State to make cash infusion of up to $700 million to shore up surviving Steward hospitals

Some of the funding would come from federal matches for MassHealth, the state Medicaid program, or assessments on all hospitals to bolster the operations of those with large numbers of low-income patients.

State officials acknowledge the tall order of cleaning up after what they describe as years of underinvestment in Steward hospitals. They said they’re working to steer three pools of funding from the state’s MassHealth program to help the potential new owners of the Steward facilities recapitalize the hospitals, restock their supplies, and shore up depleted medical staffs over the next three years.

Some of the money will be used for upgrades to hospital garages, elevators, and emergency rooms neglected by Steward as it sold its hospital property to investment firms, moved its headquarters from Boston to Dallas, and expanded nationally. New operators will also need funds to cover operating losses and buy back land and buildings now controlled by private equity giant Apollo Global Management, which earlier this month took over hospital properties Steward sold to other investment firms.

The administration views the spending as part of a rescue mission. It is funneling its financial support to Boston Medical Center, Lawrence General Hospital, and Lifespan Health System, which have struck preliminary deals to take over the hospitals, not to Steward or Apollo. But the nonprofit health systems buying the hospitals can’t complete the deals without state backing.

Kate Walsh, state secretary of health and human services, said in an interview that the state’s goals are to “protect patients, save as many jobs as we can, and stabilize a regional system of care in Eastern Massachusetts.” She said the plan is to accomplish that within the parameters of the state budget Healey signed into law in July.

Even with the state’s financial backing, it will be no easy undertaking. Outside analysts also worry the effort could divert attention, and money, from other priorities and services such as primary care and mental health.

“It’s going to cost hundreds of millions of dollars to get the Steward hospitals back to a reasonable level,” said David E. Williams, president of Health Business Group, a Boston consulting firm. “These hospitals are losing money every day. Buyers will have to rebuild their basic functions.”

Steward, which filed for bankruptcy May 6, put eight Massachusetts hospitals up for sale to pay off its lenders and other creditors.

The hospitals expected to change hands are St. Elizabeth’s Medical Center in Brighton, Holy Family Hospital in Methuen and Haverhill, Good Samaritan Medical Center in Brockton, Morton Hospital in Taunton, and St. Anne’s Hospital in Fall River. Two others, Carney Hospital in Dorchester and Nashoba Valley Medical Center in Ayer, which Steward said drew no qualified bids, are getting ready to close by Aug. 31.

Most of the surviving hospitals are in dire need of repairs. “They’ve been underresourced for so long that they’re really in the hole in terms of professional standard of care,” said Marc Bard, president of mB2, a national health care consultant based in New Hampshire. “But the state needs the beds and the facilities. Other hospitals are at full capacity.”

State officials, meanwhile, are also trying to fend off demands for more money from Apollo and other Steward lenders and creditors jockeying for payments in US Bankruptcy Court in Houston.

The Healey administration has negotiated separate financial packages with each buyer depending on the size of the hospitals and their services. Boston Medical Center, the state’s largest safety net hospital, which was formerly run by health secretary Walsh, is expected to get the most support as it absorbs St. Elizabeth’s and Good Samaritan.

Some fear the price tag could creep higher the longer the sales talks drag on and Steward’s bankruptcy financing runs low. The state has already put up $30 million in bridge funding — advances in anticipated Medicaid payments to the hospitals — to keep the hospitals operating as they begin to transition to new owners.

Final asset purchase agreements are set to be submitted for approval by bankruptcy Judge Christopher Lopez in Houston on Tuesday after five previously scheduled sales hearing were postponed. Steward has yet to announce that the sales have been finalized.

The biggest wild card for state spending may be Healey’s surprise offer on Aug. 16 to pay $4.5 million to take the 14-acre St. Elizabeth’s property, assessed at more than $200 million, by eminent domain. Apollo, has promised to contest the state’s offer, which it said “significantly undervalues” the real estate.

A trial could last up to two years. If a jury pegs the market value closer to the assessed value, the Healey administration — which would turn over hospital operations to BMC — would have to write another big check.

Despite the costs, some say the state has little choice but to save hospitals that serve mostly low-income and working-class communities.

“You can make a strong case that we need these hospitals because they’re in areas where there aren’t other alternatives,” said John McDonough, a professor at the Harvard School of Public Health.

Others fear the hospitals’ rescue could become a money pit at a time when the hospital sector has become bloated and inefficient.

“It’s not a good investment,” said Williams, the Boston health care consultant. “Over time, we want to move health care from hospitals to community settings and primary care. The state’s money should be used to ease that transition, not to prop up hospitals that are failing.”

For now, the capital infusion won’t require legislative approval. State leaders are eyeing three buckets of funding within MassHealth that can be used at the discretion of the administration.

The first, and the only one in which the state has given any kind of figure for its spending plan, is an increased assessment on Massachusetts hospitals to cover Medicaid payments. That will help generate about $240 million over the next three years for the former Steward hospitals.

As part of the assessment, included in the state’s fiscal 2025 budget, the agency will channel $35 million a year for the next three years to the hospitals. That will be matched by $45 million a year in the same period from the US Centers for Medicare and Medicaid Services, which supplements state Medicaid payments. That agency, called CMS, would have to approve its share of the match.

In the second bucket, state officials said they would draw an unspecified amount of additional state dollars from the MassHealth budget to help with transition costs beyond the $240 million. But the state’s share of this funding tranche wouldn’t be offset by assessments on hospitals.

Finally, state officials would advance a year’s worth of Medicaid payments — a practice used in the past to shore up safety-net hospitals — in the third bucket of financial support to the new operators.

It’s a rescue mission with high risks and potentially high rewards. Healey administration officials say it can also be part of a strategy to better coordinate care in a region where many hospitals are overburdened.

Walsh said the acquirers share the administration’s goals of preserving patient care and jobs.

“We are partnering with them to invest in their future to do exactly that,” she said.

Robert Weisman can be reached at robert.weisman@globe.com.