Elaine Thompson/AP Photo
Bankrupt, private equity–looted hospital chain Steward Health has sold its physician network, Stewardship Health, to … another private equity firm, and the résumés of the network’s new management team offer a depressing glimpse into the state of primary care in America.
Stewardship’s new suitor is a private equity–financed upstart called Rural Healthcare Group, or RHG. Its CEO Benson Bennett Sloan IV*, chief operating officer Mark Jansen, and chief of staff Conor Pocino spent a combined 15 years at NaviHealth, a software company acquired by UnitedHealth in 2020 that bills itself as providing “management services” to insurers for handling the health care of hospitalized patients.
NaviHealth’s real function, as detailed in a putative class action lawsuit and a Pulitzer-nominated investigative series published last year in the health care trade publication STAT, involves summarily refusing to cover the cost of staying in a nursing home or rehabilitation center after a patient has left the hospital. The NaviHealth algorithm recommends a care plan for patients with a set number of days in acute care, to minimize time spent away from home and prevent hospital readmission. But if the days are used up and the patient remains in pain or not ready to go home, she could be cut off from coverage.
NaviHealth began as an innovation by another private equity firm, the health-focused Welsh, Carson, Anderson & Stowe. It was the brainchild of Welsh Carson’s Tom Scully, a former head of the Centers for Medicare & Medicaid Services who wanted to take advantage of the Affordable Care Act’s test of post-acute care bundled payments. The business grew rapidly, serving two million Medicare Advantage patients within the first few years. It then went through two sales before being picked up by UnitedHealth in 2020.
NaviHealth employees told STAT that in the company’s early days, the software factored patients’ ages, specific diagnoses and medical histories, and other data into the care plans NaviHealth recommended for patients. After UnitedHealth’s buyout, however, insurers—and United specifically—began using the software exclusively as a pretext to cut off coverage to patients it deemed too expensive, regardless of medical condition.
The class action lawsuit claims that NaviHealth’s “known error rate” is 90 percent, and it details some harrowing patient experiences that illustrate what that looks like. In April 2023, a Tennessee man on a UnitedHealth Medicare Advantage plan named Jackie Martin broke his back in a fall and went to the hospital, where he was admitted for six days and transferred to a nearby nursing home. On the 11th day in the nursing home, he received a “notice of non-coverage” from United and NaviHealth, informing him that they would be cutting him off in two days. He appealed the determination to a third-party utilization review organization, which quickly reversed the denial. Then six days after the reversal, UnitedHealth sent Martin another notice of non-coverage, which Martin again appealed to the third party, which again reversed the denial. Just four days later, Martin received yet another notice of non-coverage. On a conference call to figure out what was happening, NaviHealth representatives told Martin’s son he should expect the denials to keep coming, and Martin gave up and agreed to return home even though he was not ready. He died four days later.
The class action lawsuit claims that NaviHealth’s “known error rate” is 90 percent.
Many of NaviHealth’s patients do not go so easily: The complaint also tells the sad tale of Frank Perry, who like Martin fell in his home and was hospitalized for several weeks at UCLA Medical Center and discharged to a highly rated rehab center in Century City. Perhaps because Perry’s wife was a physician and his particular insurance plan was far more expensive than Martin’s, it took NaviHealth two weeks to kick him out of the rehab, from which they transferred him to a cheaper nursing home, where he received his notice of non-coverage ten days later. Perry appealed the coverage denial to another third-party arbitrator, which twice denied his appeal. (This is actually rare; the lawsuit states that more than 90 percent of coverage denials are reversed upon appeal, but most patients are intimidated by the appeals process.)
So Perry went home in late May 2023, whereupon he fell the very next day and several times thereafter, was hospitalized again in July for a week and a half, and then again in August and September for six weeks, and then another time in November for nearly two weeks, and yet again in January for 19 days, after which he was discharged to a nursing home from which NaviHealth attempted to kick him out two weeks later, though this time the third-party arbitrator repeatedly overruled the coverage denial.
At one point after his fourth hospitalization, NaviHealth advised Perry’s wife to divorce him so he would financially qualify for better insurance; at the time the last version of the complaint was filed in May, Perry was again in the hospital and prohibited from returning to his nursing home until his $26,000 bill was settled.
LARGE PRIMARY CARE PRACTICES HAVE BEEN HOT COMMODITIES in recent years for UnitedHealth and other managed care networks, eager to draw new patients into lucrative Medicare Advantage arrangements. Houston’s 700-physician Kelsey-Seybold network commanded a dizzying $2 billion price tag from UnitedHealth back in 2022. And Stewardship is much bigger: Steward’s website claims it consists of 1,700 “providers” in 11 states, though the same site still lists 5,178 physicians, nurse practitioners, and physician assistants in its directory, a sign of how Steward has antagonized affiliated physicians over the years by pressuring them to refer their patients to hospitals without the supplies or staffing to care for them, while failing to pay clinicians contractually obliged cost-savings bonus payments, and often failing to pay them at all.
CVS/Aetna, Walgreens, Humana, and Centene have all acquired large physician practice networks in recent years as part of a race to enroll more (and more profitable) patients into Medicare Advantage plans and exercise greater control over their access to care. But the $400 billion UnitedHealth, which currently employs or controls fully 10 percent of working physicians in America, has been by far the most aggressive bidder.
