Massachusetts policymakers hope Steward Health Care’s Chapter 11 bankruptcy reorganization will expedite its exit from the state.
Steward Health Care filed for Chapter 11 Monday, a move some industry observers expected as the for-profit hospital chain’s outstanding rent and vendor payments piled up. State lawmakers in Massachusetts and elsewhere have worked to pass laws aimed at preventing a financial spiral akin to Steward.
Related: Steward Health Care files bankruptcy, owes top creditors $600 million
Here’s what to know about Steward and the bankruptcy filing.
How will Steward's bankruptcy affect hospital operations?
It’s too soon to tell. Steward said in a news release it does not expect any interruptions in its day-to-day operations, and its hospitals and physician’s offices remain open.
The U.S. Bankruptcy Court for the Southern District of Texas is tasked with trying to make creditors whole. Steward owes more than $600 million to its top 30 unsecured creditors, which includes UnitedHealth Group claims processing subsidiary Change Healthcare.
“The challenge here is that this is being conducted like a business bankruptcy, where there are a bunch of creditors and the job of the bankruptcy court is to pay off creditors,” said Christopher Koller, president of the Milbank Memorial Fund, which funds research aimed at informing state policy. “But unlike other businesses, the decision on the remaining assets has a significant impact on the public welfare.”
Could Steward's assets be sold?
Steward's broad network with more than 30 hospitals across eight states was generating interest from potential health system buyers, Medical Properties Trust said in February.
Steward is the largest tenant of Medical Properties Trust, which in 2016 bought Steward's real estate assets, along with a 10% ownership stake, from private equity firm Cerberus Capital Management.
The health system in March announced plans to sell its physician group, Stewardship Health, to UnitedHealth Group’s Optum. That proposal may affect operations at the Massachusetts hospitals.
As part of the bankruptcy process, Steward may be more likely to close hospitals outside of Massachusetts, where there tends to be less rigorous healthcare oversight, merger and acquisition experts said.
What led to Steward’s bankruptcy filing?
In 2010, Cerberus purchased Caritas Christi Health Care, a six-hospital Catholic health system in the Boston area, for $895 million and changed its operating model and name.
In 2017, a year after Cerberus inked the deal with Medical Properties Trust, Steward spent $1.9 billion to buy 18 hospitals in Arizona, Arkansas, Colorado, Louisiana and Texas from IASIS Healthcare. Cerberus sold its controlling stake in 2020, before the health system acquired — typically through debt financing — more facilities in Texas and Florida.
Last year, Steward closed Texas Vista Medical Center in San Antonio and sold five Utah hospitals to Chicago-based CommonSpirit Health.
Earlier this year, Steward closed hospitals in Beaumont, Texas, and Stoughton, Massachusetts. Steward allegedly owes at least $6.8 million in unpaid bills to two vendors, according to recent lawsuits.
Medical Properties Trust in January said Steward owed $50 million in unpaid rent. Steward also faces federal fraud charges for alleged violations of the Stark law, which prohibits physicians from making referrals that financially benefit the doctor.
A Medical Properties Trust spokesperson said in a statement Monday it has agreed to fund $75 million debtor-in-possession financing, which Steward is expected to use to ensure continuity of care and to accelerate hospital sales.
Why is there a focus on private equity in healthcare?
The operations of Steward, along with those of private equity-backed providers like Los Angeles-based Prospect Medical Holdings and U.S. Anesthesia Partners, have led to closer looks at corporate investment in healthcare.
Private equity supporters argue corporate investors have buoyed underfunded healthcare sectors with much-needed capital. Critics claim there is no place for private equity’s short-term, profit-oriented goals in healthcare.
Private equity was involved in nearly two-thirds of all provider transactions from 2019 to 2023, up from less than a third from 2018 to 2014, according to Massachusetts Health Policy data.
How does Steward play into efforts to oversee private equity in healthcare?
Policymakers are concerned that private equity investment in healthcare is associated with price increases, workforce cuts and quality declines, as some studies have shown.
The financial decline of Steward and Prospect has inspired new state laws designed to increase healthcare transaction oversight.
Massachusetts, Rhode Island, California, Indiana, New York, Connecticut and Minnesota are among more than a dozen states that have widened the parameters of healthcare transaction reviews and bolstered notification requirements. Some states have proposed or enacted laws that restrict private equity firms or hedge funds from investing in certain healthcare sectors and authorize state attorneys general to approve, deny or set conditions on healthcare transactions involving corporate investors.
As states focus on limiting merger and acquisition activity with private equity, more health systems may choose to file for bankruptcy, said Andrew McDonald, a healthcare consultant at consulting firm LBMC.
