Steward Healthcare blasted at federal hearing as ‘the personification of an absence of morality’

BOSTON — Fourteen years ago, some hailed Cerberus Capital Management as “saviors” for funding the takeover of nine troubled Massachusetts hospitals owned by Caritas Christi. That acquisition led to the creation of Steward Healthcare, which has since grown into the largest, private, for-profit hospital group in the country.

But in recent years, profit has been harder to come by for Steward. The company blamed unfairly low Medicaid reimbursements and the COVID-19 pandemic as reasons for closing New England Sinai Hospital in Stoughton this week.

But critics say Steward engaged in a series of practices over the years that set the Massachusetts portion of the chain up to fail — most notably the sale of hospital real estate, which forced each institution to then pay rent to the landlord, Medical Properties Trust.

The sale of that real estate netted $1.25 billion in 2016. But at a U.S. Senate subcommittee hearing in Boston, Senators Edward Markey and Elizabeth Warren said those funds weren’t used to shore up local hospitals — but rather, in part, to pay Cerberus shareholders.

Thus, they charge, is an illustration of the danger of allowing private equity firms to buy into the healthcare system — without some sort of regulation.

“We need more transparency in the healthcare system, we need more accountability,” said Sen. Markey. “We need to make sure private equity cannot come into a state and loot the healthcare system for personal wealth and leave behind a system that cannot provide adequately for the citizens of that state.”

Steward, the Senators said, is an example of how such an investment can go wrong. Because those “financially troubled” hospitals acquired in 2010 are troubled once again — to the point there’s no guarantee they won’t follow New England Sinai into failure.

“I am very concerned that hospitals will close,” said Sen. Warren. “They have one last asset and that is the Steward Doctors Practice.”

That physician group is worth hundreds of millions of dollars and Steward has a buyer in Optum, another for-profit healthcare concern. Steward hospitals in Massachusetts reportedly owe millions in back rent payments to Medical Properties Trust — but Warren said the sale to Optum may not help with that.

“There’s no reported guarantee that a single penny of that payment would go into the hospitals themselves,” she said. “Nor is there any report that they would keep the hospitals open.”

Markey and Warren favor close scrutiny of the proposed deal, to ensure patient care doesn’t take a hit.

Wednesday’s hearing focused on Steward — indeed, there was an empty chair reserved for the company’s Chairman, Dr. Ralph de la Torre — but participants covered the overall role of private equity in healthcare.

Eileen O’Grady of the Private Equity Stakeholder Project testified that private equity acquisitions tend to follow a playbook — including short-term ownership and maximization of profits through cost-cutting. In the case of Steward, Cerberus exited the company four years ago — reportedly netting $800 million in profit for its 10-year involvement.

Others testified that cost-cutting at for-profit hospitals means loss of staff — especially senior staff — as well as reductions in the purchase of vital supplies.

Dr. Donald Berwick of the Institute for Healthcare Improvement testified that on the revenue side, “upcharging” Medicare is a common practice — to the tune of $80 billion a year.

How does that work? By dishonest coding when billing, Warren charged.

“Theoretically, they have to follow the law on their charges,” explained Sen. Warren. “They actually hire people to examine how to turn a cough into pneumonia in terms of coding. And they do that over and over and over until they suck billions of taxpayer dollars out of the system.”

Though de la Torre wasn’t at the hearing, he took plenty of heat.

“Ralph de la Torre is the personification of an absence of morality in the stewardship of a hospital,” Markey said. “And we’re seeing that now across the Commonwealth.”

Markey said he hopes to make de la Torre and Steward nationally famous as examples of the danger of allowing private equity to take over healthcare systems. He and Warren have both introduced legislation to regulate the practice.

“There should not be an open invitation to come loot any of our hospitals in Massachusetts or anywhere else in America,” said Warren. “Right now, they operate with virtually no restrictions and we can put a stop to that.”

Steward Healthcare declined to comment on Wednesday’s hearing.

This is a developing story. Check back for updates as more information becomes available.

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