Orlando Health, operator of one of the two major Central Florida hospital systems, has become the first entity to officially emerge as a potential buyer of the bankrupt Sebastian River Medical Center, offering $439.4 million in cash to buy three hospitals along the Treasure and Space Coasts including Sebastian.

But the selection of a new owner is far from over. A three-way battle appears to be shaping up between Orlando Health, AdventHealth – the largest Central Florida Hospital system – and HCA Healthcare for ownership of the Sebastian hospital, the only full-service alternative in Indian River County to Cleveland Clinic’s hospital in Vero Beach.

The Orlando Health bid was designated as a “stalking horse bid” in the bankruptcy court proceedings of the Sebastian hospital’s parent company, Steward Health Systems, which filed for Chapter 11 reorganization bankruptcy protection in May and put all its assets up for sale to try and pay off $9 billion in accumulated unpaid debts.

As a “stalking horse bid,” the Orlando Health offer sets a floor price for further bidding in the bankruptcy court auction of the three hospitals.

But making the situation vastly more complicated is that the Orlando Health’s bid consists of up to $275 million for the real property – the land and the physical hospital plant, which are owned by Steward’s landlord, Medical Properties Trust (MPT) – with the other $164 million going to the Steward estate for the hospital operations.

The question of whether that is a fair division of any purchase price erupted into open warfare late Monday between Steward and Medical Properties Trust (see accompanying story, Page 8), with MPT accusing Steward of illegally trying to sell MPT owned real property, and of attempting to deprive MPT of the fair market value of the land and buildings that house Steward hospitals.

The final auction of the three hospitals that include Sebastian was originally supposed to have happened this week, but, like almost all deadlines in the sale process, that deadline has now been pushed back by a couple of weeks to Sept. 10 and seems likely to be delayed still further.

Meanwhile, the prospect of a bidding war for the three hospitals also loomed on the horizon as Informed sources in the Indian River County medical community said they knew for a fact that AdventHealth and HCA Healthcare, which owns Lawnwood hospital in nearby Fort Pierce, have been busily preparing bids on the Sebastian hospital.

The sources said AdventHealth had been talking to Steward about an acquisition of its Central Florida properties since last fall, but that the talks ran into snags when Steward faced increasing state government regulatory scrutiny in Massachusetts for the management of its hospitals up there. Steward’s bankruptcy declaration then halted all further talks and threw any sales negotiations into the federal bankruptcy court for the Southern District of Texas in Houston, TX.

While most sources in the Vero medical community did not want to jeopardize their relationship with Cleveland Clinic by going on the record, eye surgeon Val Zudans, a former president of the county Medical Society as well as former mayor of Vero Beach, recalled that Orlando Health, AdventHealth and HCA (then called Hospital Corporation of America) were the final competitors that lost out to Cleveland Clinic seven years ago in the bidding for Indian River Medical Center.

All three rivals, it appears, never gave up on their ambition to enter the Indian River County market, and they see the Steward bankruptcy as their new opportunity.

“One of these systems will be the new, financially sound parent of the Sebastian hospital,” Zudans said.  “It’s the best possible outcome for our community.  The Sebastian hospital has great doctors and nurses, excellent facilities, and state-of-the-art surgical suites.  Sebastian hospital was a great hospital with a financially unstable parent company.”

The official designation of Orlando Health’s offer as a “stalking horse bid” means that if the company is later out-bid by a rival health system, Orlando will be awarded $20 million out of the eventual higher sales price to reimburse the company for expenses incurred in preparing the bid.

The Orlando Health bid now out in the open promises to keep all staff of the three hospitals on the payroll in equal or higher positions for at least six months and recognizes all personnel obligations in accumulated vacation time or other benefits, but assumes no other debts, as is customary in bankruptcy proceedings where the new buyer wants to keep present staff.

Orlando Health at present operates 17 hospitals and 10 freestanding emergency rooms. HCA, based in Tennessee, is much larger and has a national footprint, while AdventHealth, a nonprofit corporation owned by the 7th Day Adventist Church and headquartered in the Orlando suburb of Altamonte Springs, operates 52 hospitals in nine states.

“All the bidders are very serious people in the medical field,” said one senior Vero Beach physician who asked not to be identified. “Whoever wins, it will be very good for our community in Indian River County. Competition is always good, and Cleveland Clinic frankly needs some competition,” he added.

He was referring to Cleveland Clinic’s problems since the takeover of the local hospital with rampant staff turnover, including at the top of the organization, dropped calls and appointments to Cleveland Clinic-associated physicians, and aggressive billing tactics that have sparked strings of negative comments from patients on social media sites like Facebook.

The same physician noted that Cleveland Clinic had started out as a research facility and built its reputation in that field, but hasn’t always been as successful when it started aggressively expanding into other markets.

“They have not shown themselves to be really good at practicing medicine in a competitive environment,” he added. Zudans predicted that under new ownership, Sebastian “will quickly become the hospital of choice for our community, significantly outperforming Cleveland Clinic. Healthy competition is good for the health of our community.