Steward Health Care, a for-profit health system that serves thousands of patients in Eastern Massachusetts, is in such grave financial distress that it may be unable to continue operating some facilities, according to public records and people with knowledge of the situation. The fast-moving crisis has left regulators racing to prevent the massive layoffs and erosion of care that could come if hospital services were to suddenly cease.
Steward runs nine Massachusetts hospitals, mostly in Boston suburbs and underserved cities from the Merrimack Valley to the South Coast. But the national operator has shown escalating financial difficulties for at least the past three years, according to public records. This month, Steward’s landlord revealed in a news release that the health system hadn’t been paying its full rent for months and would contemplate selling off hospitals nationally.
In a statement, Steward blamed its challenges in part on the relatively low rates it receives for services to Medicaid patients. And even for patients with more lucrative commercial insurance, Steward said, its hospitals still are paid less than what academic medical centers get.
“This gap has only continued to increase and most community hospitals — including Steward hospitals in Massachusetts — are suffering losses that jeopardize their ability to continue to offer services,” Steward said in a statement.
Steward did not answer specific questions about its plans by press time, saying it needed more time to gather information. According to a person with direct knowledge of the situation, Steward has told state regulators that it has until the end of the month to make a plan that will satisfy its lenders.
In ongoing conversations with the state, Steward has requested state money, voiced a desire to transfer ownership of some hospitals, and at times said it may have to close some facilities, according to the person, who asked not to be named due to the sensitive nature of ongoing conversations. In December, Steward publicly announced it will close its rehabilitation hospital in Stoughton.
The system has not publicly announced any further closures, as would be required by state regulations, and the contours of the state’s response remain unclear. Nonetheless, the specter of more shuttered facilities is raising alarm throughout the health care industry.
While Steward is a wide-ranging organization that includes physicians and specialists, state officials and other health industry executives have been especially concerned about the company’s hospitals.
Steward’s facilities include Good Samaritan Medical Center in Brockton, St. Elizabeth’s Medical Center in Brighton, and Saint Anne’s Hospital in Fall River.
Statewide, hospitals are already struggling to accommodate all the patients coming to them for care, and a further reduction in capacity could create dangerously long wait times and overwhelm remaining facilities. In the 12 months ending September 2022, Steward’s Massachusetts hospitals reported that they admitted more than 46,000 patients.
Company officials said that 70 percent of Steward’s patients are covered by Medicare and Medicaid. Closures could make it harder for this vulnerable population to access care.
Steward has 33 community hospitals across nine states, and employs more than 40,000 people. In Massachusetts, only two companies — Mass General Brigham and Beth Israel Lahey Health — operate more hospitals.
“If a failure of Steward’s Massachusetts hospitals were to occur, the impact for the rest of the health care system in the state could be severe,” said Ellen Lutch Bender, a Boston-based health care consultant who has been advising hospitals here on the ongoing capacity crisis. “Our hospital system is overburdened now and there’s no wiggle room to accommodate for the increased patient demand that would be brought on by shuttering the Steward hospitals.”
Governor Maura Healey’s administration confirmed that it has been in talks with Steward over its financial situation.
“We are exploring all options to ensure that patients across Massachusetts continue to have access to the care they need and that our health care system is stable,” said Karissa Hand, Healey’s press secretary.
Robbie Goldstein, commissioner of the Department of Public Health, said the agency was closely monitoring and working with Steward.
“When health care facilities or services close, we are always concerned about any potential disruption to patients, health care workers, families, and communities,” he said.
For years, the health system has not filed financial disclosures that other hospitals routinely provide to the state. Steward claims the state has no statutory authority to collect confidential business information that it will not keep private. Whether it will ever have to is the subject of ongoing litigation between the state and Steward.
Even without financial disclosures, public records reveal some issues. A Globe review found Steward was the subject of at least 14 Massachusetts lawsuits filed by vendors and employees over unpaid invoices since 2022, according to state court records. The sums involved in those disputes ranged from thousands to tens of millions of dollars.
Internal signs have also hinted at problems. In a memo sent this month and obtained by The Boston Globe, Steward acknowledged “2023 was a tough year.” The company said its financial problems are due to rising interest rates and labor costs, an increasing Medicaid population, and difficulty collecting bills.
