Senate hearing on Steward Health Care depicts consequences of hospital management decisions (updated-2)

Note: This story was updated Sept. 26 and Sept. 30 with additional news, including a lawsuit filed by now-former CEO Ralph de la Torre.

After the CEO of Steward Health Care rebuffed a subpoena to appear Thursday at a Senate committee hearing, members and invited panelists used the occasion to bemoan the company’s hospital ownership record and the private equity healthcare model generally.

Ralph de la Torre, MD, the CEO, spurned the summons to appear before the Senate Health, Education, Labor and Pensions (HELP) Committee. Sen. Bill Cassidy (R-La.), the committee’s ranking member, said he and Chair Bernie Sanders (I-Vt.) would seek a resolution to authorize criminal-contempt proceedings.

The Sept. 12 hearing had been organized to examine the impact of Steward’s management decisions and recent bankruptcy on patients, hospital staff and the healthcare ecosystem.

“We need to keep this [type of impact] from happening again,” said Cassidy, himself a physician. “That means we need answers, and it seems the principal to give that answer is Dr. de la Torre, and this is what our bipartisan work has been about — answers for our constituents, answers to inform legislative solutions.”

A sore point for healthcare policymakers and stakeholders is the extent to which de la Torre and partners allegedly profited while the hospitals they ran struggled.

Twists and turns

Steward has been in the news for several months. The company once owned 31 hospitals in eight states but has looked to sell everything after filing for bankruptcy protection in May with roughly $9 billion in debt.

Two facilities in Massachusetts had to be closed in late August after the company announced a month earlier it had not received qualified bids. Control of four other Massachusetts hospitals was to be transferred to new operators via a state-brokered deal, and the state seized another hospital through eminent domain, with the intent to sell quickly to not-for-profit Boston Medical Center.

Recent days have brought promising news. Two Ohio hospitals that were set to close this month received a last-minute reprieve, with Michigan-based Insight Health Systems agreeing to take control of Trumbull Regional Medical Center and Hillside Rehabilitation Hospital. The “immediate goal” is to keep the hospitals open, Insight said in a statement.

In addition, Medical Properties Trust (MPT), the real estate investment trust (REIT) that has owned Steward’s properties since a controversial 2016 deal, announced it would forgive $7.5 billion in outstanding obligations in return for the health system’s assurance that it would not pursue litigation. The agreement permits Steward to retain $395 million in income from its sale of Melbourne Regional Medical Center and neighboring facilities in Florida to Orlando Health.

In the settlement document announcing the agreement, an advisor who is leading Steward’s restructuring said the company had only $21 million in available cash as of Sept. 6. Accrued payroll as of Sept. 11 was $27 million, which MPT agreed to pay, along with $5 million in hospital-level expenses. The settlement document also expresses support for the appointment of interim managers to take over funding and responsibility for Steward’s operations until a transfer of ownership at each hospital.

Harrowing times

The most dramatic impact of Steward’s financial and strategic decision-making has been on care quality and access, senators and panelists said. Sanders said federal inspectors have issued more than 30 warnings to Steward hospitals since 2019 for putting patients in immediate jeopardy, meaning death, injury or grave risk.

He noted Quincy (population 102,000) is the largest city in Massachusetts without an emergency department after Steward shuttered the unit in 2020, six years after closing all other departments at the hospital. Among several other examples Sanders cited was a 2018 closure in Youngstown, Ohio, that eliminated the city’s only labor and delivery unit.

Cassidy mentioned the case of Glenwood Regional Medical Center, a Steward facility in West Monroe, La. The state forced the hospital to operate at one-third capacity, which Cassidy said was attributable to management decisions that resulted in limited resources. He said a patient who could not be treated at Glenwood died while waiting to be transferred.

He also noted the hospital at one point employed 9% of community members, making it a pillar of the local economy, and one that has been disrupted. The workforce has shrunk from more than 1,200 employees to roughly 750.

Panelists at Thursday’s hearing included two nurse leaders who talked at length about clinical understaffing and constrained access to vital equipment in the years since Steward took over their Boston-area facilities. A recurring theme at the hearing was the resulting stress imposed on the wider healthcare system.

Ellen MacInnis, RN — who works at St. Elizabeth’s Medical Center, the hospital that was subject to eminent domain — noted one of the recent closures was Carney Hospital, in Dorchester, which saw more than 30,000 patients per year.

 “Where are they going to go now? We don’t have the capacity in Boston for this,” she said.

The role of PE

Sanders, not known for being sympathetic to corporate interests, noted that de la Torre received more than $16 million in annual compensation, the companies he owned made $250 million over a four-year period, and the PE firm that partnered with him made an $800 million profit. The Wall Street Journal reported Sept. 11 that the 2016 property sale brought a $719 million dividend for the firm and $71 million for de la Torre and his partners.

That firm, Cerberus Capital Management, formed Steward in 2010 after buying a group of struggling hospitals in Massachusetts. At the time, the move was hailed as a way to preserve access to care for local communities. Cerberus exited the deal in 2020, selling to a physician venture led by de la Torre, who had been overseeing hospital operations since Steward’s formation.

“The collapse of Steward Health Care is just one extreme example of the damaging role, in my view, that private equity is having on our healthcare system,” Sanders said.

Cassidy seems more amenable than Sanders to the PE model, saying the harm in the Steward case was instigated by the company’s leaders.

“Private equity did not cause the situation we are seeing today,” Cassidy said July 25 during the HELP Committee’s announcement that it would subpoena de la Torre. “In fact, robust private equity investment kept the hospitals afloat in 2010.”

In a lengthy statement issued in conjunction with a congressional hearing in April, Cerberus disputed several points of criticism, including that the property sale to MPT ended up hampering the health system.

“When our controlling interest concluded in 2020, Steward was financially healthy with substantial liquidity and in compliance with all financial covenants,” the firm wrote.

Sept. 26 updates

By unanimous consent, the Senate approved a contempt resolution against Steward Health Care CEO Ralph de la Torre. The resolution now will be forwarded for consideration by federal prosecutors.

The week before, a separate resolution unanimously approved by the HELP Committee authorized Senate legal counsel to file a civil motion compelling de la Torre to appear before the committee.

Sept. 30 updates

Ralph de la Torre announced his resignation as CEO of Steward Health Care and also sued the Senate HELP Committee and its members for violating his constitutional rights under the Fifth Amendment by filing the contempt resolution against him. He seeks a declaratory judgment that he cannot be compelled to testify and injunctive relief prohibiting the enforcement of a future subpoena.

The lawsuit, filed Sept. 30 in Washington, D.C., federal district court, states: “By weaponizing Congress’s civil and criminal contempt procedures in response to Dr. de la Torre’s invocation of his Fifth Amendment rights under the U.S. Constitution, the Committee has bulldozed over Dr. de la Torre’s constitutional rights and has sought to make him pay a steep price for invoking them — and in so doing, the Committee’s actions exemplify its blatant and unconstitutional attempts to chill and deter Dr. de la Torre from continuing to stand on his rights.”

On Sept. 28, de la Torre resigned from his position with Steward, effective Oct. 1. A statement put out by his representatives said the separation was amicable and on mutually agreeable terms.

With respect to Steward’s Massachusetts hospitals, the statement said de la Torre “believes Steward’s financial challenges put a much-needed spotlight on Massachusetts’s ongoing failure to fix its healthcare structure and the inequities in its state system.”