New York-based Cerberus Capital Management exited from ownership of Dallas-based Steward Health Care System in 2021, earning the $600 billion private equity firm a $700 million profit, but the move may have been a factor the health system’s dire financial straits. The sale back to the physicians of the health system created one of the largest physician-owned entities of its kind, but a string of financial issues have raised questions about the system’s viability.
The local system, whose headquarters overlook Klyde Warren Park, operates 33 hospitals, more than 25 urgent care centers, and 107 skilled nursing facilities while caring for 2.2 million patients annually. The system’s former North American President Dr. Sanjay Shetty sat down with D CEO Healthcare in 2021 and touted the system’s physician ownership and embrace of value-based care. Shetty left Steward last year to lead Humana’s CenterWell primary care and home health service lines.
News of Steward hospital closures or sales circulated and got the attention of Senator Elizabeth Warren and the rest of the Massachusetts Congressional delegation, who wrote a letter to Cerberus CEO and founder Steven Feinberg to express their concerns about the firm’s exit and how Steward’s current position may be connected. “We are particularly concerned about the extent to which Cerberus and its affiliates literally stripped out and sold the property from underneath these hospitals, creating hundreds of millions of dollars in profits for private equity executives, while leaving the facilities with long-term liabilities that are magnifying – if not creating – the current crisis,” they wrote last month.
So, how did we get here? Cerberus helped form the system in 2010 with the purchase of a Massachusetts nonprofit system, and revenue rose to $1.9 billion with 17,000 employees in 2012. More acquisitions made Steward the largest privately held health system in the country in 2017, with 36 hospitals in 11 states. Later that year, the system moved its headquarters to Dallas. In 2018, the system opened international hospitals in Malta.
A working paper from Cornell researchers details the impact of Real Estate Investment Trusts on healthcare, using Steward’s financial activity during this period as a case study. The paper found that the acquisitions left the system with a poor debt ratio that was compounded by the pandemic. In 2020, the system posted a $400 million net loss despite government funding.
In 2020, physicians purchased back a controlling stake in the health system via a loan from Medical Property Trust, which owned the real estate under the Steward Hospitals. MPT is the largest hospital landlord in the country, and became the largest creditor and part owner of the system. The Cornell paper was written before Steward’s financial troubles became newsworthy, but noted that if Steward failed to perform, MPT could be in trouble. Cerberus made its final exit in 2021, in what Bloomberg called “unusual,” where it came away with $700 million in profit.
Steward’s financial troubles became public a couple of years after Cerberus’s exit. In 2023, Steward sold a hospital and medical group in Utah and another hospital in San Antonio. In January, MPT went public with a release saying Steward owed $50 million in unpaid rent. MPT and Steward said they were working on a plan to stabilize the situation, and options included selling hospitals and looking for a third-party financial partner.
In early February, the system announced it was closing the Beaumont campus of The Medical Center of Southeast Texas, one of six facilities it owned in Texas. WFAA reported that Steward said the closing of the Beaumont hospital was separate from the financial issues and was due to underutilization, treating only 27 inpatients last year.
Cerberus wasn’t the only entity to receive a concerned letter from Massachusetts lawmakers. Following the announced closure of Steward’s New England Sinai Hospital and allegations that the system violated the False Claims Act, the state’s representatives wrote to Steward CEO Dr. Ralph de la Torre in late January. “The abrupt closure of Steward’s Massachusetts hospitals would significantly limit access to inpatient critical care and inpatient behavioral health care, as well as maternal and newborn health services in eastern Massachusetts,” the legislators wrote.
As part of the state’s safety net hospitals that treat residents on Medicare and Medicaid, they are worried that Steward’s financial issues could spell trouble for their constituency’s access to quality healthcare. They requested a briefing with system leaders to understand the company’s financial position and future plans. “The burden of Steward hospital closures would be borne primarily by the Massachusetts residents who already experience the greatest challenges accessing health care,” they wrote.
WBUR in Boston reported a statement from Steward saying the system has lost $22 million on the now-closed New England Sinai Hospital. The statement attributes the struggle to the 75 percent of patients funded by Medicare and Medicaid, which it says underpays for services. The system also noted that it pays taxes that nonprofit systems don’t have to pay.
The trouble isn’t just in New England. The hospital district in West Monroe, Louisiana, has hired a consultant to help find a purchaser for its Steward hospital, Glenwood Regional Medical Center. Physicians and employees expressed concern about the system’s financial stability, and the mayor said he wanted Steward out of the city.
WBUR reported that other Steward debts are on the horizon. One claim says the system owes healthcare staffing company ProLink Health Care $45 million after it placed 1,600 temporary healthcare workers in facilities across the country. Selling assets like the physician’s group or declaring bankruptcy have been mentioned as options for settling the system’s debt.
In her letter to Feinberg, she criticized private equity’s role in healthcare. “We have long been concerned about the nefarious role of private equity in our economy. Ownership by private equity investors increases health care costs and reduces quality of care, and private equity firms have played a role in the collapse of hospitals around the country, hurting communities and the health care workers and other staff that serve them,” she wrote. “The dire threat of Steward’s collapse appears to be a textbook example of the grave risks posed by a private equity takeover of the health care system.” The letter goes on to lament the contrast between Cerberus’s profits and the potential loss of jobs and healthcare options for residents near the hospitals. It includes a list of questions about Cerberus’s creation of and exit from Steward.
Cornell researcher Dr. Rosemary Batt highlighted that Steward doesn’t own the land underneath its hospitals, which is a significant hurdle to financial security. She put it succinctly to Becker’s Hospital Review. “It’s a house of cards. Yes, other health systems are struggling, but not this badly, because other healthcare systems own their own property. They’re not paying inflated rents that keep rising every year.”
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