While Steward is a private company, public filings from its landlord, Medical Properties Trust, have also raised alarms.
On Jan. 4, Medical Properties Trust said in a press release that Steward had delayed paying a portion of its September and October rent to the company, and had continued to make partial monthly rent payments. By Dec. 31, total unpaid rent under its lease with MPT was approximately $50 million.
Medical Properties Trust had agreed to provide a bridge loan of $60 million to Steward. But it said that as part of the plan, Steward was pursuing “the potential sale or re-tenanting of certain hospital operations as well as the divestiture of non-core operations.”
Steward is not alone among hospitals facing financial stress over the past few years. In its statement, Steward pointed out that many community hospitals in Massachusetts specifically have struggled.
“While we are pursuing inequities and our aggressive advocacy for fairer reimbursements, Steward is advancing an action plan to strengthen its liquidity, restore its balance sheet and put the tools necessary in place to continue forward as a key provider of healthcare services to our patients, communities, physicians, and employees,” the statement said.
Despite its national footprint, Steward’s genesis was in Massachusetts. Private equity firm Cerberus Capital Management created the company in 2010, starting with the purchase of several Massachusetts hospitals from Catholic system Caritas Christi Health Care.
According to the person with direct knowledge of the ongoing conversations, Steward ultimately came to the state to discuss its financial troubles. More recently, Steward has told the state it must have a restructuring plan no later than the end of January, though it was unclear whether the timing was a reflection of Steward’s own desires or if the deadline was one imposed by its lenders, the person said.
Representatives from Steward have also told state regulators that they are interested in transferring ownership of hospitals, the person said. However no other operators had approached the state with such a plan, and the state was not yet evaluating any specific transactions, according to the person with knowledge of the talks.
The person said the state officials are waiting for Steward to outline their next steps, while applying pressure on the company to come up with answers that would prevent a public health emergency.
The concern over Steward closures elsewhere has led to significant state action. In 2020, Steward told Pennsylvania officials that its hospital in Easton, Pa., would have to close in a matter of days unless it received state funding. Officials soon provided millions of dollars in financing to keep the hospital open, according to media reports at the time.
Massachusetts regulators have hired an external firm to advise them on the Steward situation, and state officials have voiced a willingness to do what is necessary to protect patients and preserve jobs, the person said. The state could go as far as to declare a public health emergency, which gives state regulators broad authority to take steps such as transferring patients between hospitals.
Meanwhile, other hospital executives have been talking with state regulators over concerns about the possible effect on their facilities if Steward locations were to close.
John McDonough, who teaches in the department of health policy and management at the Harvard Chan School of Public Health, said many industry observers have been paying attention to the increasingly public signs of distress at Steward.
And if other health systems take over for Steward in Massachusetts, some have worried about further consolidation of the hospital market, increasingly dominated by a few players.
“There is concern [about consolidation],” McDonough said ”But that concern has to be balanced with the other potential of losing all of these facilities, and the impact that would have.”
In Massachusetts, Steward hospitals are geographically located in multiple areas of the eastern part of the state, from Holy Family Hospital campuses in Haverhill and Methuen, to Carney Hospital in Dorchester.
As state officials work with Steward on what comes next, health care providers in areas near Steward facilities are anxiously waiting for a resolution. Typically, hospitals must give the state 120 days of notice before closure, but they sometimes begin to wind down their operations before that — challenging other health systems to absorb their patients.
Already, hospitals in the southeastern part of the state have had to accommodate the volume when Steward’s Norwood Hospital closed in 2020 due to flooding. The emergency room associated with Steward’s Quincy Medical Center closed in November 2020. And Brockton Hospital suspended operations in 2023 due to fire, closing approximately 200 more inpatient beds.
At South Shore Health, an independent health system in Weymouth unaffiliated with Steward, doctors are caring for an average of 500 patients a day, with peaks that reach as high as 560. Those figures are not only far beyond the 374 licensed beds the hospital has, but have escalated from patient volumes seen even this summer.
The torrent of patients coming through the doors has been so unrelenting, that hospital management is disaster planning on a daily basis.
Dr. Allen Smith, CEO of South Shore Health, said his hospital could not accommodate the volume if another hospital nearby were to close.
