Axios, Law 360 coverage of PESP Steward Health Care report
July 21, 2024
A new report from the Private Equity Stakeholder Project unraveled the corporate pillaging that led Steward Health Care to declare bankruptcy in May 2024. The report details how private equity firm Cerberus Capital Management, aided by hospital landlord Medical Properties Trust (MPT), extracted significant profits from a struggling health system even as the system financially struggled.
Axios and Law 360 both covered the PESP report and the policy recommendations put forth for lawmakers to implement in order to prevent such a bankruptcy from repeating itself in the healthcare industry.
Axios July 5, 2024: 1 big thing: Steward saga’s existential questions
“There’s definitely a constellation of factors, but the real estate play with Steward is, I think, the central component of what went wrong here. It was asset stripped,” said Mary Bugbee, PESP healthcare director told Axios. “And it’s one of the main reasons that these hospitals are not attractive to potential bidders, because they all have to renegotiate these burdensome lease arrangements with Medical Properties Trust.”
The Private Equity Stakeholder Project has recommended that states pass new change-of-ownership regulations for health care facilities, require more financial transparency from hospitals, ban or limit sale-leasebacks for hospital real estate and prevent hospital investors from paying themselves debt-funded dividends from health systems. – Axios
“As it stands right now, any hospital system in most states could just do this all over again,” Bugbee added.
Law 360 July 3, 2024: Steward Health Downfall Prompts Calls For Tighter Regs
PESP healthcare director Mary Bugbee told Law 360 that in general, the Steward situation is an outlier when looking at all types of bankruptcies. However, when one hones in on looking private equity-backed companies in the healthcare industry, Steward and its bankruptcy actually are not outliers. It’s business as usual for healthcare. companies backed by private equity firms and should serve as an example of what could happen to other PE-owned health systems.
Bugbee said Steward’s troubles can be traced back to its 2010 acquisition by Cerberus, saying regulators did not place strict enough conditions on the transaction and should have more carefully considered the potential impact of the real estate deal on patient care. Part of what allows private equity funds to gain control of hospitals or nursing homes is an absence of public funding, which leaves the door open to private entitles hunting for a distressed investment, Bugbee said. – Law 360
“A lot of hospitals are inherently unprofitable. When there’s no other buyer that wants to buy that hospital, it does feel like they’re saviors to some extent,” Bugbee told Law 360. “But when you have a safety net hospital that is not profitable, investors can pillage it.
“They can use debt to expand the system to pay themselves debt funded dividends, they can take the money and run, and hospitals are left holding the bag.”
Steward’s bankruptcy underscores how the US healthcare system allows private equity investors and others to put profits ahead of patients and community wellbeing. PESP urges policymakers to act decisively to pass legislation that safeguards hospitals from corporate pillaging and ensures robust oversight of private equity investments in healthcare. Failure to address these issues risks more tragic outcomes for patients, healthcare workers, and communities across the nation.
Read the full report at: pestakeholder.org/reports/the-
