Bankrupt Steward Health Care is selling its network of doctors after a Massachusetts hospital was seized. By Reuters

By Dietrich Knauth

NEW YORK (Reuters) – Bankrupt hospital operator Steward Health Care won approval from a bankruptcy judge on Friday to sell its nationwide network of physicians to a private equity buyer. Stalled efforts to sell hospitals in Massachusetts have prompted the state to step in and seize one.

U.S. Bankruptcy Judge Christopher Lopez on Friday approved the $245 million sale of physician network Stewardship Health to Rural Healthcare Group, a Kinderhook Industries-owned network of primary care physicians operating in Tennessee and North Carolina. Lopez said at a court hearing in Houston that the deal was the best offer for Steward, which is trying to sell all of its roughly 30 hospitals independently of the physician network.

Steward had previously planned to sell the physician network to a subsidiary of UnitedHealth Group (NYSE:), but that deal fell through after Steward filed for bankruptcy in May.

Steward told Lopez that the company has found buyers for three of its hospitals in Florida and is making progress in efforts to sell six hospitals in Massachusetts.

To pay off his $9 billion debts, Steward offered all 31 hospitals for sale when he filed for bankruptcy.

Steward has received a $439.4 million offer from Orlando Health Inc. for Steward Melbourne Hospital, Steward Rockledge Hospital and Steward Sebastian River Medical Center, court documents show, and that offer is subject to higher and better offers.

Steward's attorney, Ray Schrock, said Friday the company was “very, very close” to signing contracts for hospitals in Massachusetts, but state authorities were unhappy with the delays and took action Friday to seize one of the hospitals.

Massachusetts Governor Maura Healey said Friday the state will take control of Saint Elizabeth's Medical Center in Boston through expropriation to ease the transition to a new owner and keep the hospital open.

Steward declined to comment on the state seizure of Saint Elizabeth's.

Steward had previously decided to close two hospitals in Massachusetts and plans to hand over the remaining hospitals to new operators.

The company's bankruptcy has drawn the attention of Massachusetts state officials and U.S. senators, who criticized the company and its former private equity owners for selling the land on which its hospitals were located to a real estate firm, burdening the company with more than $6.6 billion in long-term lease obligations and putting it on shaky financial footing.

A US Senate committee plans to question the company's CEO about Steward's dismissal in a public hearing in September.