Steward responds to ‘red flags’ in RI
Hospital chain forecasts profit this fiscal year
A consultant hired by the state of Rhode Island is raising “red flags” about the financial health of Steward Health Care System, but the Boston-based hospital chain says its business plan is on target and the company is expecting to turn a profit this year.
Steward, a private, for-profit company bankrolled by the private equity firm Cerberus Capital, has shaken up the Massachusetts health care market by acquiring a string of struggling hospitals. It now is attempting to expand into Rhode Island with the acquisition of Landmark Hospital in Woonsocket and the Rehabilitation Hospital of Rhode Island in North Smithfield.
Steward normally doesn’t release its financial results, but it provided a copy of its audited consolidated financial statements for fiscal 2011 to Rhode Island as part of the state’s regulatory review. Rhode Island officials hired Enterprise Management Corp., a Connecticut consulting firm, to review the financial statements, and Enterprise in a letter highlighted a number of what it called red flags. The statements themselves were not released.
Enterprise said Cerberus contributed $251.5 million in capital to Steward in fiscal 2011, but that infusion was offset by $127.6 million in deficits, leaving the total equity value of the company at $123.9 million.
Michael Kraten, president of Enterprise, recommended that Rhode Island officials ask Steward how it plans to address the various red flags.
Steward’s attorney, Jeffrey Chase-Lubitz, responded in writing to Kraten’s letter by saying the company’s auditor had expressed confidence in the hospital operator’s financial health. He said Steward is cutting costs and improving quality at its hospitals, which include Carney Hospital in Dorchester, St. Elizabeth’s Hospital in Brighton, and Norwood Hospital.On the financial front, the Steward letter said the company had a working capital surplus as of March 30 but didn’t say what it was. The company said its fiscal 2011 deficits had been expected and covered by the $251.5 million in funding from Cerberus. The company also said its credit facility’s outstanding debt is down to $60 million, but with $20 million in cash on hand the net debt is $40 million.
The Steward letter said the company is predicting it will be profitable this year and generate positive cash flow by the fourth quarter. “Year to date, Steward is ahead of this plan,” the letter said.