“This could be extremely worrisome. I’m not trying to get melodramatic,” Smith said. “If this is a sudden closure, it is extremely dangerous.”
South Shore got a preview of what that might look like in October, when Steward’s Good Samaritan Medical Center closed to ambulance traffic for a day due to a flooding and power issue. Dr. Jason Tracy, chief medical officer for South Shore Health, said the hospital’s entire infrastructure mobilized to accommodate about 30 additional ambulances that day, on top of South Shore Health’s average of approximately 130.
Just as South Shore reached the threshold of what it could accommodate, Good Samaritan reopened to ambulance traffic.
While South Shore could accommodate another hospital’s ambulance traffic for 24 hours, Smith said “it’s not even possible” to do so every day for months. Such a closure — especially if it came without months of notice — would require regional and statewide planning done to a degree it has not yet entertained.
“We are stretched to the max,” Smith said. “There are no other tricks up our sleeve.”
There’s no graceful way to confess this: I somehow missed a yacht.
Last week, I wrote that Ralph de la Torre, the chief executive officer of Steward Health Care, is the proud owner of a $40 million, 190-foot yacht named the Amaral, a boat that has six bedrooms, cabins for as many as 15 members of the crew, a gym, a living room, dining room, and so much more.
De la Torre bought the yacht a few years ago as he and his private equity partners were selling the land and buildings out from under their own hospitals, burdening Steward with hundreds of millions of dollars in annual rent while giving themselves massive paydays. Now, as Steward faces a financial crisis that threatens to wreak havoc on health care in Massachusetts, this lovely boat is bobbing in the waters of Panama, on the Pacific side of the canal.
Here’s where I fell down on the job. It never occurred to me that a guy who owned one yacht might actually want two. That’s a lot of decks to swab. I never thought to ask anyone if de la Torre was trying to assemble a flotilla. Clearly I have more to learn about the rich and (striving to be) famous.
To back up for a moment, I received an email from an eagle-eyed reader shortly after my column on the Amaral. It said: “Correction: Ralph has two giant yachts.” Ha-ha, that’s funny in a completely absurd kind of way. But as I clicked out, something nagged, that being Ralph de la Torre’s personality, so I started poking around the shockingly vast yachting community on the World Wide Web.
And there it was, just a few keystrokes away: The Jaruco.
The Jaruco is, as the mariners call it, a sport fishing boat. But that would be like describing a Rolls Royce as a kind of car.
First off, the Jaruco is 90 feet long. It’s valued at about $15 million. There are hallways and bedrooms and full-sized baths. The yacht’ builder described it as “the most ambitious custom sportfish boat ever built.”
“The owner put it to us in pretty definitive terms,” the lead designer said on a video posted on the yacht builder’s website. “He just wanted to build the absolute finest sport fishermen ever built. That was it.”
Pause here to wonder: Has any doctor, any nurse, any patient, any anyone, ever said or even thought that Ralph de la Torre sought to build the absolute finest hospitals in the world?
In the same video, a man identified as the buyer’s agent, simply said, “You have this customer willing to do anything to build the best.”
And so they did. They used carbon and titanium to reduce the weight of the yacht by 40,000 to 50,000 pounds compared to others in its class. They spent $5 million on engineering alone. They took three years to finish the job. All this allowed the Jaruco to move faster, maneuver more nimbly, and travel farther — a rich fisherman’s dream. Imagine having a health care company that could do the same.
Maybe it’s nobody’s business that Ralph de la Torre likes fishing. Maybe it doesn’t matter that he has an affinity for especially nice things. If he owned and ran a chain of well-resourced hospitals that set an uncompromisingly high standard for patient care in Massachusetts and beyond, maybe nobody would care.
The problem is, he doesn’t. His hospitals are struggling to stay afloat, no pun intended. Supplies are short, medical tools are being repossessed, vendors aren’t getting paid, all while hundreds of millions of dollars have flowed into the pockets of a bunch of private equity partners at Cerberus Capital Management and de la Torre himself.
