Who will buy a bankrupt and indebted hospital group?

BROCKTON – Private equity firms have increasingly purchased hospitals and health systems like Steward Health Care in recent decades, according to the Institute for New Economic Thinking.

However, this growing trend has raised concerns among patients, physicians and local politicians that the private equity business model, which involves acquiring hospitals with the end goal of quickly generating financial value to generate high returns for investors, does not lend itself to loans high-ranking companies. high quality patient care.

This couldn't be clearer in Steward's case. This now-bankrupt for-profit company owns eight hospitals in Massachusetts, including Good Samaritan Medical Center in Brockton, Morton Hospital in Taunton and Saint Anne's Hospital in Fall River.

Cerberus Capital Management, the New York-based private equity firm that founded Steward, owned the health system from 2010 to 2020. During its decade of ownership, Cerberus earned about $800 million on its investment in Steward, while the hospital system continued to fall into debt.

In 2020, Cerberus changed hands again when Cerberus sold Steward Health Care to a group of its physicians led by Steward CEO Ralph de la Torre.

Now that Steward has filed for Chapter 11 bankruptcy, the ownership structure of the company and its hospitals will change with the sale of the assets.

Who buys hospitals?

According to the Institute for New Economic Thinking, private equity money invested in healthcare increased 20-fold from 2000 to 2018. They grew from less than $5 billion per year in 2000 to $100 billion per year in 2018.

During those 18 years, private equity firms completed around 7,300 healthcare deals worth a total of $833 billion – 70% of which occurred after 2010.

Private equity investments in the healthcare sector peaked in 2021. According to the Private Equity Stakeholder Project, they are in decline due to high interest rates and labor shortages.

Still, many private equity firms continue to invest in hospitals and health systems. In 2023, the Private Equity Stakeholder Project identified 1,135 healthcare transactions completed by private equity firms, business development companies, venture capital firms, private credit funds and other investors.

Of those deals in 2023, 148 were acquisitions, which is what private equity firm Cerberus Capital Management did with Caritas Christi Health Care in 2010, effectively creating Steward Health Care.

A Debt-Driven Acquisition: How a Private Equity Firm Came to Own Steward Health Care

Steward Health Care was founded in 2010 when private equity firm Cerberus Capital Management purchased the failing Caritas Christi Health Care system in Massachusetts.

The Caritas Christi Hospitals, a former nonprofit organization, was founded in 1985 and consisted of six hospitals that cared for people with lower incomes. In 2010, Cerberus purchased the hospital system for $420 million, renamed it Steward Health Care and converted it into a for-profit organization.

In 2010, the nonprofit had $275 million in debt. When Cerberus acquired the company, they assumed that debt and agreed to pay Carita's $200 million pension liability in full, ultimately taking on $475 million in debt through the deal, it says in a 2021 paper published by the Center for Economic and Policy Research.

Needing to pay back investors, Steward sold 37 of its 39 buildings and associated land to Medical Properties Trust for $1.25 billion in 2016 — a year after Cerberus was exempted from oversight by the Massachusetts attorney general.

According to the Center for Economic and Policy Research, Cerberus used the sale proceeds to pay dividends to itself and its investors, while hospitals faced expensive leases to continue operations. According to Steward's bankruptcy court filing, they owe more than $6.6 billion in lease obligations from Medical Properties Trust.

In 2020, Cerberus sold Steward Health Care to a group of its physicians, leaving the company's debt in their hands.

Who owns Steward Health Care now?

Steward announced in 2020 that Steward Health Care had transferred ownership of Cerberus to a management group composed of Steward Health Care physicians, including the company's CEO, Dr. Ralph de la Torre.

Currently, the physician group owns 90% of the company and Medical Properties Trust owns the remaining 10%, according to a press release from Steward.

Who will buy Steward Health Care?

In March, Steward announced plans to sell ownership of Optum, part of the for-profit UnitedHealth Group, according to a Health Policy Commission notice of material changes that is currently under review.

According to the notice of material change, the transaction would mean that Optum would acquire all of the issued and outstanding capital of Steward Health Inc., which includes the company's primary care physicians and clinicians in nine states, including Massachusetts.

The financial details of the deal were not publicly disclosed.

While the Health Policy Commission cannot directly block the deal, it can report its findings to the attorney general and the Department of Health, which can.

Separate from the Optum deal, Steward plans to sell all of its Massachusetts properties by June 25.

csibon

Who buys hospitals?

A Debt-Driven Acquisition: How a Private Equity Firm Came to Own Steward Health Care

Who owns Steward Health Care now?

Who will buy Steward Health Care?

Anna Harden

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Who buys hospitals?

A Debt-Driven Acquisition: How a Private Equity Firm Came to Own Steward Health Care

Who owns Steward Health Care now?

Who will buy Steward Health Care?

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