capital/.

[20] Bugbee, Mary. “Ovation Healthcare Finds Profit in Nonprofit Rural Health Providers.” Private Equity Stakeholder Project (blog), April 27, 2023. https://pestakeholder.org/news/ovation-healthcare-finds-profit-in-nonprofit-rural-health-providers/.

[21]ABC11 Raleigh-Durham. “Hospital in Rural North Carolina Area, with a Declining Population Shuts down in Martin County.” August 4, 2023, sec. health. https://abc11.com/nc-hospital-closes-bankruptcy-martin-general-rural-health-care/13599605/.

[22] Schwartz, Noah. “Shuttered North Carolina Hospital Failed to Submit Compliance Reports for 5 Years.” Becker’s Hospital Review, October 18, 2023. https://www.beckershospitalreview.com/legal-regulatory-issues/shuttered-north-carolina-hospital-failed-to-submit-compliance-reports-for-5-years.html.

[23] “Medical Properties Trust, Inc. (NYSE: MPW) – Medical Properties Trust, Inc. Reports Second Quarter Results,” July 29, 2021. https://medicalpropertiestrust.gcs-web.com/news-releases/news-release-details/medical-properties-trust-inc-reports-second-quarter-results-5; Fine, Howard. “Pipeline Health Finds Success With Safety Net 50 Model.” Los Angeles Business Journal, September 6, 2021. https://labusinessjournal.com/special-reports/pipeline-health-success-safety-net-hospitals/. “Medical Properties Trust 2021 Form 10-K.” United States Securities and Exchange Commission, December 21, 2021. https://www.sec.gov/Archives/edgar/data/1287865/000156459022008100/mpw-10k_20211231.htm.

[24] Fine, Howard. “Pipeline Health, Operator of Safety Net Hospitals, Files for Chapter 11 Bankruptcy Protection.” Los Angeles Business Journal, October 10, 2022. https://labusinessjournal.com/featured/pipeline-health-operator-of-safety-net-hospitals-files-for-chapter-11-bankruptcy-protection/.

[25] Fintel. “Goldentree Asset Management Lp Reports 70.69% Decrease in Ownership of MPW / Medical Properties Trust, Inc. – 13F, 13D, 13G Filings – Fintel.Io.” Accessed October 17, 2024. https://fintel.io/so/us/mpw/goldentree-asset-management-lp.