Steward Health Care has reached an agreement to sell its more than 3,500-strong physician network to a private equity firm for a proposed purchase price of $245 million, according to documents filed in federal bankruptcy court on Monday night.
Rural Healthcare Group, an affiliate of private equity firm Kinderhook Industries, will buy the physician group through Brady Health Buyer, a company set up by Kinderhook to complete the transaction.
It’s a major win for bankrupt Steward, which has had mixed success selling its hospitals at auction and has sought to offload its physician group, Stewardship Health, since December. Steward thought it found a buyer in UnitedHealth’s Optum Care in March, but discussions fell apart by June.
Tennessee-based Rural Healthcare Group describes itself as a primary care provider that specializes in delivering healthcare to underserved communities. RHG is owned by Kinderhook, a private equity firm that has portfolio of healthcare-related companies, as well as automotive manufacturing companies, recycling and waste service companies, and a pet food company.
RHG says it plans to “make significant investments in Stewardship’s infrastructure,” according to a press release. The press release does not set a specific dollar amount or a timeframe for that investment.
The deal will separate Steward Medical Group and Steward Health Care Network from Steward’s hospital system, moving clinics from health system-owned to independent facilities.
Since the possibility of a Stewardship sale was announced, onlookers have questioned how Steward could cut up its portfolio without further diminishing the value of its hospitals. Already, hospital sales have stalled as Steward has had a tough time pitching some hospitals to would-be bidders, given it doesn’t own the underlying real estate of its properties.
RHG chief executive Benson Sloan told Healthcare Dive by email that, “We are not hospital owners or operators. We do not know what entity will be buying the hospitals in each market.”
“We are in the early stages of our intent to purchase and we look forward to building out deep relationships in the new communities we will serve with whoever operates the hospital in our markets,” Sloan said.
The deal is set to be approved in U.S. federal bankruptcy court on Friday. U.S. Judge Christopher Lopez will oversee the sales hearing, as well as approve the sale of up to six Steward hospitals in Massachusetts. The sale will also have to clear the regulatory approval process.
To find a buyer, Steward reached out to 57 potential bidders and received qualified bids from two: Rural Healthcare Group and its FILO lenders, according to Monday’s court filings.
Steward’s FILO lenders, which include WhiteHawk Finance, Owl Creek Investments, MidOcean Credit Fund Management and Brigade Capital Management, offered a credit bid of $225 million — beating the private equity firm’s initial bid of $215 million. However, when Steward gave the parties a chance to improve terms, the private equity firm came back with an offer of $245 million, according to court documents.
Steward began marketing Stewardship in December and hoped for an expedient sale, according to bankruptcy documents. In February, the health system said selling its physician group was part of its six point action plan for financial turnaround.
Steward attorneys have said the physician group, which serves over 800,000 patients annually, is highly lucrative. At times, the health system thought a successful Stewardship sale might have kept Steward out of bankruptcy.
UnitedHealth’s Optum Care signed a letter of intent to purchase Stewardship in March. State and federal lawmakers quickly called for a review of the deal on antitrust grounds, noting that Optum already employs or is affiliated with 10% of all physicians nationwide. The Department of Justice piled on further once Steward entered bankruptcy, filing an objection to the sale timeline for Stewardship.
Still, through the early weeks of Steward’s bankruptcy process, the health system remained steadfast that Optum would emerge as the buyer.
However, Optum publicly backed out of the deal in June. A report from distressed asset research firm 9fin linked Optum’s cold feet to concerns over a DOJ investigation into Steward’s overseas activities.