Steward Health Care
Steward Health Care was a large private for-profit health system headquartered in Dallas, Texas. It utilized an integrated care model to deliver healthcare across its hospitals and primary care locations, as well as through its managed care and health insurance services. At the start of 2024, Steward operated 33 hospitals and employed 33,000 people in the United States, however that number decreased significantly due to the company's May 2024 bankruptcy filing. Steward's international ventures included Steward Colombia, which operates four hospitals, and Steward Middle East, which operates in Saudi Arabia and the United Arab Emirates.
At its height, Steward was the largest private hospital system in the U.S., with 37 hospitals consisting of almost 8,000 inpatient beds, over 25 urgent care centers, 42 skilled nursing facilities, and a large physician network, in total employing about 42,000 people across the United States and Malta.
Steward began in 2010 in Massachusetts, when private equity firm Cerberus Capital Management acquired the failing non-profit Caritas Christi Health Care system. This move was led by Caritas CEO Ralph de la Torre, MD, a former cardiac surgeon who became founder and CEO of the new system, a position from which he resigned on October 1, 2024. Steward mainly operates in the United States, with locations across the country. Since 2016, Steward has fueled its national expansion with debt-driven mergers and acquisitions, largely financed through sale-leaseback deals with its principal landlord, Medical Properties Trust, in which Steward purchases hospitals and immediately sells the real estate to MPT in order to recoup costs, pay investors, and fuel further expansion, in turn entering into triple-net lease agreements with MPT to be paid by the hospitals.
Cerberus, having made a profit of about $800 million over 10 years, made its exit in 2020 by giving its shares in Steward to a group of Steward physicians led by de la Torre in exchange for a convertible bond worth $350 million. Steward is owned by said physicians and MPT. While Steward says that selling and leasing their hospital properties allows them to prioritize patient care, experts have described it as a contributing factor to the system's later financial difficulties and resulting patient care and safety concerns. Following months of reported financial issues and billions in unpaid bills, Steward filed for Chapter 11 bankruptcy on May 6, 2024.
Internationally, Steward is known for its role at the center of a corruption scandal in Malta, the result of a nullified public–private partnership to run and improve several of the island nation's public hospitals which has led to criminal charges against multiple former Maltese government officials. In May 2024, Maltese authorities recommended charges against CEO Ralph de la Torre and multiple other Steward executives in relation to accusations of bribery, misappropriation, and money laundering. Separately, Steward International has opened two hospitals in Colombia and performs consulting work in the Middle East with a plan to build a hospital in Saudi Arabia.
History
Steward Health Care was founded in 2010, when Caritas Christi Health Care was sold to New York private equity firm Cerberus Capital Management, with Caritas CEO and former Beth Israel Deaconess Medical Center heart surgeon Ralph de la Torre continuing as CEO of the new company.Pre-Steward
Caritas Christi Health Care, founded in 1985 under the ownership of the Archdiocese of Boston, was a non-profit healthcare system comprising six Eastern Massachusetts hospitals as well as a number of non-acute healthcare facilities across southern New England. Rife with financial difficulties for years, the Archdiocese had been in the process of trying to sell the health system, most recently to Catholic health system Ascension in a bid that fell through in mid-2007. Following these failed attempts, Massachusetts Attorney General Martha Coakley commissioned a report from an outside agency to review Caritas' finances and make recommendations for its future. This report, published in March 2008, made several recommendations, including that the Archdiocese cede control of the system to an independent board of directors, retaining control only over religious matters. According to Coakley, the complexity of operating a hospital system had, at that point in time, led "virtually all religious organizations throughout the nation to transfer control to lay boards."With the Archdiocese's agreement, an independent board was created. Still, Caritas did not have a CEO—its previous CEO had resigned in 2006 amid allegations of misconduct. The new board then began searching for a new leader for the system. That year, cardiac surgeon Ralph de la Torre, who just the previous year founded and became CEO of Beth Israel Deaconess Medical Center's Cardiovascular Institute, began seeking opportunities to lead a hospital. Connecting with the Archdiocese through Jack Connors, a mutual acquaintance, de la Torre met with the Caritas board of directors and was chosen to be their new CEO. Spending his first year at Caritas restructuring the system, de la Torre saw the system turn from a loss of $20 million in 2008 to an income of $31 million in 2009, despite the 2008 financial crisis. Despite the short-term success, de la Torre believed Caritas' long-term prospects depended on a significant cash infusion—particularly to preserve jobs and fund the system's pension plan, which was uninsured and had been frozen due to lack of contributions by Caritas.
