BROCKTON — Private equity firms have been buying up hospitals and health care systems, like Steward Health Care, at an increasing rate over the past few decades, according to the Institute for New Economic Thinking.
This growing trend, however, has left patients, doctors, and local politicians concerned that the private equity business model, which consists of acquiring hospitals with the end goal of quickly extracting financial value to deliver large returns to investors, does not lend to high-quality patient care.
That couldn’t be clearer in the case of Steward. This now-bankrupt for-profit corporation owns eight Massachusetts hospitals, 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 care system from 2010 until 2020. In its 10-year ownership, Cerberus made about $800 million off its investment in Steward, while the hospital system fell further into debt.
Ownership changed hands again in 2020 when Cerberus sold Steward Health Care to a group of its physicians led by Steward’s CEO, Ralph de la Torre.
Now that Steward has filed for Chapter 11 bankruptcy, ownership of the company and its hospitals will change as the assets are sold.
Who buys hospitals?
Money from private equity invested in health care increased 20-fold from 2000 to 2018. It grew from less than $5 billion per year in 2000 to $100 billion per year in 2018, according to the Institute for New Economic Thinking.
In those 18 years, private equity firms closed roughly 7,300 healthcare-related deals totaling $833 billion — 70% of which occurred after 2010.
Private equity investments in the health care sector peaked in 2021. It is declining due to high interest rates and labor shortages, according to the Private Equity Stakeholder Project.
Still, many private equity firms continue to invest in hospitals and health care systems. In 2023, the Private Equity Stakeholder Project identified 1,135 health care related deals conducted by private equity firms, business development corporations, venture capital firms, private credit funds and other investors.
Of those deals in 2023, 148 were buyouts, 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 the private equity firm, Cerberus Capital Management, bought out the failing Caritas Christi Health Care system in Massachusetts.
A former nonprofit, Caritas Christi hospitals were founded in 1985 and consisted of six hospitals that catered to lower-income individuals. In 2010, Cerberus bought out the hospital system for $420 million, renaming it Steward Health Care and turning it into a for-profit organization.
In 2010, the nonprofit was $275 million in debt. When Cerberus acquired the company, they assumed that debt and agreed to pay Carita’s full pension liability of $200 million, ultimately assuming $475 million in debt through the deal, according to a 2021 paper published by the Center for Economic and Policy Research.
With a need to pay back investors, in 2016 — one year after Cerberus was freed from the regulatory oversight of the Massachusetts attorney general — Steward sold 37 of their 39 buildings and associated land to Medical Properties Trust for $1.25 billion.
According to the Center for Economic and Policy Research, Cerberus used the sale proceeds to pay dividends to itself and its investors, while leaving the hospitals to face steep lease contracts as they continued to operate. According to Steward’s bankruptcy court filing, they owe more than $6.6 billion in Medical Properties Trust lease obligations.
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, Steward Health Care transitioned ownership from Cerberus to a management group made up 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 Steward press release.
Who will buy Steward Health Care?
In March, Steward revealed plans to sell ownership to Optum, a part of the for-profit UnitedHealth Group, according to a Health Policy Commission notice of material change form that is under review.
According to the notice of material change form, the deal would involve Optum acquiring all issued and outstanding capital stock of Steward Health Inc., which includes the company’s primary care doctors and clinicians in nine states, including Massachusetts.
The financial details of the deal have not been publicly disclosed.
While the Health Policy Commission cannot block the deal directly, it can flag its findings to the state’s Attorney General and the Department of Public Health, who can.
Separate from the Optum deal, Steward plans to sell off all their Massachusetts properties by June 25.
