Coakley takes pulse of Steward’s first year
For-profit hospital chain in compliance but loses money
Attorney General Martha Coakley said Steward Health Care complied with its regulatory commitments during its first year of operation while failing to turn a profit. She stressed that one year “does not provide a basis to predict or draw conclusions about Steward’s ongoing performance.”
Steward was formed in late 2010 when the New York private equity firm Cerberus Capital Management bought six struggling Catholic hospitals from the Caritas Christi chain and then expanded its network by purchasing other health care institutions. To gain Coakley’s approval for the acquisition of the nonprofit hospitals, Steward agreed to maintain services, continue charity work, and make $400 million in capital expenditures over a four-year period. Steward also agreed to periodic reviews by Coakley.
In her first report, Coakley said Steward met all its obligations, including making capital expenditures totaling $134 million for various renovations and information technology investments. CommonWealth reported that Steward flirted with the idea of unloading Carney Hospital in Dorchester in late 2011, but that was not mentioned in Coakley’s report because the divestiture never came to fruition.
Steward officials say their profit and growth strategy hinges on convincing patients near their hospitals to obtain their care at those hospitals rather than trekking to more expensive teaching hospitals in downtown Boston. Coakley’s report indicates Steward did snare more business in 2011, but from other community hospitals rather than the teaching hospitals.
Data from Blue Cross Blue Shield indicate Steward primary care providers referred 2 percent more of their inpatient care and 2.6 percent more of their outpatient care to Steward facilities in 2011 than they did in 2010. Teaching hospitals also saw an increase in referrals from Steward primary care providers of 1.1 percent (inpatient) and 1 percent (outpatient). By contrast, other community hospitals saw their referrals from Steward physicians drop 3 percent and 3.4 percent, respectively.
Christopher Murphy, a spokesman for Steward, cautioned against drawing any conclusions from the limited Blue Cross Blue Shield data.
Financially, Coakley said, Steward reported a $14.6 million operating loss for fiscal 2011 and a total deficit of $57 million. Coakley said operating profitability declined at each of Steward’s principal operating subsidiaries with the exception of St. Anne’s and Steward’s physician subsidiary. Coakley said Steward has a “highly leveraged capital structure,” noting the company borrowed $96 million in 2011 under a revolving line of credit and also relied on a $246 million capital investment by Cerberus.Murphy, the Steward spokesman, said the company has a seven-year business plan and fully expected to lose money in the first year of that plan. “We’re where we expected to be,” he said.
As the state’s efforts to rein in health care costs accelerate, Murphy said state officials should consider having other hospitals in Massachusetts submit to the same level of financial scrutiny as Steward does. “The level of transparency in this report is unprecedented,” he said. “We think every hospital should be held to the same standard.”