Why is it important that he owns two yachts, not one? Because hospitals, even for-profit ones, are something of a public trust. Because Steward has flat out refused to comply with Massachusetts law and turn over annual financial statements to the state’s Center for Health Information and Analysis. The last audited statement they provided was nearly 10 years ago. They’ve fought the agency in state court and lost. Steward lawyers have now taken the case to appeals court. They obviously are hellbent against letting regulators know where all the money has gone.
But two big boats provide one pretty solid clue.
Imagine, just imagine, how much better Steward might be doing if Cerberus had only doubled its investment and yanked out $400 million instead of the $800 million reported by Bloomberg? How many more doctors, nurses, technicians, pieces of equipment could Steward afford to have if de la Torre had a thing for Boston Whalers rather than small ships that can sail across the biggest seas?
Yes, Steward is right when they say that Medicaid needs to pay more for care, that regulators need to allow higher reimbursement rates, that their hospitals – utterly vital institutions – face obstacles that more prestigious institutions in wealthier communities will never know. But Steward’s owners, de la Torre especially, are a profoundly flawed messenger for these serious issues.
They put their own financial well-being ahead of the health of their own hospitals and the patients they serve. So now, state officials are struggling to stave off an even worse crisis. It’s not just de la Torre’s two yachts that are at sea.
In community after community, the hospitals keep closing. In 2018, it was Northside Regional Medical Center in Youngstown, Ohio.
In 2019, it was Ohio Valley Medical Center in Wheeling, West Virginia, along with East Ohio Regional Hospital across the river in Martins Ferry, Ohio. That November, St. Luke's Medical Center, which had treated patients in Phoenix for more than a century, shut its doors.
In 2020, as the pandemic hit, it was one in Massachusetts and another in West Virginia. Followed by four more — in California, Pennsylvania, and Texas — over the next three years.
Other hospitals are teetering on the brink. In 2022, Conemaugh Nason Medical Center in Pennsylvania announced it was ending OB-GYN deliveries, leaving some mothers-to-be to travel almost an hour to give birth. Last year, Glenwood Regional Medical Center in Louisiana was ordered by the state to turn away patients because of inadequate supplies and staffing levels.
In addition to their financial struggles, all of the hospitals shared three things in common. They all served low-income communities that suffered from a lack of access to healthcare. They were all owned at various points by for-profit investors, including leading private-equity firms like Cerberus, Leonard Green, and Apollo. And in a move that stripped the hospitals of one of their prime assets,the owners had sold the land beneath the facilities to a little-known real-estate investor called Medical Properties Trust. MPT, which has purchased some $16 billion of hospital real estate over the past two decades, now bills itself as one of the world's largest owners of hospital beds.
For many of the hospitals, the deals proved disastrous. Once their real estate was sold to MPT, they were forced to pay rent on what had always been their own property. That added to the massive debt burdens already placed on the hospitals by their for-profit owners, deepening their financial woes. It also deprived Americans of desperately needed healthcare and put lives at risk — all while enrichingsome of the world's wealthiest investors.
Northside Regional Medical Center in Ohio was forced to shut down after its land was sold to MPT. Sherman Cahal/ Abandoned Online
"It's the biggest scam that almost no one knows about," says Rob Simone, a researcher at the risk-management firm Hedgeye who has spent hundreds of hours digging through MPT's financial filings and business dealings.
Writ large, MPT's hospital investments represent a breathtaking schemethat has decimated healthcare in communities across America. And while the legal universe is not the same as the moral one — despicable actions, such as getting rich by cutting off care to the poor, can be perfectly legal — MPT's deals underscore how giant private-equity firms have profited while gutting a critical piece of America's infrastructure, even on deals that turned out to be financial catastrophes for the hospitals and their communities.
All told, at least 13 hospitals have closed or gone bankrupt after their land was sold to MPT.And the damage is far from over. In January, MPT reported that its biggest tenant, a nationwide chain of 32 hospitals called Steward, could no longer pay its rent. The announcement — which has left health officials scrambling for fallback plans to provide care to the 2.2 million people served by Steward — could foreshadow more hospital closings to come.
"MPT existed to allow private equity to take money out of our hospital system through uneconomic transactions," says Justin Simon, who runs a successful healthcare-focused hedge fund called Jasper Capital. "Now they've bankrupted the hospitals. The communities are left holding the bag, and no one is going to jail."
