AG approves Steward purchases of two community hospitals

Massachusetts Attorney General Martha Coakley today signed off on the sale of a pair of non-profit community hospitals, Morton Hospital in Taunton and the bankrupt Quincy Medical Center, to the for-profit hospital chain Steward Health Care System LLC.

But the approvals included multiple conditions intended to safeguard patients and employees. They included a guarantee that Boston-based Steward will not sell either hospital for at least five years, that it will keep making capital improvements after five years, and that it will continue providing in-hospital psychiatric beds and other health care services of at least the same scope that the Taunton and Quincy hospitals now offer.

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If Steward eventually opted to sell the hospitals, potential buyers would be bound by the terms of the conditions, according to the attorney general’s office. Coakley’s office last year attached similar conditions to Steward’s acquisition of Caritas Christi Health Care, a chain of six Catholic community hospitals. All three deals involve the transfer of organizations classified as public charities to an investor-owned institution.

Earlier this year, Steward agreed to pay off all of Morton’s debt and make $110 million to $120 million in improvements, and pay off $35 million to $38 million of Quincy’s debt while bankrolling $44 million to $54 million in upgrades. It agreed to a 10-year “no close’’ period for both hospitals, though the deal included a clause that would allow it to close the hospitals under certain conditions in the last three years if financial targets aren’t met.

Steward, formed by New York private equity firm Cerberus Capital Management, now must apply to the Supreme Judicial Court of Massachusetts for permission to convert Morton to a for-profit hospital under the Steward umbrella. The state’s highest court would also have to approve the transfer to Steward of about $2.5 million in Quincy Medical Center’s restricted funds, such as philanthropic donations.

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The sale of Quincy Hospital’s unrestricted assets would have to be approved by the US Bankruptcy Court in which the hospital last spring sought protection from creditors. A law passed in 2005 prevented the bankruptcy court from transferring assets from Massachusetts public charities without the approval of the state attorney general’s office.

If the courts approve the sales, Steward would run 10 community hospitals across eastern Massachusetts. It has also signed an agreement to buy a hospital in Woonsocket, R.I., and has been scouting for potential hospitals to buy in other states.

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