Financial Missteps and Bankruptcy: The Rise and Fall of Steward Healthcare

Once a towering presence in the realm of for-profit hospitals, Steward Healthcare’s empire has largely unraveled following its bankruptcy declaration last May. At its zenith, the organization managed numerous hospitals across ten states, including Arizona’s Florence Hospital and St. Luke’s Behavioral Health Center. Following its financial collapse, many of these establishments have either been sold or shuttered.

Investigative journalist Hannah Levintova delved into the circumstances surrounding Steward’s downfall and its ramifications on patient care. Her investigation included scrutinizing over 450 legal cases against Steward, which involved allegations of malpractice, wrongful death, and personal injury, with 83 cases related to patient fatalities.

Exploring Steward’s For-Profit Model

MARK BRODIE: Hannah, how did Steward’s for-profit nature influence its fate?

HANNAH LEVINTOVA: The for-profit approach was pivotal. Initially, Steward was a small nonprofit hospital group in Massachusetts. This changed in 2010 when Cerberus, a private equity firm, acquired it, rebranding it as Steward. Their aggressive investment strategy prioritized rapid and substantial returns.

Private equity’s incursion into healthcare, including hospitals, is notable. Steward’s expansion was fueled by acquiring hospitals, often in lower-income or rural areas with high Medicare and Medicaid patient populations, which traditionally operate on thin margins. Cerberus’s strategy involved leveraging financial transactions, including real estate sales, to maximize their returns.

BRODIE: This seems risky, given hospitals’ typically tight margins. Could this have spelled trouble for Steward?

LEVINTOVA: Indeed, hospitals generally operate on lean budgets. Steward’s acquisitions in economically challenged areas compounded financial pressures. Cerberus’s strategy involved selling hospital real estate to a real estate investment trust (REIT), converting hospitals into tenants and boosting Cerberus’s financial returns.

Financial Strain and Steward’s Collapse

BRODIE: Did these financial maneuvers exacerbate Steward’s decline?

LEVINTOVA: Certainly. The cascade of financial transactions, notably loading Steward with debt, ensnared the company in ongoing financial turmoil. The executives and Cerberus profited through fees and transactions, while the hospitals struggled under escalating lease costs, disrupting operations.

BRODIE: What was the response from Cerberus or Steward?

LEVINTOVA: Communication was sparse. With Steward largely dismantled, responses to inquiries about the connection between business strategies and patient care issues were elusive.

BRODIE: You highlighted Steward’s $9 billion debt in bankruptcy. What does this encompass?

LEVINTOVA: The debt, a significant portion of which is unpaid rent, reflects broader financial mismanagement. Stories emerged of unpaid wages and repossessed supplies, highlighting systemic financial woes impacting patient care, such as critical medical devices being repossessed, endangering patient lives.