Massachusetts Wakes Up to a Hospital Nightmare

Erstwhile Boston media darling Steward Health Care has been strip-mining hospitals for a decade now. The power elite may finally be paying attention.

Residents at Steward Health Care’s Carney Hospital in Dorchester, Massachusetts, called the graduate medical education accreditation agency to have the failing program shut down. IMAGE: WBZ NEWS

EDITOR’S NOTE:

Some private equity firms are wreaking havoc in communities where they have bought U.S. health care facilities. One of the most egregious examples is Steward Health Care’s hospitals in Massachusetts. The article below was written by Maureen Tkacik and published initially in The American Prospect.

- Wendell Potter

The group of fresh medical school grads knew something wasn’t right with Steward Health Care when they showed up in Dorchester, Massachusetts to start their residencies in Carney Hospital’s inaugural family medicine residency class during the summer of 2014 and learned the president who had recruited them had already been fired.

Soon afterward, a Steward administrator admitted the new family medicine clinic and the pediatric ward they had toured on their recruitment visit were never actually opening, and that the nearby hospital at which residents were supposed to learn how to deliver babies was being shuttered entirely. Shortly after that, they showed up to work to learn their program director had been fired. Ultimately, the residents decided to call the graduate  medical accreditation agency and get the program shut down.

“It was all smoke and mirrors...they had no intention of giving us any of the resources we needed to learn what we needed to learn or do a good job,” remembers a preventative medicine physician and former Carney medical resident, recalling an afternoon when a patient had a heart attack and she had to Google “how to operate an EKG machine” because she could not find a single nurse or technician in the building to help her. “It’s hard to convey how much of a crisis it felt like as a first-year resident,” another former Carney resident, family physician Stephanie Arnold, wrote in an essay for the Prospect last year about her experiences working for private equity owned health care providers.

It was not the first or last time Steward has been accused of making big, empty promises. In 2011, they promised the urologists of Brockton they were building a prostate cancer “center of excellence” at Good Samaritan Hospital: That never happened, though Steward apparently upgraded the ICU’s wiring, which we know because they allegedly skipped out on paying the contractor who did the job. In 2017, Steward told the government of Malta that it would turn the Mediterranean micro-state’s three aging hospitals into a hub for medical tourism, but instead they spent the 400 million euros they got for the job on … a lot of lawyers; an appeals court judge last fall called the contract a “simulation” designed “to draft contracts intended not to deliver quality medical service, but other things.” And in 2019, Steward promised the community of West Monroe, Louisiana, that Glenwood Regional Medical Center would become a leader in a “groundbreaking” new form of cardiac surgery; last fall, the state health department threatened to shut down the hospital after an inspection revealed it was so behind on its water, sewer, and utility bills its hot water had been cut off. State Rep. Mike Echols, who represents northern Louisiana and used to operate a large physician practice in the state, described Steward to the Prospect as “one of those corporate terrorists who come in and loot the ship and drain it dry.”

Indeed. Yesterday, Steward announced it would be closing a hospital it owns in Texas at 7 a.m. next Friday. Its New England Sinai Hospital is shutting soon after that. The company has hired the restructuring adviser AlixPartners, which is often a precursor to a Chapter 11 filing. Physicians say that few of its 30-some hospitals are in shape to survive. Carney Hospital has long been nicknamed “Carnage,” and a group of Steward hospitals formerly named Wuesthoff Health System are still widely known within their northeastern Florida community as “Worst Off.”

For years, officials in Steward’s home base of Massachusetts, where a media darling cardiac surgeon named Ralph de la Torre founded the hospital chain in 2010, had conspicuously little to say about the company that owns nine hospitals comprising more than 2,000 beds in the state. That changed this week, when the state’s 11-member congressional delegation, all Democrats, issued an unusual joint statement in response to a Boston Globe story about the company’s insolvency, demanding an explanation of its “financial position, the status of their Massachusetts facilities, and their plans to ensure the communities they serve are not abandoned.” Attorney General Andrea Campbell, who as a Boston City Council member had Steward’s neglected Carney Hospital in her district, offered an even more tepid comment on the matter to the public radio station WBUR: “We’re currently in problem-solving mode, willing to use every power available to us to protect these priorities, while looking to a time in the near future to seriously address how Steward got in this situation” (italics mine).

Uhh … call me maybe? (A message left with Campbell’s office was not returned.)

I happen to be one of quite a few observers who can tell you exactly how Steward “got in this situation.” For ten years, the hospital chain, which originated as an agglomeration of nun-operated Boston-area neighborhood hospitals known as Caritas Christi, was owned by the private equity firm Cerberus, which extracted more than $800 million in excess of its investment out of the hospitals, then left during the pandemic. Company founder de la Torre was left to “finish the job,” which took more than three years because de la Torre, despite his penchant for mega-yachts and private jets, kept getting new bailouts from an Alabama real estate investment trust called Medical Properties Trust. Last year, MPT finally started to run out of cash—in part because most of its other tenants were not a whole lot more solvent than Steward—and the Justice Department sued Steward for violating the Stark Law against physician kickbacks, the flouting of which appears in hindsight to have been the entire underlying premise of Steward’s business model, back when he pretended to have one. As it stands, the company hasn’t had so much as a chief financial officer in more than a year, though its president identified himself as the company’s CFO in a court filing in October.

