Issue link: https://maltatoday.uberflip.com/i/1254962
04.06.2020 NEWS Steward Healthcare doctors take 90% in buy-out of American owners MATTHEW VELLA CERBERUS Capital Management has sold Steward Health Care Sys- tem LLC – the company which owns Steward Health Care International, which runs three state hospitals in Malta. Cerberus Capital Management agreed to sell control of community hospital group Steward Health Care back to the company, which is con- trolled by doctors. This would make Steward one of the United States' largest physi- cian-owned and operated companies. It also marks the end of a 10-year ownership period for Cerberus, which was most recently marked by threats to shutter a Pennsylvania hospital in March, despite the pandemic, if the facility didn't receive state bailout funds. Dallas-based Steward has 37 hos- pitals across nine states, employing more than 42,000 people. A management group of Steward physicians led by the company's CEO and founder acquired a 90% interest, while Medical Properties Trust will maintain its 10% stake. "The COVID-19 global pandem- ic has exposed serious deficiencies in the world's health care systems, with a disproportionate impact on underserved communities and pop- ulations," Steward CEO and Founder Ralph de la Torre, MD, said in a news release. "We believe that future health care management must completely inte- grate long-term clinical needs with investments. As physicians first, we will focus on creating structures and timelines that meet the long-term needs of our communities and the short-term needs of our patients." In Malta, Steward took over a pub- lic-private partnership first entrusted to an unknown group, Vitals Global Healthcare, in December 2017 for an estimated €15 million. Vitals had no track record in the health industry when in mid-2017 it encountered difficulties finding banking institutions to finance its operations and commitments. The performance guarantee would have been called up by the Maltese state, if the hospitals' concessionaire failed to meet its commitments. MaltaToday revealed pointed cor- respondence from Steward Inter- national's president Armin Ernst to Prime Minister Robert Abela, show- ing how Steward is owed €18 million in government dues for running the three hospitals. Ernst said Steward was facing an exposure of over €12 million due to problems connected to the Vitals concession on financing problems as well court proceedings from former investors. But it called on the govern- ment to honour well over €18 million in reimbursements in accordance with the concession agreement. "While we agree that it is incumbent on Steward as the (relatively) newly appointed concessionaire to resolve these issues on the project… we sim- ply cannot do this without the sup- port of the government," Ernst told Abela. He said many of the legal claims and tendering issues Steward was dealing related to VGH's business practices "in a period where the government was, or should have been closely in- volved in and overseeing the com- mission, including the financing and construction arrangements" – a ref- erence to a monitoring committee appointed by the health ministry to oversee the VGH concession. €100 million bill The Maltese government is exposed to a new kind of risk on the Steward hospitals' concession: information received by a magistrate carrying out an inquiry into the controversial public-private partnership, has re- vealed that Malta could face a hefty bill should the concession ever be re- scinded. The agreement hammered out in August 2019 with former tour- ism minister Konrad Mizzi has giv- en Steward Healthcare an "escape clause", that turns any termination of its concession into a government default. The wording is part of an agreement in which the government is acknowl- edging that a €28 million loan from Bank of Valletta to Steward Health- care is acknowledged as "lender's debt". In the agreement signed by Mizzi and Steward Healthcare, the govern- ment agreed that should the hospi- tals' concession be terminated by a court of law – for whatever reason, and even if Steward is in breach of contract – such an event would be a government default. That would mean that all debts in- curred by Steward would be passed on to the government, and the Amer- ican company would still be liable for a €100 million contractual pay-out for its equity. The agreement has raised con- cerns inside government, because the clause might make it impossible for the government to terminate the Steward contract. Steward acquired the 30-year con- cession to run three state hospitals as a private concern in December 2017 from Vitals Global Healthcare, an unknown consortium of medical en- trepreneurs granted the concession in 2015. But VGH racked up millions in debt with nothing to show for it, negotiating a buy-out of some €15 million from Steward. Later in 2018, Bank of Valletta granted Steward a €5 million over- draft facility and a €3 million loan; but in August 2019, BOV also con- sented to a loan of €22 million and another of €5.9 million to two Stew- ard subsidiaries. Apart from placing the hospital lands under Steward's control as guarantees for the debt, the agree- ment gave Steward unprecedented generosity by accepting that should the concession be rescinded by any law, public order or decision, judge- ment or decree – effectively any gov- ernment or court decision – such an event will be "a non-rectifiable gov- ernment of Malta event or default." Government insiders baulked at the agreement, claiming the loan facility and Mizzi's commitment to Steward was unknown to Cabinet colleagues. And that's because the 2019 agree- ment's wording means the govern- ment has no wriggle room should Steward be found in breach of the concession by any tribunal: the deci- sion will instantly trigger an obliga- tion on government to pay out €100 million in cold cash, and take on any lenders' debt, such as these BOV loans. The American healthcare company was on the verge of being given wider berth on its concession back in No- vember 2019, before former prime minister Joseph Muscat lost control of power in the wake of his chief of staff's resignation in connection with the Daphne Caruana Galizia murder investigation. Already the concession obliges the Maltese taxpayer to pay hefty penal- ties should the government default on the concession: €100 million in cash and any lenders' debt incurred by Steward. But should Steward default on the contract and not fulfil its obligations on the St Luke's, Karin Grech, and Gozo hospitals, it would 'only' lose its equity – the investment it carried out during the PPP – although govern- ment would still have to pay the debt they incurred. Together with Muscat, in Novem- ber 2019 Steward was close to ex- tending the grounds on which a 'force majeure' or national emergency de- fault might incur, that is, situations where civil strife or war would make the operation unworkable. In such case, government would be obliged to pay Steward 50% of its equity, but also cover any debt the company in- curred. But Steward to add a host of other such 'force majeure' conditions, such as accidental loss or damage, strikes and work-to-rule situations, and even changes in laws such as those affected by EU regulations all situations that tend to affect the ordinary running of any business.