News Release: Steward Financial Crisis Demonstrates Private Equity’s Threat to Healthcare


Jan. 31, 2024

Carter Dougherty

Steward Financial Crisis Demonstrates Private Equity’s Threat to Healthcare

Washington, D.C. – The sudden crisis in the Steward hospital system in Massachusetts is a cautionary – and outrageous – tale of how Wall Street’s predatory practices in health care can harm or destroy health institutions in the long term.

“The ill effects of being owned by Wall Street private equity firms can haunt hospitals years later,” said Robert Seifert, senior fellow at Americans for Financial Reform Education Fund, a national organization that advocates for the reform of private equity. “Private equity’s business model of extracting short-term profits from entities before selling them off can leave critical healthcare service providers worse off financially, with more money going to Wall Street and less toward long-term viability and patient care.”

Massachusetts state and federal policymakers are reacting this week to news of financial woes at Steward Health Care. An investigation by The Boston Globe published earlier this month revealed that Steward may need to shutter some of its Massachusetts hospital facilities. Four out of the nine hospitals Steward owns are considered safety net hospitals, and 70 percent of Steward’s hospitals’ patients are on Medicare, Medicaid, or some other government program, including the Health Safety Net.

The Massachusetts congressional delegation sent a letter to Steward executives demanding financial information from the firm. Sen. Elizabeth Warren issued an additional statement this week, expressing concern over reports of patient neglect and profiteering. A Senate panel has also launched a broader investigation into the role of private equity in hospitals.

Steward Health Care was created by private equity firm Cerberus Capital Management in 2010 after it gained control of several Massachusetts hospitals through a leveraged buyout. Cerberus pursued various strategies that drained cash from the company. For example, Steward sold off much of the real estate it owned to a REIT, forcing the hospitals to $400M a year in rent. It also paid itself dividends. Extractive transactions like these allowed Cerberus to exit the ownership with $800 million in profit while leaving the company heavily indebted, a major factor in the current crisis and one that critics have seen coming for years.

All this comes while there is already mounting scrutiny of private equity’s role in healthcare more broadly. A recent Biden administration initiative to lower healthcare and prescription drug costs called out private equity profiteering as a driver of higher costs and a threat to patient care throughout the sector.

Americans for Financial Reform Education Fund published a two part report in July of 2023 detailing private equity’s footprint in healthcare, and Federal policy solutions to address private equity abuses in the sector. Those recommendations include:

Reduce incentives to game Medicare payment rules through regulatory fixes that curb excessive overpayments in the Medicare Advantage program. Complementary legislative action could close payment loopholes that favor certain types of services, sites of care, and prescribing practices over others.
Step up enforcement of existing anti fraud laws by seeking maximum penalties for violations; identifying whistleblowers, such as physicians with negative experiences of PE ownership, to bring anti-fraud actions; increasing investigations of likely violations of laws prohibiting self-dealing; and better use and monitoring of individuals and entities barred from participation in Medicare and Medicaid because of past fraud convictions.
Strengthen antitrust laws and enforcement to address the PE strategy of small acquisitions that evade current federal merger guidelines. Executive branch agencies can update their merger guidelines to assess the wisdom of mergers from competitive, financial and public health perspectives; Congress can lower the financial thresholds for reporting health care mergers to antitrust agencies;
Shine a light on PE ownership of healthcare facilities and practices through regulatory actions requiring more extensive disclosure of ownership and financial relationships, and with greater public dissemination of this information.