Steward Health Care formed over a decade ago when a private equity firm and a CEO looking to disrupt a regional healthcare environment teamed up to save six Boston-based hospitals from the brink of financial collapse. Since that time, Steward has expanded from a handful of facilities to become the largest physician-led for-profit healthcare network in the country, operating 33 community hospitals in eight states, according to its own corporate site.
However, Steward has also found itself once again on the precipice of failure.
The health system has been emanating signs of distress since late last year. Its landlord says Steward owes over $50 million in unpaid debts. A federal lawsuit alleges Steward defrauded the Medicare program. Steward has closed hospitals in Massachusetts and Texas, and publicly contracted restructuring advisors in January, fueling speculation about a potential bankruptcy filing.
Steward’s ongoing issues in Massachusetts have played out in regional media outlets in recent weeks. Massachusetts Gov. Maura Healey warned there would be no bailout for Steward in an interview on WBUR’s Radio Boston.
Worries about financial problems prompted Boston-based Mass General Brigham to pull doctors from Steward-owned Holy Family Hospital late last month. Steward has also been accused of mismanaging other facilities.
The Massachusetts Department of Public Health said it is investigating concerns raised about Steward facilities and began conducting daily site inspections at some Steward sites to ensure patient safety beginning Jan. 31.
However, the tide may have begun to change. Steward executives said on Feb. 2 they had secured a deal to stabilize operations and keep Massachusetts hospitals open — for now. Steward will receive bridge financing under the deal and consider transferring ownership of one or more hospitals to other companies, a Steward spokesperson confirmed to Healthcare Dive on Feb. 7.
While politicians welcomed the news, some say Steward’s long term outlook in the state is uncertain. Other politicians sought answers for how a prominent system could seemingly implode overnight.
“I am cautiously optimistic at this point that [Steward] will be able to remain open, because it's really critical they do,” said Brockton City Councilor Phil Griffin. “But they owe a lot of people a lot of money, so we’ll see.”
Built on financial engineering
Steward Health Care was created in October 2010, when private equity firm Cerberus Capital Management purchased failing Caritas Christi Health Care for $895 million. Steward CEO Ralph de la Torre, who stayed on from his post as president of CCHC, wanted to revolutionize healthcare in the region. His strategy was to woo patients away from larger health systems by recruiting their physicians and offering routine, inpatient care for a fraction of the price.
However, the business model wasn’t immediately a financial success. Steward didn't turn a profit between 2011 and 2014, according to a 2015 monitoring report from the Massachusetts attorney general. Instead, Steward’s debt increased from $326 million in 2011 to $413 million at the end of the 2014 fiscal year, while total liabilities ballooned to $1.4 billion in the same period as Steward engaged in real estate sale and leaseback plays.
Under the 2010 deal, Steward agreed to assume Caritas’ debt and carry out $400 million in capital expenditures over four years to upgrade the hospitals’ infrastructure. However, that capital expenditure could come in part from financial engineering, such as monetizing Steward’s own assets, according to Zirui Song, associate professor of health care policy and medicine at the Harvard Medical School who has studied private equity’s impact on healthcare since 2019.
Cerberus did not contribute equity into Steward after making its initial investment of $245.9 million, according to the December 2015 monitoring report. Meanwhile, according to reporting at the time, de la Torre wanted to expand Steward. Steward was on its own to raise funds.
To generate cash, Steward engaged in another leaseback play, selling its properties to Alabama-based real estate investment trust Medical Properties Trust for $1.25 billion in 2016. Steward used the funds to pay back its remaining obligations to Cerberus and expand beyond Massachusetts, acquiring 18 hospitals from IASIS Healthcare in 2017.
Such deals are typically short-sighted, Song explained. When hospitals sell their property, they voluntarily forfeit their most valuable assets and tend to be saddled with high rent payments.
Cerberus exited its Steward play in 2020, $800 million richer. Steward lost more than $800 million between 2017 and 2020.
A pattern of poor performance
Healthcare Dive spoke with four workers across Steward’s portfolio who said Steward’s emphasis on the bottom line negatively impacted the company’s operations for years.
Terra Ciurro worked in the emergency department at Steward Health Care-owned Odessa Regional Medical Center in January 2022 as a travel nurse. She recalled researching Steward and being attracted to the fact the company was physician owned.
“I remember thinking, ‘That’s all I need to know. Surely, doctors will have their heart in the right place,’” Ciurro said. “But yeah — that's not the experience I had at all.”
