CBS Boston
On Monday morning, Steward Health Care filed for bankruptcy. As the Prospect’s reporting has made clear, the for-profit hospital system has been on an inevitable path to financial collapse once its previous owners, Cerberus Capital, looted the company of $1.25 billion in 2016.
Cerberus partners paid themselves this money by selling all of Steward’s physical hospital facilities to a real estate investment trust called Medical Properties Trust (MPT) in a sale-leaseback deal, which obligated the hospitals to pay MPT extensive rent. The chief executive, Ralph de la Torre, took out at least $100 million, and also had Steward pay for two personal yachts. These maneuvers deprived Steward of necessary operating income to run their hospitals.
But de la Torre is now spinning a lot of nonsense about how the hospitals will continue to operate normally, as the bankruptcy allows Steward to restructure its debts. And in Massachusetts, where Steward began, state officials, for their own political reasons, are colluding with de la Torre’s happy talk.
In a statement issued Monday, de la Torre claimed, “Steward does not expect any interruptions in its day-to-day operations, which will continue in the ordinary course throughout the Chapter 11 process. Steward’s hospitals, medical centers and physician’s offices are open and continuing to serve patients and the broader community and our commitment to our employees will not change.”
The game here is to keep Steward’s patients coming, despite the collapsing medical services, since patients are Steward’s one source of operating income. But as Steward has stopped paying vendors for everything from operating room supplies to bed linens, the quality of care has also suffered, and will suffer more as vendors stop giving Steward credit.
De la Torre’s story of where Steward is going to get the money to keep operating is also a fantasy. He has been trying to sell off Steward’s physician practices to the Optum medical conglomerate. That idea has been delayed by political opposition and possible antitrust scrutiny, since Optum, a division of health care leviathan UnitedHealth, is already affiliated with 10 percent of all U.S. doctors. The threat of antitrust action has given Optum second thoughts. Even if it succeeds, the ploy would deprive Steward of a key source of operating income, since doctor referrals would be directed to Optum-connected facilities, at Steward’s expense.
De la Torre has also contended that Steward expects another big infusion of money from MPT, the investment trust that is Steward’s landlord. This makes no sense, since Steward is aleady far in arrears in lease payments that it owes MPT. It’s true that MPT has made head-scratching moves before to give its tenants the illusion of solvency, but in this case they’re not playing ball thus far. Contradicting de la Torre’s talk of an MPT investment of $225 million, MPT put out its own press release saying that its cash infusion would be limited to $75 million.
At most, MPT might advance Steward modest sums to buy time while Steward tries to shed other debts as part of the bankruptcy. But here’s the clincher. Bankruptcy law was not designed to protect hospitals. It was designed to protect creditors. A friendly Chapter 11 proceeding—and this one is likely to be very friendly—might allow Steward to evade some debts. But it would not give the hospital chain more operating capital.
Unfortunately, Massachusetts Gov. Maura Healey has substantially colluded with de la Torre’s misleading account. “I understand that members of the public are concerned about what this means for them and their families in terms of accessing care,” Healey said Monday. “But that’s why I want to be very clear in telling the public that these hospitals will remain open and folks should continue to keep their appointments and seek care as needed, including if you need to see an emergency room.”
State Health and Human Services Secretary Kate Walsh added, “The hospitals that were open yesterday remain open today. The providers who were employed yesterday remain employed today and the community care that you could access yesterday, you can access today. Today’s bankruptcy filing does not change that.”
The statements were clearly coordinated. Why is Healey’s administration validating de la Torre’s misleading claims, at the expense of patient well-being? Healey’s interest is in avoiding a state bailout. A patient stampede to abandon Steward hospitals could create a self-fulfilling prophecy of an early shutdown. Like de la Torre, Healey hopes to buy time.
But sooner or later, a lot of money will be needed to keep the eight Massachusetts hospitals owned by Steward not just open, but providing high-quality care.
There are only three places that money can come from. One is the state bailout that Healey hopes to avoid. The second is the sale of some or all of the hospitals to another hospital chain that is willing to take some short-term losses in order to expand its Massachusetts footprint. The problem is that the two most plausible buyers, Mass General Brigham and Beth Israel Lahey, are already under fire for too much market concentration.
The third and best source of funds would be a clawback of money looted by Cerberus, de la Torre, and MPT, based on a prosecution for fraudulent conveyence, misrepresentation to shareholders, and other possible criminal charges. As a settlement, restitution would have to be paid to the hospitals, under new ownership.
That may yet come, but it would require more aggressive action than we have seen from the state attorney general, Andrea Campbell, to date. This is surprising, because Campbell is generally respected as tough and progressive. But this week, Campbell said, in a statement on Twitter no less, “My office is working to get answers and we intend to seek accoutability for any laws that may have been violated.”
Back in February, as Steward’s financial troubles worsened, Campbell issued a similar statement. But Steward’s legally dubious manuevers have been hidden in plain view for years, crying out for investigation long before it declared bankruptcy.
One Massachusetts Democrat who is not mincing words is Sen. Elizabeth Warren. “Regulators need to seek all possible means to claw back the riches sucked out of these hospitals,” Warren said Tuesday. “No matter where they try to shift the blame, Steward executives are responsible for this crisis.”
