Business & Tech

Steward makes first out-of-state acquisition

“We wanted to expand,” said Steward’s chief executive, Dr. Ralph de la Torre. “We’re always looking down the line for other opportunities.”

Steward Health Care System, the state’s largest for-profit hospital operator, is taking its first step to expand nationally with a deal that will double its size.

The company said Thursday that it agreed to acquire eight hospitals in three states from Community Health Systems Inc., a large national hospital chain.

The hospitals will be Steward’s first located outside of Massachusetts. The deal includes three facilities in Ohio, two in Pennsylvania, and three in Florida, which together would give Steward about 1,800 additional beds.


The Boston-based company already operates nine hospitals with about 1,800 beds across Eastern Massachusetts, including St. Elizabeth’s Medical Center in Brighton and Carney Hospital in Dorchester.

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Financial terms were not disclosed. The deal is expected to close in the second quarter of the year, subject to regulatory approvals, the companies said.

Steward and many other Massachusetts health systems have in recent years built accountable care organizations, or networks of doctors and hospitals that are paid to coordinate patient care and try to contain medical expenses. Steward’s chief executive, Dr. Ralph de la Torre, said the company plans to expand that accountable care model at its new hospitals.

“They’re huge opportunities,” de la Torre said in an interview. “It’s a market where we can actually bring better care to patients by bringing an integrated model.”

Steward was created in 2010 when New York-based Cerberus Capital Management, a private equity firm, acquired several hospitals from the Archdiocese of Boston. The company continued to grow, but it also closed one troubled hospital, Quincy Medical Center, in 2014.


In September, Steward said it would sell its hospital properties to a real estate investment firm, Medical Properties Trust Inc., giving the company an infusion of $1.25 billion to pay off debt and finance a national expansion. De la Torre said that agreement, under which Steward leases back the properties, allowed Steward to move forward with the current acquisition.

“We wanted to expand, and we grew dramatically in Massachusetts,” he said. “We were only in a position to expand into other states in [20]16. That’s when we did the deal with MPT.

“We’re always looking down the line for other opportunities,” he added.

Community Health Systems, based in Franklin, Tenn., is one of the country’s largest publicly traded hospital companies, with 158 facilities in 22 states. But the company has been struggling, and last year it said it would sell several propertiesto pay off debt.

“This transaction is a significant step in our strategic work to optimize our portfolio and operations for the future,” chief executive Wayne T. Smith said in a statement. “These hospitals play an important role in their communities and can benefit from Steward Health Care’s community-based care model going forward.”


The hospitals included in the deal are in and around Melbourne, Fla., Youngstown, Ohio, and Easton, Pa. None of those are focus areas for Community, said Brian Tanquilut, health care services analyst in Nashville at the investment bank Jefferies.

“These are actually pretty decent assets that theoretically could work better if they’re run by somebody other than Community,” he said. “If someone like Steward comes in, it could re-energize some of these facilities.”

Community lost $1.5 billion in the first nine months of 2016, reversing a $241 million profit in the same period a year earlier. It spun off 38 hospitals in one transaction last year and divested from several other properties through smaller deals.

“From Community’s perspective, it’s something they’ve needed to do,” said Seth Crystall, senior credit analyst at the research firm Debtwire in New York. “They have a lot of debt. They’ve been evaluating this for quite a while now.”

Community Health’s agreement with Steward was announced after the close of regular trading. In after-hours trading, its stock rose 6.9 percent to $7.60. The shares had been down 41 percent in the past year.

Priyanka Dayal McCluskey can be reached at Follow her on Twitter @priyanka_dayal.