Indeed, the mystery here is not “how Steward got in this situation” but what in God’s name took the state of Elizabeth Warren and Maura Healey so long to notice the brazenness at work in their proverbial backyard.

YOU CAN PROBABLY GUESS HOW THE “PRIVATE EQUITY” PHASE of this story went, especially given that Cerberus, named after the three-headed dog that guards the gates of Hell, has a reputation for sophisticated Mafia-style bust-outs. There’s a whole book on its disembowelment of the Anchor Hocking Glass Company of Lancaster, Ohio, a New York Times Magazine story on the (not-so-mysterious) “financial engineering mystery” of how it made hundreds of millions of dollars buying up 18 gun manufacturers and bankrupting all of them; a chapter of private equity scholars Eileen Appelbaum and Rosemary Batt’s Private Equity at Work chronicling its profitable liquidation of the department store chain Mervyn’s, etc. In its time running Steward, Cerberus sold off most of its real estate and other monetizable assets for about $1.5 billion, pocketed the vast majority of the proceeds, sued the Massachusetts state agency that collects health care data in lieu of complying with laws requiring hospitals to disclose their financial obligations, and finally moved its headquarters to Texas in 2018 in what seems like a pretty shameless attempt to avoid all the people they’d promised to invest $400 million in “bringing health care back to the community.” Finally in 2020, having quadrupled its money, Cerberus began to sell out.

Post-Cerberus, when Steward should have been in bankruptcy court, its story instead got much wilder. For some reason, de la Torre had so ingratiated himself to MPT founder/CEO Ed Aldag, whose $1.25 billion purchase of Steward’s real estate had enabled Cerberus to get its requisite windfall, that MPT kept plowing money into Steward for no apparent reason. MPT financed Steward’s purchases of dozens of Sun Belt hospitals and random international forays like the Malta venture, while lending money to help it make the $400 million-plus annual rent payments it owed back to MPT. The investment trust even lent de la Torre the cash to buy out Cerberus in 2021, after which the former cardiac surgeon issued Steward’s shareholders—who mostly consisted of de la Torre himself—a $110 million dividend. In all, MPT has shoveled at least $5.5 billion into Steward over the past eight years. MPT now claims it is owed $50 million in back rent by the health system, but a cash flow analysis by the REIT analyst Robert Simone, who has been covering MPT’s demise for the research firm Hedgeye, suggests Steward’s unpaid rent bill to MPT for the past two years alone totals at least $261 million.

What became of all this money? Well, we have a good idea what Steward didn’t do with it, because dozens of companies have sued it for not paying its bills. The angry creditors include a supplier of cadavers and body bags in Texas, an exterminator it hired to conduct a “bat eviction”of the ceilings above an intensive care unit in Florida, a California medical device supplier, nurse staffing agencies, and electrical contractors. A pizza shop in Brockton, Massachusetts, cut Steward off long ago, and a physician in Florida told the Prospect Steward still owes his practice more than $400,000 for treating its patients in 2021 and 2022. These unpaid bills have jeopardized patient safety in countless ways; The Boston Globe recently reported that a recently repossessed medical device could have saved the life of a patient who died at St. Elizabeth’s Hospital last fall.

It’s unclear, in part because Steward has refused to release financial statements to anyone who demands them despite having been ordered by the SEC to disclose them to MPT shareholders last year, what Steward has done with the money. We do have evidence that Ralph de la Torre bought a $40 million mega-yacht a few months after he paid himself an apparent nine-figure dividend, and that at some point in 2022 a vehicle called Sagamore Capital Management that is controlled by de la Torre’s close associate Robert Gendron acquired a Dassault corporate jet he supposedly uses for business purposes. We mostly know these things thanks to financial analyst Robert Simone, who writes about REITs for the trade publication Hedgeye and tracks the movements of de la Torre like more mainstream pundits track Taylor Swift and Elon Musk. A few weeks ago, on the day de la Torre sent an all-staff email blaming an influx of “undocumented immigrants” for Steward’s “challenging” year, Simone posted on X that his yacht was at that very moment off the coast of Ecuador.

