One day after 60 Minutes aired a laudatory story about the efforts of an executive at KKR to promote partial employee ownership at firms he takes over, the more common consequences of private equity were on display in the announcement that Steward Health Care was filing for Chapter 11. The company then put its 31 U.S. hospitals up for sale.
Bankruptcy was the unsurprising destination for a company that has been on a downward trajectory since 2010, when Cerberus Capital Management took over what had been a Catholic non-profit hospital chain known as Caritas Christi Health Care and turned it into a for-profit operation. As is common in private equity deals, the new business assumed the cost of the acquisition.
It appeared that Cerberus was less interested in turning a profit and more focused on looting the company. It accomplished this by selling the firm’s facilities for over $1 billion to a real estate investment trust, which then started collecting hefty rents from Steward while Cerberus and its investors reaped hundreds of millions of dollars in gains. While Steward went deeper into debt and struggled to pay its bills, Cerberus exited the company in 2020.
While Steward’s financial woes have received a fair amount of coverage, it is also worth pointing out how the company’s ordeal with private equity ownership and its aftermath is also reflected in its dismal compliance record.
As shown in Violation Tracker, Steward has racked up millions in regulatory penalties since Cerberus converted Caritas Christi. In 2020, for example, Steward Holy Family Hospital in Massachusetts paid a penalty of more than $6 million to the U.S. Department of Health and Human Services for failing to maintain physician certifications, recertifications, and treatment plans for inpatient psychiatry services in violation of Medicare billing requirements.
In 2022 Steward paid over $4 million to settle a case brought by the Justice Department alleging that the Steward Good Samaritan Medical Center in Brockton, Massachusetts made improper payments to a local urology practice for referring patients. The payments were supposed to compensate the practice to operate a Prostate Cancer Center of Excellence at the hospital that did not actually exist.
In 2016 the Steward Carney Hospital in Dorchester, Massachusetts was fined by OSHA for failing to provide puncture-resistant gloves to staff members in the psychiatric unit who were required go through patient belongings where sharp objects such as knives and needles had been found.
In 2017 Steward acquired IASIS Healthcare, which had its own tainted record, which included a penalty of $1.5 million for implanting cardiac devices in Medicare patients who were not eligible for the procedure.
For-profit hospitals were not a good idea to begin with, but adding private equity to the mix only makes things worse. Steward is a glaring example of how PE deteriorates both working conditions for hospital staff and the quality of care for patients. If its hospitals fall to find responsible buyers, entire communities may suffer adverse consequences as well.