MPT was founded in 2003 by Ed Aldag, an Alabama native who serves as the firm's president, chairman, and CEO. The core idea was simple: to buy hospital real estate, pocket the lease payments, and use the money to reward investors. (By law, real-estate investment trusts like MPT must pay 90% of their taxable income to shareholders.) Over the past few decades, plenty of private-equity firms have engaged in a similar form of financial engineering, called sale-leasebacks, with hotels and retailers. Selling the real estate was a key element, for instance, of the financier Eddie Lampert's plan to make money from a struggling Sears. But no one had done it at a massive scale with hospitals — for reasons, perhaps, that should have been obvious.
MPT came along at the perfect moment. Hospitals in rural and underserved communities have always been a tough business, for the simple reason that they serve more patients who are uninsured or who rely on Medicaid, which reimburses at a fraction of the rate of commercial insurance. But then two things happened. First, in 2006, Bain Capital and a handful of other investors bought the massive hospital chain HCA and quickly made a fortune. Second, the passage of the Affordable Care Act in 2010 added to the gold-rush mentality by promising to dramatically expand the number of Americans with insurance, thereby improving hospital margins. By 2011, seven of the nation's top for-profit chains were owned by private-equity firms.
To say the investments didn't pan out would be an understatement. Obamacare didn't wind up providing the expected infusion of cash, and the government has continued to slash Medicaid reimbursements. As a result, hospitals in rural and underserved areas continued to be a difficult business proposition, and their private-equity investors were facing serious losses. "The hospital chains faced major challenges in meeting loan obligations," the economist Eileen Appelbaum and Rosemary Batt, a management professor at Cornell University, found.
What started out as a way to rescue failed investments wound up creating a whole new form of financial engineering for private-equity profiteers.
If capitalism worked the way it's supposed to, that would have been the end of the story. Investors make a bet, it goes sideways, and voilà, they lose their money. But in this case, private-equity firmsfound a new way to save their failed investments— by selling the land under the hospitals to MPT.
The company, which didn't respond to requests for comment, has insisted the deals are good for hospitals as well as investors, because they inject much-needed cash into underfunded systems. "We provide up to 80% of a hospital's real estate value to help fund facility expansions, investments in people and technology, and the execution of long-term growth strategies," MPT says on its website. "Ultimately, we help hospitals serve patients better around the world with our capital solutions."
Private-equity firms tell the same story. In statements to Business Insider, Cerberus, Apollo, and Leonard Green said none of the money from the MPT deals was distributed to shareholders. Instead, they said, the funds benefited the hospitals by enabling them to do things like improve their facilities, pay down their debts, provide benefits to their employees, and extend free care to their communities. The firms also insisted that their decisions leftthe hospitals in strong financial health. Leonard Green, for instance, said that when it exited its investment in a hospital system called Prospect in 2021, the company had "access to over a half billion dollars to support its operation."
Marc Rowan, CEO of Apollo, which owns 220 hospitals across 36 states. NurPhoto/ Getty Images
But wherever the funds from the MPT transactions were placed on the books, the deals saddled the hospitals with years of rent payments, contributing to their financial struggles. And in the aftermath of the deals, private-equity firms wound up getting rich off investments that, by any rational measure, should have been failures — often by paying themselves and their investorshefty dividends. "I estimate that less than 10% of the money has actually been reinvested into the hospital systems," says Richard Mortell, the managing partner of Third Coast Real Estate Capital, who has studied MPT's deals. "The vast majority was either distributed to owners, or used to repay debt taken out to distribute money to owners."
Private-equity investors have long turned a profit by saddling the companies they buy with massive debt, even if it means running the businesses into the ground. But with MPT, what started out as a way to rescue a failed investment strategy wound up creating a whole new form of financial engineering for private-equity profiteers. Firms like Apollo, Cerberus, and Leonard Green couldn't make money by selling their debt-laden hospitals back to the public markets — but they could exploit the value of the underlying real estate. In the process, they stuck the struggling hospitals with something they'd never had before, and couldn't afford to pay: rent.
