UnitedHealth Group's Optum drops Steward physician group bid

Optum is not moving forward with its bid to purchase Steward Health Care’s physician group, scuttling a key element of Steward’s financial turnaround plan as it restructures through Chapter 11 bankruptcy.

Optum, the care division of insurer UnitedHealth Group, said in a March regulatory filing with the Massachusetts Health Policy Commission it planned to buy Massachusetts-based Stewardship Health, the for-profit health system’s physician group that spans nine states. A spokesperson for the commission said Friday Optum is no longer working to finalize the agreement. Optum and Steward had not officially withdrawn the acquisition notice with the commission, the spokesperson said.

Related: Why UnitedHealth Group's Optum is eyeing Steward physician group

A Steward spokesperson said in a statement the Justice Department review process was challenging and Steward and Optum have decided not to move forward.

"Stewardship Health remains a valuable asset that provides excellent care for its patients. There are multiple other parties that remain interested in acquiring the business and Steward is in active negotiations," the spokesperson said.

Optum did not return a request for comment.

The deal’s collapse is not good news for Steward, limiting its options to offload one of the most valuable parts of Steward’s business, said Nathan Ray, a partner at the consultancy West Monroe.

“Steward now has to rethink all of this,” he said. “Time is probably the biggest component tied to preventing greater financial distress and potential impacts to the people served and employed by the institution.”

Dallas-based Steward, which operates 31 hospitals in addition to the physician group, filed for Chapter 11 bankruptcy protection in May. Over the past year, Steward has struggled to pay its landlord, Medical Properties Trust, and vendors, stoking state lawmakers’ concerns about hospital closures.

The Stewardship sale would have helped “fund and support Stewardship’s strategic and operating plans” and “enhance services,” according to Steward’s March 26 filing with the commission. However, it wasn’t clear how the proceeds of the proposal would be used and how separating the physician group from Steward hospitals would impact those facilities.

Massachusetts lawmakers were critical of the Optum-Steward proposal, in part, because the organizations did not confirm if the sale proceeds would be used to stabilize state hospitals. In addition, they were wary Optum would use its market power, as the country’s largest employer of physicians, to “pad its profits” by reducing care quality and access, Sens. Elizabeth Warren (D-Mass.), Edward J. Markey (D-Mass.) and other commonwealth lawmakers said in an April letter to the federal regulators urging them to investigate the proposal.

Now that Optum has withdrawn its offer, that may attract other bidders.

"Regardless of the news this week, we still believe that a thorough review process is necessary to avoid a rushed decision that could create additional problems for patients," Steve Walsh, Massachusetts Health & Hospital Association president and CEO, said in a statement.

As part of the sale proceedings in the U.S. Bankruptcy Court for the Southern District of Texas, potential buyers have until July 15 to submit offers for Stewardship, Steward hospitals in Arizona and Massachusetts and St. Joseph Medical Center in Texas. The bid deadline for Steward’s eight Florida hospitals, four Texas hospitals and any other assets is Aug. 12.

On June 11, Steward secured an additional $225 million in debtor-in-possession financing from some of its existing lenders. In May, Medical Properties Trust approved $75 million in debtor-in-possession financing.

“It seems like a complete nightmare,” said Hayden Rooke-Ley, senior fellow at the American Economic Liberties Project, a nonprofit anti-monopoly advocacy organization. “These hospitals are losing millions of dollars by the day. I shudder to think about what’s happening to patient care.”

Lauren Berryman contributed to this article.