We also know, thanks to forensic investigations conducted by Maltese media outlets in conjunction with the investigative journalism nonprofit behind the Panama and Paradise Papers, that Steward wired at least 5.9 million euros between 2017 and 2020 to a Swiss entity called Accutor AG that in turn sent payments to the former Maltese prime minister who facilitated Steward’s privatization of the nation’s hospitals. Financial statements obtained by the hedge fund research outlet Viceroy Research show that 230,000 euros were wired directly from an entity that shared an address with St. Elizabeth’s Hospital during the spring of 2019, with one payment landing two weeks after that hospital’s nurses held an informational picket to raise awareness of the 160 incident reports they had collected in the preceding months documenting specific cases in which Steward’s short-staffing had threatened patient safety.

ONCE UPON A TIME, DE LA TORRE WAS A DARLING of Massachusetts liberals. In 2008, shortly after taking the helm of the small hospital group that would become Steward, he invited the then-chair of the health care division of the Service Employees International Union to organize the hospitals. After former state attorney general Martha Coakley approved his sale to Cerberus, he thanked her by hosting a massive fundraiser at his house featuring Barack Obama. He and his wife Wing gave more than $43,000 to Massachusetts Democrats during the decade before his 2018 move to Dallas, including $1,000 to Maura Healey’s campaign that year for attorney general. In 2012, he defended the state’s “individual mandate” that had been the blueprint for Obamacare in Bloomberg Businessweek; the following year, the magazine profiled de la Torre in a piece that described Steward as “the business model for the Obamacare era.”

The premise of Steward as the poster child for Obamacare was its embrace of a business model called the “accountable care organization,” a virtuous-sounding structure through which doctors and patients were supposed to “coordinate” care to save money by keeping patients out of the hospital. De la Torre called Steward an “ACO on steroids,” and he promoted the model heavily in Massachusetts. With the help of a former Steward executive named John Polanowicz who was named the state’s health and human services secretary in 2014, de la Torre even convinced the health department to issue an amendment exempting ACOs from a 2008 building moratorium on cardiac catheterization labs, allowing Steward to build one at a hospital in Fall River, making way for one of the more profitable revenue streams in health care.

But as with the HMO before it, the ACO’s appeal to for-profit operators like Steward seemed mostly to stem from the “fraud and abuse” waivers ACOs receive from the Centers for Medicare & Medicaid Services, exempting doctors and hospitals within their systems from “certain specified fraud and abuse laws.” Four whistleblower lawsuits filed in Texas and Massachusetts allege that Steward executives abused those exemptions to the point of fostering a culture of fraud. In the Massachusetts case, physicians whose practices affiliated with Steward claim that they were punished and ostracized for allowing so-called “leakage”—that is, referring patients to specialists outside Steward’s hospitals, even if Steward offered no comparable services itself, like partial kidney removal or something called “high dose transperineal radiation iridium therapy” developed for late-stage prostate cancer patients.

Shortly after Steward bought an interest in a high-profile orthopedic surgery practice in Melbourne, Florida, its nearby Sebastian River Medical Center was one of just two hospitals in Florida to receive a grade of “F” from the Leapfrog Group, which monitors statistical outcomes to grade hospital safety. A few months later, two Steward executives and a former Cerberus executive named Jim Renna invited the CEO and CFO of the surgery practice to dinner at a local yacht club to discuss “actions that could be taken to benefit the partnership,” according to one whistleblower complaint; the surgeons got the message and started moving their joint replacements to Steward’s hospitals. Two other doctors recruited to work for Steward hospitals in Texas described in a separate lawsuit being “rocked by a disorienting array of schemes, self-referrals, upcoding, and greed … almost immediately” upon starting the job. One lawsuit filed by a prominent urologist that Steward recently paid $4.7 million to settle alleged that “Steward and Cerberus have wholly corrupted the ACO model.”

These days, many Steward hospitals have neither the staffing nor the necessary supplies to accommodate many profitable surgeries, according to a Florida physician who practices near several Steward hospitals. The physician forwarded an email from an HMO executive who said the hospitals lack even basic supplies like needles and linens, because “vendors won’t give them anything on credit.”

In January, I received an unsolicited email from a Steward nurse. “This company puts patients at risk on a daily basis,” it read. “This hospital is full of good doctors, nurses and other staff that genuinely care about patients and quality care but Steward makes it impossible to provide an environment that’s safe … I can’t in good conscience see this happening and not continue to do anything possible.”

A third doctor who previously worked with Steward and confirmed that the company pressured physicians to violate the Stark Law, said he had been contacted last year by an assistant U.S. attorney about Steward’s finances. Steward, he explained, “collect[s] money on a monthly basis from Medicare for [a program called ACO REACH] and they’re supposed to on a monthly basis pay providers with that money, but they haven’t done it in years as far as I know. I’m not sure who’s holding the money, but from what I understand the person on top of Steward has a mansion in Costa Rica, two yachts and two planes … This particular group seems to be immune from consequence.”

Editor’s note: An earlier version of this story identified by name one of the former Steward physicians who spoke to the Prospect. At the request of the physician and their current employer, we have removed the physician’s name.