Our Take: Massachusetts’ governor says Steward Health Care should exit state ASAP

Massachusetts Gov. Maura Healey sent a letter to Steward Health Care’s CEO, Dr. Ralph de la Torre, on Tuesday advising him that the health system had until the end of Friday to provide state regulators with requested financial documents. Steward did not meet the deadline, various news outlets reported on Saturday.

In the letter, Gov. Healey said Steward, a Dallas-based, for-profit organization with hospitals in eight states, has refused for years “to engage in the same level of basic transparency that every other system in Massachusetts offers” by not releasing its audited financial statements.

Gov. Healey also warned Dr. de la Torre that if he did not take immediate steps to ensure safe staffing and appropriate supply levels at all of Steward’s Massachusetts facilities, the state would “take all actions necessary — in consultation with hospital leadership — to protect patients, including freezing admissions, closing beds, canceling procedures, and transferring patients to other hospitals.”

The concerns about patient safety stem from Steward’s financial difficulties. In the past year, the organization has closed hospitals in multiple states and, according to various news reports, Steward owes its landlord, Medical Properties Trust, approximately $50 million in back rent. Steward also has failed to pay some of its vendors.  

To protect patients’ safety, the Massachusetts Department of Public Health initiated daily investigations of certain Steward facilities on Jan. 31 and subsequently stepped up its monitoring activities to include all of Steward’s hospitals across the state, Healthcare Dive reported.

According to Healthcare Dive, a Steward spokesperson said last week that the organization had provided regulators with the requested audited financial documentation in late 2023 and early 2024, but a spokesperson for Massachusetts’ Health Policy Commission said Steward’s noncompliance with financial regulations was still an issue as of Feb. 7.

In her letter to Dr. de la Torre, Gov. Healey wrote that after many months of discussions, the time has come for Steward to “begin a safe, orderly transition of [its] seven licensed facilities in Massachusetts to new operators as soon as possible.”

(Some reports stated that Steward has nine hospitals in Massachusetts, not seven. The health system said in December it plans to close New England Sinai Hospital, a long-term care and rehabilitation facility, on April 2, and Norwood Hospital has been closed since June 2020 due to flood damage. Although a new facility was being built on the Norwood site, The Boston Globe reported that construction has stopped because contractors have not been paid.)

WCVB, an ABC affiliate in Boston, reported in late January that U.S. Rep. Stephen Lynch said Steward told members of the state’s congressional delegation that the health system was looking to close several of its hospitals, including the one in Norwood, as well as Holy Family Hospital, Nashoba Valley Medical Center, and St. Elizabeth’s Medical Center.

But in early February, Dr. Michael Callum, Steward’s executive vice president, told employees the health system had agreed on “the principal terms for a significant financial transaction to help stabilize our company,” Becker’s Hospital Review reported.

“To be clear, we have no current plans to close any of our hospitals in Massachusetts,” Dr. Callum said. “Moreover, the company is advanced in an M&A process that would bring in a significant equity partner to our physician organization, and the company has already received very significant bids as part of this process.”

According to Becker’s, Dr. Callum said the financial transaction would allow the health system to continue its hospital operations in Massachusetts as it works toward completing the M&A process and would ensure funding for “the time needed for Steward to consider transferring one or more of our hospitals to other operators.”

On Thursday, Modern Healthcare reported that the CEO of Medical Properties Trust (Steward’s landlord) said the real estate investment trust has had interest from potential buyers for “almost all” of Steward’s facilities.

Meanwhile, Medical Properties Trust is working with another lender to secure a $75 million short-term loan for Steward, half of which Medical Properties Trust will fund, according to Modern Healthcare. Steward and its landlord have agreed to partial rent payments through June, Modern Healthcare noted; after that, Medical Properties Trust expects Steward to pay any outstanding rent and resume full rent payments.

Steward is also facing a civil complaint filed in December by the U.S. Attorney’s Office in Boston alleging the health system violated the False Claims Act and the Stark Law, which prohibits hospitals from billing Medicare for services rendered by physicians with whom they have “an improper compensation relationship.”

According to the U.S. Attorney’s Office, Steward Medical Group, which Steward Health Care owns, recruited Dr. Arvind Agnihotri to serve as the chief of cardiac surgery at St. Elizabeth’s Medical Center, with a goal of increasing cardiac surgeries at the facility. For the better part of a decade, the complaint alleges, Steward paid Dr. Agnihotri compensation that exceeded fair market value, along with incentive compensation (totaling nearly $5 million) that varied based on the number of surgeries he referred to St. Elizabeth’s.