Coinciding with de la Torre's revamp of Caritas, 2009 saw private equity firms begin to show increased interest in healthcare investments in anticipation of passage of the Affordable Care Act. Firms saw the potential for increased profits given both the expected increase in demand for hospital services by newly insured patients and the ACA's switch from fee-for-service to capitated and bundled payment models. These new models aimed to rectify fee-for-service's unintended incentivization for providers to perform or recommend procedures or services which may not have been medically necessary in order to increase income. Intended to control costs and increase quality of care, the new payment models further provided private equity firms and other investment groups with opportunities to maximize returns through strategies such as cutting costs and taking on more patients.
De la Torre sought one of these firms as a potential investor, and in 2009 met with Robert Nardelli, an executive at Cerberus and former CEO of Chrysler and Home Depot. Nardelli was impressed with de la Torre's energy and expertise, describing him as having a "tremendous edge." The conversation led to a formal proposition for Cerberus to purchase Caritas and convert the system to for-profit.
Prior to finalization, the transaction required approval from the state Attorney General—mandated by state law for any changes in tax status from non-profit to for-profit. AG Coakley approved the deal with four main stipulations, requiring that Cerberus:
- pay off Caritas' debt of approximately $275 million and assume liability for the system's full pension valued at about $200 million
- invest $400 million in capital expenditures
- maintain majority ownership and not close or sell any hospitals for 3–5 years
- not take on debt for the purpose of dividends
In addition, Steward entered into a binding contract with the Archdiocese, named the "Stewardship Agreement," requiring that Steward employ a vice president for Mission and maintain at each hospital an ethics committee in order to ensure the Caritas hospitals maintained Catholic identity. The agreement stipulated that in the event that Steward or the Archdiocese terminate the agreement, by their own discretion or by sale, closure, or transfer of the hospitals, Steward must remove all "symbols of Catholic identity," return all religious items to the Archdiocese, and make a $25 million donation to a Massachusetts charity designated by the Archdiocese. This agreement would not apply to any future facilities acquired outside of the original Caritas organization.
Being an outlier in a state known for non-profit healthcare, Steward was a controversial company from the beginning. De la Torre was regarded by many early on as an ambitious and highly influential figure in healthcare, having goals of building the company on a national level. He stood out as one of the few people willing to invest millions into the system's troubled hospitals, which mostly serve low-income populations who would struggle to access healthcare without them. However, three years later, Steward was reported to be continuing to lose money and multiple attempts to expand outside of Massachusetts had failed. While Steward would eventually achieve its goal of expanding to other states, the first several years focused on in-state growth.
2010–2015: First acquisitions and closures
In September 2011, AG Coakley approved Steward's acquisition of Morton Hospital in Taunton and Quincy Medical Center, both of which were previously non-profit facilities at risk of closing due to financial struggles. The deal required, among other commitments, that both facilities stay open for at least 10 years.In November 2011, Steward took its first step into the type of sale-leaseback deals that would partially define its long-running business model when it put 11 of its medical office buildings up for sale with the intent of leasing the properties for continued use. Consistent with earlier deals with the state, Steward reported that all proceeds would go to hospital operations. Steward justified the sale by claiming that being a landlord to its own physicians created compliance issues, as well as stating that "we’re not a real estate company. Our focus is on running hospitals and taking care of our patients." Thirteen properties were ultimately sold to Healthcare Trust of America, a real estate investment trust, the next year for $100 million. The triple-net lease entered into by Steward would see doctors and hospitals pay rent for the buildings while still being responsible for property insurance, taxes, and maintenance.
Despite the 2011 agreement to keep Quincy Medical Center open, Steward announced in November 2014 that the hospital would close by the end of the year. Steward cited operating losses mostly attributed to a surplus in patient beds in the region, coupled with patients being referred more often to nearby South Shore Hospital in Weymouth and Beth Israel Deaconess Medical Center's Milton campus. The next month, Steward and the state Department of Public Health reached a deal to keep the hospital's emergency department open until the end of 2015. The emergency room ultimately stayed open until November 2020, almost five years longer than planned.
Operations at Steward's Carney Hospital in Dorchester appeared to benefit from Quincy Medical Center's closure, seeing 125 QMC employees transfer to Carney, including several physicians. Steward reported a 16 percent increase in admissions and a 21 percent increase in outpatient visits in 2015, and new hospital president Walter J. Ramos said the hospital was expecting to break even by the end of the year following several years of losses.