UTMB agrees to lease Webster hospital that abruptly closed

WEBSTER — The University of Texas Medical Branch at Galveston plans to lease a Webster hospital that abruptly closed in May, causing 900 employees to lose their jobs and capping a spate of hospital layoffs in the Houston region over the last 18 months.

The hospital system, one of the largest health care providers in the region, signed a letter of intent on Friday, which would “complete negotiations” concerning the lease of the Bay Area Regional Medical Center in Webster, according to a press release from UTMB. The UT System Board of Regents approved the medical branch’s proposed plans last week.

“This is a unique opportunity for UTMB Health to advance our mission of education, research and patient care,” stated Dr. David L. Callender, president of the university. “The Webster location will complement our existing facilities on our League City Campus and in surrounding areas, as well as our future plans for education and research activities in the Bay Area. Together, these facilities will enable us to broaden our efforts to serve a rapidly growing region, while supporting our academic work to define the future of health care.”

The university has not made official plans yet for how the property will be used. An opening date is still being decided, pending final agreements and a lease, according to the release.

Callender declined to comment on the lease agreement. He told the Galveston Daily News that the Webster facility “will complement our existing facilities on our League City campus and in surrounding areas, as well as our future plans for education and research activities in the Bay Area.”

The 191-bed hospital closed on May 4 after opening four years earlier and spending $200 million in construction and operation. CEO Stephen K. Jones Jr. told employees in an email provided to the Houston Chronicle that the company “was not able to overcome significant hurdles with managed-care companies.” An estimated 900 employees immediately lost their jobs, but a hospital spokeswoman later said that 342 of the workers whose jobs were cut are now employed at other hospitals in the Houston area.

While Bay Area Regional officials said at the time of the closure it would file for bankruptcy, there are no records yet that the company has filed.

At the time of the closing, a spokesman said Bay Area Regional tried for at least a year to get better reimbursement terms,but it did not have the backing of a major hospital system.

UTMB is negotiating the lease directly with Carter Validus Mission Critical, a Florida-based real estate investment management company that in 2014 acquired a 60 percent interest in Bay Area Regional Medical Center. The company reportedly paid $119 million for the hospital and committed another $35 million for a future build-out. The property’s developer, an affiliate of Medistar Corp., retained the remaining 40 percent interest in the property.

“We are excited to be able to have the opportunity to be part of UTMB’s presence in the Webster, Texas market and look forward to a strong relationship with such a well-regarded and world class health care system,” said Michael Seton, CEO of Carter Validus, in a written statement.

The leasing agreement with UTMB comes at an opportune time for Carter Validus, since the medical center accounted for about 21 percent of the company’s contractual rental revenue.

The Tampa Bay Business Journal reported in May that Mackenzie Realty Capital, a San Francisco area investment firm, made an offer to buy up to 1 million shares of Carter Validus for $3.36 a share, a low-ball offer — the company reported in February its stock had an estimated value of $6.26 a share — that came a week after Bay Area Regional Medical Center announced its closure. The Business Journal reported that Seton wrote a letter to shareholders on May 17 telling them to reject the offer and that the company would try its best to sell or lease the medical center.

A spokeswoman for Carter Validus declined to comment on the terms of the lease agreement with UTMB, referring only to the company’s statement on the agreement.

Former employees of Bay Area Regional Medical Center have a class action lawsuit pending against the company after the medical center announced its closure.

The plaintiffs, Sandra Hood and Harry Bowers, allege that Bay Area Regional did not give employees proper notice that the company would be closing, qualifying them as “aggrieved employees.”

The former hospital workers are seeking damages in the amount of 60 days’ pay, according to the lawsuit filed in the United States District Court for the Southern District Of Texas.

The suit alleges that Medistar Corporation, the owner of Bay Area Regional, did not file a state-required WARN letter with the Texas Workforce Commission. The WARN letter, which stands for Worker Adjustment and Retraining Notification, is a requirement for companies employing 100 or more people. Any company that plans to lay off 50 or more people must submit this document to the appropriate state agency, per U.S. Department of Labor regulations.

Stuart Miller, the attorney representing the plaintiffs in the lawsuit, declined to comment on the medical center’s new agreement with UTMB.

The closure of Bay Area Regional Medical Center was the latest in a rash of hospital job losses in the region. East Houston Regional Medical Center, which had been open for more than 40 years, announced in November that it would not reopen following severe damage from Hurricane Harvey in August, costing more than 400 jobs.

Memorial Hermann Health System, Houston’s largest employer, laid off more than 460 employees last year in three rounds of cuts. That amounts to slightly less than 2 percent of Memorial Hermann’s 25,000-employee work force.

Also in 2017, MD Anderson Cancer Center laid off 778 employees and Catholic Health Initiative’s Texas division cut 1,295 jobs, most at the St. Luke’s Health System in Houston.

UTMB, however, appears to have staved off any dramatic cutbacks, instead expanding its footprint across southeast Texas.

In addition to leasing the Bay Area Regional Medical Center, UTMB will add 60 hospital beds to its League City Hospital campus that already includes medical and surgery services for adults, an emergency room and a mother/baby unit.

The university also has several clinics throughout Houston and Galveston, along with a hospital at its Angleton Danbury Campus in Brazoria County.

Jaimy Jones and Brooke Lewis contributed reporting.

nick.powell@chron.com