State, Buhl Trust Say Steward ‘Undermined’ Sharon Hospital

SHARON, Pa. – The attorney general of Pennsylvania and the Christian H. Buhl Legacy Trust have filed a joint objection to bankruptcy court procedures for the potential sale – or closing – of Sharon Regional Medical Center.

The joint objection, filed Tuesday in U.S. Bankruptcy Court in Houston, says Steward Health Care System failed to disclose a sale leaseback transaction with Medical Properties Trust that contained “burdensome financial terms … and undermined the financial viability of Sharon Hospital.”

According to the document, Steward is responsible for “a material decline in services provided” by Sharon Regional and has fallen $24.6 million short of the capital expenditures it was obligated to make when it bought the hospital.

“The decline is demonstrated through multiple rounds of employee layoffs, a reduction in patient services, a reduction in charitable care services, and failures to properly maintain the Sharon hospital facilities,” the objection states. “One current emergency exists because one of three HVAC system chillers is inoperable. The HVAC chillers are necessary and critical for surgery procedures. Because one chiller is non-operable, a portable truck chiller was placed in the Sharon Hospital parking lot. This temporary unit must be replaced immediately …”

Steward filed Chapter 11 bankruptcy reorganization on May 6. It listed $900 billion in debt and $600 billion in revenue.

As of this posting, Steward owes the commonwealth of Pennsylvania more than $501,000 in “certain Medicare credits and offsets,” court papers say.

Steward operates 31 hospitals in eight states. The company paid MPT, its landlord, nearly $240 million in the 12 months before it filed Chapter 11, according to published reports.

Steward confirmed July 10 that it is “cooperating with an investigation by the U.S. Department of Justice.” According to CBS News, the probe centers on executives’ dealings with overseas entities.

By not disclosing the MPT sale leaseback deal that enriched MPT to the detriment of the Sharon hospital, Steward violated an order handed down by Mercer County Common Pleas Court, which approved Steward’s acquisition of Sharon Regional, the joint objection states.

The issue goes back to 2017, when Steward paid Community Health Systems $70 million to buy Sharon Regional and 54 parcels of property, according to court papers. The sale was part of a larger transaction that included Trumbull Memorial Hospital in Warren, Hillside Rehabilitation Hospital in Howland and Northside Medical Center in Youngstown, which Steward closed in 2018.

Community Health Systems had purchased the local hospitals in 2014. That asset purchase agreement obligated CHS to invest “at least $75 million” in capital improvements at the Sharon hospital by Oct. 1, 2021. And it required “CHS to obtain Buhl Trust’s prior written consent for any sale of Sharon Hospital’s real estate, for five years after the closing of the [2014] transaction.”

Steward assumed these obligations when it purchased Sharon Regional, the objection states.

The attorney general and Buhl Trust say they would welcome an entity that has the financial and operational wherewithal to keep the hospital open and comply with the capital expenditure requirements that Steward has failed to meet. But they will oppose “any proposed sale to a buyer that assumes the MPT lease or otherwise saddles itself, and Sharon Hospital, with financially burdensome obligations.”

Before a hospital in Pennsylvania can close, it must notify the Pennsylvania Department of Health and submit a proposed closure plan that safeguards medical records and transitions emergency medical services, among many other requirements. Thus, the commonwealth has the final say on any closure – not bankruptcy court – and will exercise its authority, the objection states.

All three local hospitals owned by Steward are classified in the so-called “first round” for which the deadline for bids was June 24. A sale hearing on the bids for Sharon Regional, Trumbull Regional and Hillside Rehabilitation was scheduled for July 11. Steward notified the court July 9 that the hearing has been postponed “indefinitely.”

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