The emergency department was “shabby, rundown and ill-equipped,” and management didn’t fix broken equipment that could have been hazardous, she said. Nine weeks into her 13-week contract and three hours before Ciurro was scheduled to work, Ciurro said her staffing agency called to cut her contract unceremoniously short. Steward hadn’t paid its bills in six months, and the agency was pulling its nurses, she said she was told.
In Massachusetts, Katie Murphy, president of the Massachusetts Nurses Association, which represents more than 3,000 registered nurses and healthcare professionals who work in eight Steward hospitals, said there were “signals” that Steward facilities had been on the brink of collapse for “well over a year.”
Steward hospitals are often “significantly” short staffed and lack supplies from the basics, like dressings, to advanced operating room equipment, said Murphy. While most hospitals in the region got a handle on staffing and supply shortages in the aftermath of the COVID pandemic, at Steward hospitals shortages “continued to accelerate,” Murphy said.
A review of Steward’s finances by BDO USA, a tax and advisory firm contracted last summer by the health system itself to demonstrate it was solvent enough to construct a new hospital in Massachusetts, showed Steward had a liquidity problem. The health system had few reserves on hand last year to pay down its debts owed to vendors, possibly contributing to the shortages. The operator carried only 10.2 days of cash on hand in 2023. In comparison, most healthy nonprofit hospital systems carried 150 days of cash on hand or more in 2022, according to KFF.
One former finance employee, who worked for Steward beginning around 2018, said that the books were routinely left unbalanced during her tenure. Each month, she made a list of outstanding bills to determine who must be paid and who “we can get away with holding off” and paying later.
Food, pharmaceuticals and staff were always paid, while all other vendors were placed on an “escalation list,” she said. Her team prioritized paying vendors that had placed Steward on a credit hold.
The worker permanently soured on Steward when she said operating room staff had to “make do” without a piece of a crash cart — which is used in the event of a heart attack, stroke or trauma.
She stopped referring friends to Steward facilities, telling them “Don’t go — if you can go anywhere else, don't go [to Steward], because there’s no telling if they’ll have the supplies needed to treat you.”
Away from regulatory review
Massachusetts officials maintain that it hasn’t been easy to see what was happening inside Steward.
Steward is legally required to submit financial data to the MA Center for Health Information and Analysis (CHIA) and to the Massachusetts Registration of Provider Organizations Program (MA-RPO Program), according to a spokesperson from the Health Policy Commission, which analyzes the reported data. Under the latter requirement, Steward is supposed to provide “a comprehensive financial statement, including information on parent entities and corporate affiliates as applicable.”
However, Steward fought the requirements. During Stuart Altman’s tenure as the chair of the Commission from 2012 to 2022, Altman told Healthcare Dive that the for-profit never submitted documents, despite CHIA levying fines against Steward for non-compliance. Steward even sued CHIA and HPC for relief against the reporting obligations.
Steward is currently appealing a superior court decision and order from June 2023 that required it to comply with the financial reporting requirements and produce audited financial reports that cover the full health system, Mickey O'Neill, communications director for the HPC told Healthcare Dive. As of Feb. 6, Steward’s non-compliance remained ongoing, O’Neill said.
Without direct insight into Steward’s finances, the state was operating at a disadvantage, said John McDonough, professor of the practice of public health at The Harvard T.H. Chan School of Public Health. He added that some regulators saw a crisis coming generally, “but the timing was hard to predict.”
Altman gives his team even more of a pass for not spotting the Steward problem.
“There was no indication while I was there that Steward was in deep trouble,” Altman said. Although Steward was the only hospital system that failed to report financial data to the HPC, that alone had not raised red flags for him. “[CEO] Ralph [de la Torre] was just a very contrarian guy. He didn't do a lot of things.”
Song and his co-author, Sneha Kannan, a clinical research fellow at Harvard Medical School, are hopeful that in the future, regulatory agencies can make better use of the data they collect annually to track changes in healthcare performance over time. They can potentially identify problem operators before they become crises.
“State legislators, even national legislators, are not in the habit of comparing hospitals' performances on [quality] measures to themselves over time — they compare to hospitals’ regional partners,” Kannan said. “Legislators, Medicare, [and] CMS has access to that information.”
However, although there’s interest from regulators in scrutinizing healthcare quality more closely — particularly when private equity gets involved — a streamlined approach to analyzing such data is still a “ways off,” according to the pair. For now, all parties interviewed for this piece agreed that the best way to avoid being caught off guard by a failing system was to know how such implosions could occur.
“If there's a lesson from [Steward],” McDonough ventured, “it is that the entire state health system and state government need to be much more wary of all for-profits.”