MPT's biggest deals have been with Cerberus, the secretive financial colossus run by Stephen Feinberg, a billionaire whose investments in gun companies have been the subject of much controversy. It all began in 2010, when Cerberus acquired a struggling nonprofit hospital system and rebranded it as for-profit Steward Health Care. Steward's CEO, a charismatic doctor named Ralph de la Torre, talked a big game about fixing healthcare in marginalized communities. In announcing the deal, Cerberus assured The Boston Globe that it was "a big win for the hard-working communities of Greater Boston."
State regulators were suspicious of the deal. In return for state approval, Steward promised it wouldn't add any debt to the hospitals for the purpose of paying Cerberus a dividend or distribution for three years. As it turned out, regulators weren't suspicious enough: They didn't foresee MPT.
From 2016 to 2022, according to a company report, MPT acquired a net $3.3 billion of real estate underlying 34 Steward facilities. MPT then leased the real estate back to Steward. The deal was done to "give Cerberus some liquidity" and "recover the original investment," according to an announcement at the time. Steward now has an annual rent burden of almost $400 million, according to Simone, the vast majority of which goes to MPT. In the process, Steward became MPT's largest tenant, at one point accounting for as much as 30% of its annual revenue.
After the MPT deal, Cerberus made a lot of money from its investment in Steward. According to a confidential investor document acquired by Bloomberg, one of Cerberus' funds collected a dividend of $484 million. Overall, Steward's investors quadrupled their money, even as the hospitals themselves were hemorrhaging cash.
Investors in Steward quadrupled their money. The hospitals are now on the verge of collapse. Chandan Khanna/AFP via Getty Images
"Cerberus generated a home-run multiple on an unsuccessful investment," says Mortell, the longtime real-estate investor. "That's not the way capitalism is supposed to work."
In a statement to BI, Cerberus said its involvement with Steward enabled the chain to invest $800 million on infrastructure, technology, and personnel, transforming its failing hospitals into "a world-class accountable care organization." But Steward didn't exactly thrive after its purchase by Cerberus. One after another, many of the chain's hospitals have either closed or been forced to cut services. During the pandemic, Easton Hospital in Pennsylvania received a last-minute bailout from the state after Steward threatened to close it. Local leaders were incensed. "It's hard to believe that Easton Hospital could have sat vacant in the coming months — shedding 700 jobs in the process — as the rest of the Lehigh Valley scurried to free up every room, ventilator, and medical staffer to try to save lives," fumed the local newspaper's editorial board.
What's more, Steward has been sued by a handful of vendors for leaving what appears to be a trail of unpaid bills. In January, at St. Elizabeth's Medical Center in Boston, a new mother bled to death after a device that could have saved her life had been repossessed by creditors because Steward had failed to pay the bill. Now, the hospital chain's looming collapse could endanger even more lives, most of them in poor communities. "The burden of Steward hospital closures," a letter signed by the state's entire congressional delegation warned, "would be borne primarily by the Massachusetts residents who already experience the greatest challenges accessing health care." The delegation has asked Cerberus to provide details of its investment in Steward, including how much money it extracted from the chain. "The net result of these transactions," the delegation wrote, "appears to be an unfolding tragedy."
Investors at Cerberus, meanwhile, aren't the only ones who scored a home run by inflicting financial pain on Steward. In 2021, MPT loaned the hospital chain's operating team, including de la Torre, $335 million to buy out Cerberus. Steward then turned around and paid its new owners, including de la Torre, a dividend of about $100 million. A few months later, de la Torre bought a $40 million yacht named the Amaral, which features a library, a gym, and a whirlpool on the top deck. Just after that, Steward filed with the government to delay paying back pandemic-era loans, citing "extreme financial hardship." (Steward did not respond to requests for comment.)
Ralph de la Torre, CEO of Steward, bought a $40 million yacht after receiving a huge dividend from the struggling hospital chain. Anonymous; MediaNews Group/Boston Herald via Getty Images
The pattern of using MPT to profit from the pain of impoverished patients was repeated by other leading investors. Prospect, a chain of hospitals in underserved communities, was bought by Leonard Green in 2010. It turned out to be a bad investment. According to the Private Equity Stakeholder Project, a research and advocacy group, Prospect lost over $600 million between 2015 and 2020.