The complaint also alleges that St. Elizabeth’s submitted more than 1,000 claims to Medicare, worth tens of millions of dollars, “knowing that the claims for those referred services were not eligible for payment.”

Steward denied any wrongdoing.

In 2022, Steward agreed to pay $4.7 million to resolve similar allegations involving another of its hospitals in Massachusetts, Good Samaritan Medical Center.  

Steward is facing legal challenges in Utah, too.

The Salt Lake Tribune reported last week that three separate lawsuits have been filed in Utah against Steward, seeking a total of $40 million in damages, according to Becker’s. Plaintiffs claim the health system took funding from five hospitals it operated in Utah to pay bills it had incurred in other states.

Steward sold the five hospitals to CommonSpirit Health last year, They have been rebranded as Holy Cross hospital and are being managed by Centura Health.

In addition, Becker’s reported that a dozen businesses, most based in Utah, have sued Steward in the past year, claiming the health system owes a total of $3.4 million for goods and services they provided. The state of Utah also claims Steward owes it more than $300,000 for newborn testing kits.

Our Take: How Steward will resolve its financial crisis is anybody’s guess at this point, but the organization will likely need to sell some of its hospitals — quickly — or file for bankruptcy.

Medical Properties Trust said Steward intends to sell its managed care business, but that won’t be enough to dig out of the hole the organization has created. It seems Steward has been robbing Peter to pay Paul for some time now and has relied on a cloak of secrecy to get by, but the jig is up.

Dr. de la Torre, Steward’s CEO, has been the target of considerable criticism since The Boston Globe published an opinion article earlier this month written by one of its former editors, Brian McGrory. In the article, McGrory called attention to the doctor’s purchase of a $40 million superyacht and his ownership of a $15 million custom-built sport fishing boat.

“His hospitals are struggling to stay afloat, no pun intended. Supplies are short, medical tools are being repossessed, vendors aren’t getting paid, all while hundreds of millions of dollars have flowed into the pockets of a bunch of private equity partners at Cerberus Capital Management and de la Torre himself,” McGrory wrote.

“Yes, Steward is right when they say that Medicaid needs to pay more for care, that regulators need to allow higher reimbursement rates, that their hospitals — utterly vital institutions — face obstacles that more prestigious institutions in wealthier communities will never know,” McGrory added. “But Steward’s owners, Dr. de la Torre especially, are a profoundly flawed messenger for these serious issues.”

In another opinion article titled Private Equity in Health Care published by The Wanderer, a newspaper serving communities in southeastern Massachusetts, Dr. Edward Hoffer, an associate professor of medicine at Harvard Medical School, wrote:

“While a 190-foot yacht catches attention, it is only a symptom of a deeper problem.”

Dr. Hoffer didn’t mince words in his indictment of private equity investment in health care. He said Steward offers “a textbook example” of how PE firms put profit before quality.

“Cerberus Capital bought the troubled Massachusetts-based Caritas Christi hospital system, promising to turn it around,” he wrote. “Soon after, they sold the land and buildings of its own hospitals to a real estate trust, pulling out $1.2 billion and saddling the hospitals with hundreds of millions in annual rent.

“That transaction allowed Cerberus to quadruple its investment and to pay its investors a $100 million dividend. They bought hospitals around the country, including Texas, Florida, and Ohio. Many of these have since been closed, doubtless after the PE investors had pulled as much money out as possible.

“So, Steward’s CEO has a very expensive yacht, and communities around the country are dreading the closure of what is often their only nearby hospital,” Dr. Hoffer added.

The Massachusetts congressional delegation also referred to “the dire threat of Steward’s collapse” as a textbook example of “the grave risks posed by private equity takeover of the health care system” in a letter to Cerberus Capital Management sent earlier this month.

The delegation said it was particularly concerned about “the extent to which Cerberus and its affiliates literally stripped out and sold the property from underneath [Steward’s Massachusetts hospitals], creating hundreds of millions of dollars in profits for private equity executives, while leaving the facilities with long-term liabilities that are magnifying — if not creating — the current crisis.”

The delegation asked the private equity firm to provide information and responses to more than a dozen specific questions regarding its relationships and transactions with Steward Health, Medical Properties Trust, and affiliated entities by the end of this month.

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