Earlier this year, UnitedHealth signed a nonbinding letter of intent to buy Stewardship for a price insiders pegged at $850 million. But many analysts and observers were skeptical of the proposed transaction, which was announced just weeks after The Examiner News of Westchester County, New York—where UnitedHealth acquired a major practice called CareMount in 2022—broke the news that that the Justice Department was investigating UnitedHealth’s fast mushrooming physician empire, which currently employs or controls fully 10 percent of working physicians in the country. Dr. Christopher Garofalo, an independent primary care physician who belongs to the Stewardship network, said many doctors balked at the notion of being bought out by UnitedHealth for the same reason that the insurer was likely attracted to the deal: The eastern Massachusetts insurance market is still dominated by homegrown nonprofit insurers like Blue Cross Blue Shield and Harvard Pilgrim; Medicare Advantage penetration—well above 50 percent nationwide—is still in the 30s; and large national insurers are viewed with suspicion by patients.
“In the past five or six years I’ve seen a bunch of patients who all of a sudden, for whatever reason their company switches to United, and almost none of those patients had United for more than a year, because the employees revolted, they went to HR and said, ‘You have to get rid of this.’” Garofalo said.
The $400 billion UnitedHealth currently employs or controls fully 10 percent of working physicians in America.
There was another big problem with buying Stewardship from UnitedHealth’s perspective, which was that Steward had already sort of sold it. Desperate for cash two summers ago, Steward dumped its Medicare Advantage business to a small chain of Florida urgent care clinics called CareMax for a mixture of cash and stock. At the time, the two companies projected the business would be raking in $100 million in earnings on $1.6 billion in annual revenue by 2025. But it didn’t work out, the company is hemorrhaging cash, its market capitalization has shrunk to around $12 million, and its stock is trading at $3.40 in spite of a recent reverse stock split.
It’s possible Steward assumed that CareMax—whose biggest single shareholder is Ralph de la Torre—would simply disappear. (Garofalo says physicians in the Stewardship network with larger numbers of Medicare Advantage patients have reported trouble receiving payments from CareMax.)
But soon after, Steward declared bankruptcy in May, amid nationwide news coverage of the decrepit state of its underfunded hospitals, mountains of unpaid invoices, and the bat infestation that still haunts one depleted facility down in Florida. CareMax filed an objection claiming that Steward had swept $9.2 million of its cash into its own accounts. In June, just before Steward’s CEO decamped to Paris to take in the Olympic equestrian competitions at the Palace of Versailles, Massachusetts health officials confirmed that UnitedHealth had formally backed out of the deal. Shortly after that, Steward’s lawyers filed a motion asking the judge to authorize the company to sever its contracts with CareMax, and the judge scheduled a hearing to discuss the matter.
But on Wednesday, after news of Stewardship’s new owner broke, CareMax filed a new motion claiming that Steward had been ignoring its attempts to work “in earnest to try to … implement an orderly transition of services” for 160,000 Medicare Advantage patients in favor of essentially pretending they’d never heard of CareMax. The motion argued that Steward’s attempt to summarily cancel the contracts violated both a noncompete agreement de la Torre signed when he took ownership of his shares in CareMax, and “sound business judgment.”
The CareMax dispute is not the only thing dogging Steward’s attempt to monetize its physician network. There’s also an ongoing conflict with its longtime client Brighton Marine, a veteran services nonprofit in Massachusetts that pays Steward a flat monthly fee—which totaled just over $140 million in 2018, the last year for which the Prospect could find a number—to provide medical care to its members. Brighton terminated its contract with Stewardship in April after the hospital chain failed to answer basic questions about its financial resources, but after it filed for bankruptcy protection in May, Steward threatened to sue Brighton and any alternative medical providers to which it attempted to transition services if it went ahead with the termination. In addition, filings also note that Stewardship has more than $800 million in secured claims against it, mostly held by the private credit firms that are financing Steward’s bankruptcy. Those claims will get wiped out by the bankruptcy sale, but it won’t be easy to unburden the medical network’s reputation from the painful memories of what has been.
IF YOU WONDERED ABOUT THE JUDGMENT OF THE BUYER that would attempt to snap up such a beleaguered asset, you may not be shocked to learn that Rural Healthcare Group has deep ties to UnitedHealth, is owned by a private equity firm, boasts no physicians in leadership posts, and is helmed by three men whose careers exemplify the dystopian nature of the Medicare Advantage medical arms race.
Sloan et al. founded RHG in 2022, allegedly to “build the nation’s most esteemed group of rural primary care practices.” (Underscoring the relentless disingenuousness of the declarations of private equity executives, virtually all of Stewardship’s practices are located in large metropolitan regions, predominantly on the East Coast.) The company now consists of 14 clinics in Tennessee and North Carolina, of which at least four were purchased by the for-profit hospital giant HCA.
It is unclear whether RHG’s private equity owner, the middle-market firm Kinderhook Industries, intends to fund the purchase of Stewardship with cash or debt, but before now the firm has been most frequently associated with buyouts of small regional waste management services, so they should have no trouble overseeing the medical needs of hundreds of thousands of Americans in 11 states.
Garofalo and his colleagues are not so sure. “Two months ago Ed Markey and Elizabeth Warren were all up in arms about Steward and how ‘we have to prevent this from happening again,’” he mused. “Well, it’s happening! If this whole Steward issue was caused by private equity, how can they possibly think that selling the Stewardship group to private equity is a good idea? And with a management team from the AI program that kicked everyone out of rehab? It’s like whack-a-mole.”
Referencing a recent Boston Globe story in which de la Torre defended himself by claiming to have “saved” hospitals that were financially unsustainable, Garofalo continued.
“Say there’s a patient who’s really sick and desperately needs help or they’re not gonna make it. What Ralph did, from a medical perspective, was he came in at the very last minute, put the patient on life support, and then after a while when they didn’t get better he turned off the machines so he could harvest their organs for transplant. But technically, you know, he ‘saved’ them.”
*With that name, it shouldn’t surprise you to learn that he is the great-grandson of legendary urban planner Robert Moses!
