Judge Gives State More Time to Save Sharon Hospital

YOUNGSTOWN, Ohio – The close of business Aug. 30 ­– the Friday before Labor Day. That’s how long the commonwealth of Pennsylvania has to arrange $1.5 million in interim financing and prevent Steward Health Care System from issuing a closure notice for Sharon Regional Medical Center.  

The deadline was set late Thursday by Judge Christopher Lopez following a lengthy multi-topic hearing in U.S. Bankruptcy Court in Houston. At issue was final approval of Steward’s motion that would set timetables and procedures pertaining to facility closures.  

The Pennsylvania attorney general notified the court Thursday morning that Steward said it would issue a notice closing the Sharon hospital Friday if the commonwealth did not provide $1.5 million in “interim emergency funding.”

The court filing quoted Steward as threatening, “We require $1.5 million from Pennsylvania by Friday August 23, 2024 – or we will send a closure notice.”

“A closure notice is a death notice,” argued attorney Ray Urbanic, who represented the Pennsylvania attorney general at the hearing. Physicians, nurses and other staff would start to exit the hospital and potential buyers could disappear, he explained. “We need more time to get this interim funding they’re requesting. … I’m looking for some court intervention or creative solutions to get over this hurdle.”

Early in the hearing, Lopez signaled his interest. “Maybe 10 days is better than seven days,” he said.

What followed was more than an hour of testimony from James A. Donahue III, first deputy attorney general for Pennsylvania.

Meadville Medical Center in Meadville, Pa., has submitted a letter of intent to operate the Sharon hospital, he said. “The initial look at this hospital was overwhelming to Meadville Medical Center. A lot of work was done with the governor’s office, legislators, community groups and foundations to get Meadville what it would need to put Sharon hospital in position to function post [bankruptcy] and become profitable.”

But then came Steward’s unexpected demand for $1.5 million to fund operations until – and if – such a purchase was final.

“That’s going to take some work and we need some data,” Donahue said. “We need to know how much money is needed, and we’ve heard a whole lot of numbers.”

At first, Steward said it needed “$2.9 million a month,” according to Urbanic.

He asked Steward’s chief restructuring officer, John R. Castellano of the Alix Partners turnaround firm, how much money the Sharon hospital was losing monthly.

Castellano said the hospital earns about $7 million a month in net patient services revenue; monthly expenses average $8.5 million.

Does that include paying Steward a monthly fee for corporate services? Urbanic asked.

Castellano did not answer directly. “Cash received is swept into corporate; then corporate pays expenses,” he said.

Steward Health Care and its top executives are under civil and criminal investigations for self-dealings that reportedly drained tens of millions of dollars from the company. As reported Aug. 18 by The Wall Street Journal, CEO Ralph de la Torre owns a yacht, a sportfishing boat, an 11,108-square-foot mansion and a 500-acre ranch, and recently took a trip to Paris to attend equestrian events at the Summer Olympics.  

Should Pennsylvania provide interim financing, it would come from the budgets of various state departments, the assistant attorney general said.

“State Sen. Michelle Brooks has been instrumental getting together community leaders, foundations and others to put up some funding, and she would be instrumental to ensure we would get funding, as would the governor,” Donahue said.

The commonwealth is satisfied that Meadville Medical Center has the wherewithal to safely assume the Sharon hospital’s liabilities and complete costly deferred maintenance, according to Donahue. “My understanding is [Meadville’s] lawyers and [Steward’s] lawyers are working on an asset purchase agreement,” he said.

“You’re going to get a little bit of time,” Lopez said. He gave the commonwealth 10 days to secure interim financing instead of the seven days provided in the order authorizing hospital closing procedures that he signed Thursday. “This is a one-time exception and only will be granted to Sharon hospital. Come Aug. 31st, a closing notice could be filed,” he said.

“Some real series decisions need to be made about Sharon … and I’m asking the parties to maintain close discussions.”

Steward’s Ohio Hospitals

At the opening of Thursday’s hearing, Steward attorney Candace M. Arthur said the company had no choice but to issue closure notices Aug. 21 for Trumbull Regional Medical Center and Hillside Rehabilitation Hospital because it does not have the funds to operate them beyond Sept. 20.

“To be very clear, the notice was filed because we had to file it. We are now six weeks beyond [the deadline for] actionable bids, Arthur said. “We are in active discussions with multiple parties in Ohio who have expressed interest” in the hospitals, she continued. “We’re going to continue to engage with them,” and the closure notices are “not meant to chill any progress.”

The hearing covered a wide range of issues, from an open-heart surgeon’s demand for payment for services to the $160 million stalking horse bid for three hospitals in the Orlando, Fla., area.

Before the hearing began, Steward and its landlord, Medical Properties Trust, agreed to “consensually” determine, pending court approval, how the proceeds from such a sale would be allocated between Steward and MPT.

“We managed to avoid a trial at the last minute, which hopefully is a harbinger of better resolutions to come,” said Emil A. Kleinhaus, representing MPT.

As the hearing was underway, MPT sent The Business Journal a statement regarding Steward’s notice that it would close Trumbull and Hillside hospitals:

“MPT has brought solutions to the table that would enable Steward’s hospitals in Ohio and Pennsylvania to remain open, including new lease terms with multiple high-quality prospective operators. Steward alone is responsible for the closure of these facilities as bidders were unwilling to agree to their demands around the hospital operations,” the statement said.

Copyright 2024 The Business Journal, Youngstown, Ohio.