St. Elizabeth Medical Center Bankruptcy

On May 5, 2024, Steward Health Care filed for Chapter 11 bankruptcy protection. At the time of bankruptcy filing, Steward Health Care owned hospitals throughout the country. However, the news and implications of the bankruptcy filing was felt most profoundly in Massachusetts. Afterall, Steward Health Care originated in Massachusetts in 2010 with the purchase of St. Elizabeth’s Medical Center from the Archdiocese of Boston.

This is a certainly a New England story involving New England players. Namely, Ralph de la Torre, MD, the former CEO of Steward Health Care who, before his entrance into business, was a cardiac surgeon at Boston Medical Center and Beth Israel Deaconess Medical Center. Governor Martha Coakley, the former Attorney General of the Commonwealth of Massachusetts who oversaw the formation of Steward Health Care, its purchase of the health system from the archdiocese, and its conversion from a non-profit to a for-profit model. Vermont Senator Bernie Saunders, who is presiding over the Senate hearings. Lastly, the Boston Globe Spotlight team.

Pre-Steward Health Care:

The story starts in 2008. At that time, Dr. de la Torre was working as a cardiac surgeon at Beth Israel. He was asked to be the CEO of Caritas Christi Health Care, the non-profit organization that owned St. Elizabeth’s. The company was an offshoot of the Archdiocese of Boston. The reason Dr. de la Torre was tasked with running St. Elizabeth’s was because the company was doing poorly and was carrying a substantial amount of debt. Under Dr. de la Torre’s leadership, despite the 2008 sub-prime mortgage crisis, the hospital was able to turn a substantial profit.

Dr. de la Torre had more grandiose aspirations than the short-term success he enjoyed. In 2009, Dr. de la Torre encouraged Cerberus, a private equity firm based in New York, to purchase Caritas Christi Health Care for $895 million. The purchase included paying off the pre-existing debt totaling $275 million and assuming responsibility for the $200 million pension fund. In exchange, Cerberus was able to change the company to a for-profit model under a new corporate entity, Steward Health Care, with Dr. de la Torre as the CEO.

Private Equity:

Then Massachusetts Attorney General Coakley approved the deal. She included several stipulations that limited Steward’s ability to acquire more facilities and take on more debt over the course of a five-year monitoring period. In 2015, after the conclusion of the five-year monitoring period, Steward was free to raise capital.

In 2016, Cerberus urged Steward to sell their real estate to a company named Medical Properties Trust for $1.25 billion. Steward would use the money to pay back Cerberus for their 2010 capital investment. Steward would then lease the properties back from Medical Properties Trust with escalation clauses that caused the rent to increase annually.

In 2017, Cerberus and Steward used the capital infusion to purchase a Tennessee based health system and added another 18 hospitals to their portfolio. They became the largest for-profit hospital operator in the country.

It’s at this point, in 2020, that Dr. de la Torre became greedy. Steward purchased Cerberus’ interest in the health system which was financed by a $335 million loan from Medical Properties Trust. Cerberus exited the picture, having made a $800 million total return on investment over the course of 10 years (roughly 90%).

Financial Problems:

Over the course of the next four years, things spiraled out of control for Steward. Medical Properties Trust was now Steward’s landlord and creditor. Steward was unable to keep up with their liabilities. It was reported by the Boston Globe that Steward was behind $50 million in rent owed to Medical Properties Trust. Steward tried to sell four out of their nine Massachusetts hospitals – St. Elizabeth’s, Holy Family, Nashoba Valley, and Norwood Hospital. They couldn’t procure any buyers. It got so bad that Steward was not even able to pay their vendors for medical equipment. Notably, in 2023, a 39-year-old new mother died because St. Elizabeth’s didn’t have the appropriate equipment to treat her bleeding liver. The equipment had been repossessed by one of their vendors for non-payment.

On May 5, 2024, Steward Health Care filed for Chapter 11 bankruptcy protection. Afterwards, in July of 2024, the US Attorney’s Office of Massachusetts opened a criminal investigation and Sen. Saunders commenced a Senate hearing. Dr. de la Torre failed to comply with two congressional subpoenas. He claims that his testimony would run afoul of the bankruptcy proceedings.

As it stands, the Commonwealth of Massachusetts has taken proactive measures to ensure the local hospitals are being operated. For example, the governor’s office oversaw the transfer of Holy Family Hospital to Lawrence General. St. Elizabeth’s Hospital was taken by eminent domain and is being transferred to Boston Medical Center. The outlook for Dr. de la Torre is not so positive. As recently as September 12, 2024, the Senate Committee voted to hold Dr. de la Torre in contempt.

This is certainly a cautionary tale of what happens when health systems are operated as a for-profit model. This is a classic example of profits over patients.

Links:

Inside Steward Health Care: A Boston Globe Spotlight Team report

Senate committee to vote to hold Steward Health Care CEO in contempt | AP News

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