Then, in 2019, Leonard Green sold $1.55 billion of Prospect's real estate to MPT. In a statement to Business Insider, Leonard Green said its ownership of the hospital chain "enabled Prospect to invest approximately $750 million in its hospitals, provide $900 million in free care, contribute $170 million to local taxes, and fund $300 million into employee pensions and 401(k) plans."
But after Leonard Green sold off Prospect's real estate, the hospitals continued to struggle. Ambulances were unable to fuel up because their credit cards had been cut off. Elevators stopped working. Six elderly psychiatric patients with COVID-19 died due to poor infection control. Yet the ownership group led by Leonard Green, the Stakeholder Project found, was somehow able to extract $658 million in dividends and other fees from the struggling hospital chain. Prospect is now attempting to sell three of its hospitals in Connecticut to Yale New Haven Health System, but the deal may fall through because of Prospect's mounting debt and unpaid bills. If Yale doesn't acquire the hospitals, they will likely go bankrupt.
Then there are the deals that MPT has done with Apollo. In 2015, the private-equity giant bought its first hospital system and embarked on what's known as a "roll-up strategy" — a popular play in which investors make a company bigger, though not necessarily better, by continuing to acquire businesses. The Apollo-backed business purchased several more healthcare companies and sold some of the underlying real estate — $700 million — to MPT. In a statement to BI, Apollo referred all questions about the deal to its hospital company, as if it had nothing to do with the deals. But Aldag, the MPT founder and CEO, has boasted that the transactions were brokered directly with Apollo. "They pretty much gave us their entire portfolio and said, 'Here, pick what you'd like to have for this particular price,'" Aldag told investors in a conference call explaining the deal. Today, Apollo owns some 220 hospitals across 36 states.
If Congress does its job and follows the money, it may find itself confronting one of the biggest financial heists in American history.
After Apollo sold off their real estate, the hospitals continued to suffer. According to their financial statements, capital expenditures were less than depreciation in the years after the sale-leaseback deals with MPT, which means the asset base was being eroded, not increased. "Apollo's hospital profiteering has resulted in dangerous conditions, closures and reduced access to services, and declining quality," concluded Eileen O'Grady, a senior researcher at the Private Equity Stakeholder Project. Hospitals in one Apollo hospital chain, LifePoint Health, rank among the worst in their states, and Moody's has downgraded the company's debt to reflect the company's "elevated financial leverage." Patients and communities, once again, paid the price for private equity's investment model.
While the real-estate deals with MPT have provided private-equity firms with a huge financial windfall, they've posed a problem for MPT itself. The more hospital real estate that MPT buys, the more money it makes in rent payments from the hospitals. But because its deals place huge financial stress on the hospitals, MPT is essentially operating as a landlord that is driving its own tenants out of business. Now, as hospital chains across the country find themselves unable to pay their rent, MPT is facing financial problems of its own. In 2020, its stock price hit $24. Today, it's under $4.
But that doesn't mean that MPT's leaders didn't get rich off its hospital deals. Top executives, including Aldag, received hefty bonuses based in part on the dollar volume of transactions they did — meaning the more hospitals they drove into debt, the better. Never mind that, as Simone found, MPT apparently used accounting assumptions that overinflated the lease payments it could realistically expect to receive from troubled hospital systems. From 2019 to 2022, according to SEC filings, MPT's top three executives were paid some $125 million in cash and equity grants. They got rich, in short, by making hospitals poor.
In December, Congress announced a bipartisan investigation into private equity's influence in healthcare. MPT was included on the list of companies that received subpoenas. Sen. Chuck Grassley, the ranking Republican on the Senate Budget Committee, has asked Apollo and Leonard Green to submit details about its deals with MPT, among other things; the Massachusetts congressional delegation is asking Cerberus to account for what happened at Steward. The fundamental question is: Where did all the money go? If Congress does its job and follows the money, it may find itself confronting one of the biggest financial heists in American history — one that transferred billions of dollars from needy patients to greedy investors. Lawmakers aren't empowered to get any of that money back. But they can at least make MPT and its private-equity partners account for what they got away with.
Bethany McLean is a special correspondent at Business Insider.
Correction: March 11, 2024 — An earlier version of the story misstated the committee on which Sen. Chuck Grassley serves as the ranking Republican. It's the Senate Budget Committee, not the Senate Finance Committee.
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