July 31 (Reuters) - Massachusetts could face a "public

health crisis" if bankrupt Steward Health Care cannot quickly

complete a sale of six hospitals, an attorney for the state said

Wednesday.

Steward has binding purchase agreements in place for all six

properties, but the sale has been delayed by a dispute between

Steward and its landlords, Medical Properties Trust ( MPW ) and

Macquarie Asset Management, a lawyer representing the office of

attorney general and other state agencies said at a U.S.

bankruptcy court hearing in Houston, Texas.

Massachusetts is offering $30 million in funding to ease the

transition of Steward's six remaining hospitals in the state,

but will not provide any of those funds until sale agreements

are finalized for the six hospitals, said Hugh McDonald of

Pillsbury Winthrop Shaw Pittman.

"The parties have to stop the brinksmanship," McDonald said.

"They have to come to the table, and they have to make a deal."

Steward announced the closure of two Massachusetts hospitals

last week, and it is working to transition the six remaining

hospitals in the state to new owners.

The company, which filed for bankruptcy protection in May,

is attempting to sell all its hospitals to address $9 billion in

debt. Before the announced closures, Steward operated 31

hospitals in eight states.

Steward's attorney, Ray Schrock of Weil, Gotshal & Manges

agreed that the company is running out of time to transition the

Massachusetts hospitals, and said at the hearing that it is

working "overtime" to get its landlords and their lenders to

agree to let new buyers take over the hospitals.

A major sticking point in those talks is how the money from

the sale would be divided between Steward, which owns the

hospitals themselves, and MPT and Macquarie, which bought the

land from Steward.

MPT is a landlord on many of Steward's 25 other hospitals

throughout the U.S., and the dispute about how to divide assets

between MPT and the company's other creditors looms over the

company's entire bankruptcy, Schrock said.

"We can't have all of the value swallowed up unfairly and in

a disproportionate way by the real estate," Schrock told U.S.

Bankruptcy Judge Christopher Lopez, who is overseeing the case.

Lopez on Wednesday allowed Steward to close Carney Hospital

in Boston and Nashoba Valley Medical Center in Ayer,

Massachusetts.

Lopez said he did not make the decision lightly, but he said

that ongoing financial losses at Carney and Nashoba could

imperil the operation of Steward's other hospitals. Lopez has

appointed two independent watchdogs to ensure that patient care

does not suffer during Steward's bankruptcy.

MPT has said that it needs to have a buyer for its real

estate or long-term leases in place with the new hospitals

owners as part of any sale. Many of Steward's hospitals would be

losing money even if they paid no rent, and in many cases the

land is worth more than the hospital operations, MPT has said in

court filings.

Steward will be back in court on Aug. 6, and it hopes to

finalize the Massachusetts sales for court approval by that

date.

The case is In re: Steward Health Care System LLC, U.S.

Bankruptcy Court for the Southern District of Texas, No.

24-90213

For Steward: Ray Schrock of Weil, Gotshal & Manges

For Massachusetts: Hugh McDonald and Andrew Troop of

Pillsbury Winthrop Shaw Pittman

For MPT: Emil Kleinhaus of Wachtell, Lipton, Rosen & Katz

Read more:

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discloses $9 bln in debt

Bankrupt Steward Health to close two Massachusetts hospitals

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