Anson Chan is a candidate for Business Intelligence (BI). When Steward Health Care, previously America’s largest private for-profit hospital system, declared bankruptcy last year, it was seen as the culmination of a prolonged and disastrous decline. Over the past decade, eight of Steward’s hospitals had closed down, leaving some communities with limited access to medical services. This loss of vital care had a severe impact. A patient advocate described it as a public health hazard when Steward shut down its medical center in Phoenix.
As I previously reported, Steward’s downfall was triggered by a deal with a company called Medical Properties Trust (MPT). The hospital chain had agreed to sell its facilities to MPT and then lease them back at inflated rates. These sales burdened Steward with an annual rent of around $350 million for its own hospitals, leading to closures and compromised care. At the time of the bankruptcy, Steward still owed MPT a staggering $6.6 billion.
While patients and healthcare providers suffered, the deals benefited top executives at Steward, who are now under federal investigation for corruption. The transactions also allowed the company to pay out $800 million in dividends to its owner, the private equity firm Cerberus, even as its hospitals struggled with inadequate resources for patient care.
Critics condemned the arrangement between Steward and MPT as a form of corporate plundering, with devastating consequences. Lawmakers like Massachusetts State Senator Jamie Eldridge decried the erosion of the healthcare system, and Senator Edward Markey’s report criticized private equity for treating hospitals solely as profit-generating entities. The report highlighted how Steward, Cerberus, and MPT prioritized financial gains over community healthcare needs.
As Steward divests from its remaining 31 hospitals, underserved communities are hopeful that new owners will prioritize care quality over profit extraction. However, with MPT retaining rent collection for many of the hospitals, and some facilities falling into the hands of operators known for mismanagement, prospects for improvement seem uncertain. Analysts like Justin Simon warn that without significant financial support, these hospitals may face another round of financial crisis within months.
The situation at Steward’s facilities underscores systemic issues in America’s healthcare infrastructure, where distressed hospitals are trapped in a cycle of asset stripping. Professor Rosemary Batt of Cornell University notes that these facilities are often sold to entities that perpetuate the exploitation, rather than investing in sustainable care. Steward’s hospitals’ precarious financial state highlights the need for fundamental reforms to break this damaging cycle.
Partnership with nearly $100 million in loans, as well as temporary rent relief, to acquire the facilities that MPT itself contributed to the decline of — and from which MPT will continue to collect rent. As struggling hospitals in America fight to stay afloat, the remedies often seem to exacerbate their problems.
Eight of Steward’s hospitals — more than a quarter of those they were still managing — have been acquired by a company called American Healthcare Systems. AHS and its affiliate, Healthcare Systems of America, are under the leadership of Michael Sarian, whose career mirrors the hospital management strategies employed by Steward — including dealings with MPT. Before establishing AHS, Sarian spent eight years as the president of Prime Healthcare Services, a hospital company that claims to specialize in revitalizing distressed community hospitals — “saving hospitals, saving jobs, saving lives,” as stated on its website. However, the Justice Department has accused the system of a different intention: boosting profits through fraudulent practices. In 2018, Prime and its CEO settled for $65 million to resolve claims of knowingly submitting false Medicare claims, including for unnecessary patient care. Similar to Steward, Prime has a track record of extracting funds from its hospitals: In 2007, Prime’s financial records revealed that a family trust managed by its founder received a distribution of over $35 million — the majority sourced from MPT. Critics argue that these profits have come at the expense of patient care. In October, National Nurses United criticized the company for closing maternity wards nationwide, attributing it to Prime’s profit-driven focus which negatively impacted vulnerable communities.
Glenwood Regional in Louisiana is one of the eight Steward hospitals now under AHS management, a company facing backlash for draining resources from the medical facilities it oversees.
Responding to Business Insider, Prime defended its care quality, mentioning that it resolved the Medicare allegations “without fault” and fulfilled a government-required “corporate integrity agreement.” Prime also stated that it designated over $1.4 billion to repurchase its real estate from MPT, aiming to enhance stability for its community hospitals and the populations they serve. Nonetheless, Prime has taken on $1.5 billion in new debt, implying ongoing financial obligations for its hospitals.
The cycle of exploitation persisted at American Healthcare Systems, initiated by Sarian in 2021 after acquiring a bankrupt hospital in North Carolina. Lawsuits from suppliers swiftly accumulated, accompanied by complaints from staff about inadequate staffing levels. Regulatory bodies issued warnings of “immediate jeopardy” to AHS hospitals, indicating that their services posed serious risks to patients. Subsequently, one hospital was shut down, and an emergency room was closed. When AHS requested leniency on a state loan used for the North Carolina hospital purchase, regulators discovered that the company had diverted around $11 million from the facility.
AHS also drained funds from Vista Medical Center East, another hospital within its operation. Vista, catering to a low-income neighborhood in
Illinois recently laid off 8.6% of its workforce due to financial challenges, leading to a decline in care quality at a facility. Tragically, a patient with hypothermia died on January 23 after being discovered on the hospital’s roof in just a hospital gown. Despite seeking government support, Vista, which has reportedly taken millions from the hospital, faced criticism from a local coroner for its poor track record. Some of the funds extracted by AHS from Vista have been used to support another hospital within its network, which is in debt to MPT. Despite facing legal battles, inadequate care, and questionable financial transactions, AHS has been approved to acquire eight hospitals from Steward, prompting concerns about a recurring pattern of failure due to the involved parties’ histories. Other companies purchasing Steward’s hospitals are also linked to MPT, raising further red flags about financial stability. Quorum, for instance, facing debt default according to Moody’s, is acquiring hospitals from Steward while tied to MPT. Meanwhile, Insight Health, another buyer of Steward’s hospitals, has faced legal challenges, with accusations of fraudulent billing and high management fees. The sale of Steward’s hospitals to these entities has sparked criticism from watchdog groups, highlighting a failure in the current legal system to safeguard healthcare infrastructure and patient care standards.
The Insight deal exemplifies a troubling pattern in the healthcare industry. Hospitals sell their real estate to MPT, receive a cash infusion, cut back on services, and then face financial difficulties. This leads to a situation where MPT has to find a new buyer, often without ethical standards, to take over the struggling hospital and pay rent, ultimately resulting in the new buyer also going out of business. The primary beneficiaries in this scenario are the investors profiting from distressed hospitals and MPT, which continues to collect rent. This cycle, as described by hedge fund director Simon, is the unfortunate consequence of private equity failures where real estate is sold to salvage investments, leaving communities without access to essential healthcare services. While regulatory bodies like the Securities and Exchange Commission may investigate MPT’s transactions, there is a lack of oversight to ensure that new owners prioritize the healthcare needs of the communities they serve. The absence of accountability to patients in the hospital acquisition process, as highlighted by healthcare research overseer Mary Bugbee, raises concerns about the vulnerabilities within the regulatory system. Without increased scrutiny, patient advocates caution that the exploitation of hospitals in America will persist. Bethany McLean reports on these issues as a special correspondent for Business Insider.
