The U.S. Department of Justice has launched a criminal investigation into Steward Health Care over allegations of fraud and corruption, the company has confirmed to Healthcare Dive. 

“Steward Health Care can confirm it is aware of and cooperating with an investigation by the U.S. Department of Justice,” a spokesperson told Healthcare Dive. “As a matter of policy, Steward will have no further comment on this investigation as it remains ongoing."

The health system, which operates 31 hospitals across eight states, is accused of violating the Foreign Corrupt Practices Act, which prevents entities from bribing foreign governments to obtain business. 

The news, which was first reported by CBS News Thursday, comes as Steward attempts to pull off one of the largest provider restructurings in decades after filing for Chapter 11 bankruptcy in May. 

While at home all eyes have been trained on Steward’s bankruptcy proceedings, across the Atlantic, advocates for healthcare transparency have had theirs fixed on the health system’s relationship to a case unfolding in a Maltese criminal court. 

That case appears to be at the center of the DOJ’s investigation, though the DOJ on Thursday declined to comment on the matter directly. 

Projects Malta

In May, the Maltese government brought charges against more than a dozen people, including the country’s former Prime Minister Joseph Muscat, accusing them of money laundering, soliciting bribes and criminal association in connection to a hospital deal with Steward.

Steward Health Care International — which was formed in 2017 and is purported to operate separately from Steward Health Care — inked a deal, called Projects Malta, to operate three government-owned Maltese hospitals in 2018. 

Steward won the contract despite due diligence finding it had reputational issues at home, including a failure to issue timely financial data — a problem that plagued the company until it filed for bankruptcy. 

After accepting the contract, Steward Health Care International engaged in a familiar pattern observed domestically, where it accepted payment for services never rendered, according to a 2023 audit report from the National Audit Office of Malta. 

The company accepted more than 200 million euros by 2021 to improve the hospitals, despite little evidence that it upgraded the facilities, according to the report.

Steward missed all of its reporting deadlines, even after seeking extensions, prompting a lawsuit in 2018.

By 2023, the company had just a one-page affidavit and 76 pages of photographs to show for its investments in the country, which included a new helicopter and a refurbished toilet, according to reporting from The Times of Malta. 

The judge annulled the contract, finding Steward had acted to "unjustly enrich itself at the expense of citizens" and engaged in "possibly criminal behaviour." 

When investigators probed how Steward had actually spent the contract money, they uncovered possibly illicit behavior dating back to the previous hospital operator, Vitals Global Healthcare, which Steward had acquired. The investigation alleges Steward used Maltese taxpayer funds for kickback schemes and bribery of politicians via opaque “consultancy fees.”

Malta officials brought criminal charges against many of the politicians involved in the deal in May and levied charges against Steward Health Care International’s lawyer, David Meli, and IT manager, Clarence John Conger-Thompson.

While Steward and its top executives — CEO and owner Ralph de la Torre and Steward Health Care International CEO Armin Ernst — have not yet been charged, Steward was mentioned more than 1,700 times in May’s court filing, according to reporting from Stat News. 

Maltese investigators concluded “emails confirm that top ranking officers within Steward were aware that the payments were being made for political purposes rather than consulting services.”

The investigative report said that “the appropriate Authorities in USA be informed specially… taking into consideration their Foreign Corrupt Practices Act (FCPA).”

Pressure mounts at home

Steward has weathered fraud allegations before.

In 2022, the company agreed to pay $4.7 million to settle allegations of False Claims Act violations, and was hit with a separate FCA investigation in December.

Last year, a businessman involved in the initial transaction to sell the Maltese hospitals to Steward filed a whistleblower complaint with the U.S. Securities and Exchange Commission, alleging the company had violated corruption law abroad. The man claimed he was threatened with political assassination if he didn’t complete the deal.

Most recently, investigative reporting from the Organized Crime and Corruption Reporting Project revealed Steward used its Malta business to fund unsavory business practices, including surveillance of political enemies.

The OCCRP published documents earlier this month revealing Steward used funds allocated for Malta hospital enrichment to spy on Maltese politicians who held up payments to Steward following missed milestones and analysts who questioned the company’s relationship with its landlord, Medical Properties Trust.

In 2022 alone, Steward’s U.S. headquarters funneled $2.9 million that had been budgeted for Malta to the surveillance companies, according to the documents.

The financial link between Steward and Steward Health Care International, as well as the shared employees — Ernst and de la Torre — could prohibit the company from claiming the two businesses are indeed independent, Rob Simone, a short seller analyst for HedgeEye who has covered Steward since 2022 told Healthcare Dive.

“The OCCRP story shows that this international company was performing work on behalf of the U.S. company. There's evidence of payments going from the U.S. company to these international slush funds on behalf of the international company even after the two were supposed to be separate,” Simone said. 

“If Malta is prosecuting that entity for fraud and corruption, and the U.S. entity that is now bankrupt is shown to have direct connections with and investments in and operations with [the international holding,] it creates a situation where [the DOJ] almost has to look.”

It remains to be seen how the investigation might impact Steward’s bankruptcy proceedings. 

The company is seeking buyers for its entire hospital portfolio as well as its physician group, Stewardship Health. However, its sales timeline has been pushed back several times and UnitedHealth’s Optum, which appeared to be the most likely buyer for Stewardship, dropped out of the bidding process late last month.

While Optum did not offer a reason for its cold feet to Healthcare Dive at the time, distressed asset research firm 9fin reported that Optum caught wind of the DOJ investigation and decided not to move forward with the deal.

Other would-be bidders may likewise opt to sit out the bidding process following news of the investigation, Laura Coordes, professor of law at the Sandra Day O’Connor College of Law at Arizona State University, told Healthcare Dive over email. 

“At the very least, I'm sure a lot of eyes will be on that investigation, to see how it develops,” Coordes said. “Steward has already had trouble selling its assets, and this will not help matters.”