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.
According to the Enterprise letter, Steward reported a net loss of $56.9 million and a negative cash flow of $32.9 million in fiscal 2011, which ended Sept. 30 last year. The company also had a working capital shortfall of $43.6 million, even though it also owed $96.3 million on its revolving credit facility.
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.
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About Bruce Mohl
Bruce Mohl is the editor of CommonWealth magazine. Bruce came to CommonWealth from the Boston Globe, where he spent nearly 30 years in a wide variety of positions covering business and politics. He covered the Massachusetts State House and served as the Globe’s State House bureau chief in the late 1980s. He also reported for the Globe’s Spotlight Team, winning a Loeb award in 1992 for coverage of conflicts of interest in the state’s pension system. He served as the Globe’s political editor in 1994 and went on to cover consumer issues for the newspaper. At CommonWealth, Bruce helped launch the magazine’s website and has written about a wide range of issues with a special focus on politics, tax policy, energy, and gambling. Bruce is a graduate of Ohio Wesleyan University and the Fletcher School of Law and Diplomacy at Tufts University. He lives in Dorchester.
About Bruce Mohl
Bruce Mohl is the editor of CommonWealth magazine. Bruce came to CommonWealth from the Boston Globe, where he spent nearly 30 years in a wide variety of positions covering business and politics. He covered the Massachusetts State House and served as the Globe’s State House bureau chief in the late 1980s. He also reported for the Globe’s Spotlight Team, winning a Loeb award in 1992 for coverage of conflicts of interest in the state’s pension system. He served as the Globe’s political editor in 1994 and went on to cover consumer issues for the newspaper. At CommonWealth, Bruce helped launch the magazine’s website and has written about a wide range of issues with a special focus on politics, tax policy, energy, and gambling. Bruce is a graduate of Ohio Wesleyan University and the Fletcher School of Law and Diplomacy at Tufts University. He lives in Dorchester.
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.
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