Delay in sale of 9-state multispecialty radiology provider spurs Chapter 11 bankruptcy filing
A delay in the sale of a nine-state multispecialty radiology provider to UnitedHealth Group has prompted the hospital operator to file for Chapter 11 bankruptcy protection, leaders announced Monday.
UHG’s OptumCare subsidiary recently reached a deal to acquire Dallas-based Steward Medical Group. Part of the larger Steward Health Care hospital system, the physician group spans 450 practices and employs 1,700 providers including nearly 200 radiologists.
Massachusetts authorities in March announced plans to rigorously review the sale amid concerns about the impact it could have on competition. Meanwhile, Steward said it can’t wait any longer and needs to file for bankruptcy protection.
“Steward Health Care has done everything in its power to operate successfully in a highly challenging healthcare environment. Filing for Chapter 11 restructuring is in the best interests of our patients, physicians, employees and communities at this time,” CEO Ralph de la Torre, MD, said in a statement. “In the past several months we have secured bridge financing and progressed the sale of our Stewardship Health business in order to help stabilize operations at all of our hospitals. With the delay in closing of the Stewardship Health transaction, Steward was forced to seek alternative methods of bridging its operations.”
As part of the process, Steward is now finalizing the terms of a “debtor-in-possession” loan from landlord Medical Properties Trust for $75 million. Steward is hoping to secure up to an additional $225 million “upon the satisfaction of certain conditions” acceptable to its lender. The company operates 30 hospitals, and its medical practices span Arizona, Florida, Kansas, Louisiana, Massachusetts, New Hampshire, Ohio, Pennsylvania and Texas. Leaders said their priority is keeping these medical centers and physician offices “open and continuing to serve patients.”
Along with delays in the sale of its physician group, Steward also blamed the “highly challenging healthcare environment.”
“The other primary factor driving this voluntary Chapter 11 case is, in large part, due to Steward continuing to face challenges created by insufficient reimbursement by government payers as a result of decreasing reimbursement rates while at the same time facing skyrocketing labor costs, increased material and operational costs due to inflation, and the continued impacts of the COVID-19 pandemic,” the company said in its statement. “It is Steward’s goal to resolve the Chapter 11 process as quickly as possible, with the help of the court, with a view to the long-term and sustainable financial health of the system.”
Private equity also to blame?
Steward’s history traces to 2010, when private equity firm Cerberus Capital Management acquired the struggling nonprofit Caritas Christi Health Care system. Steward fueled national expansion since 2016 via debt and executed a series of lease-back deals with landlord Medical Properties Trust. Cerberus exited ownership in 2020 but its accumulated debts have left the organization in a precarious position.
U.S. Sen. Elizabeth Warren, D-Mass., slammed the hospital system on Monday, believing private equity is to blame for its mismanagement.
“Steward Health Care’s bankruptcy is a direct consequence of Wall Street private equity vultures looting our healthcare system,” she said in a statement. “My first priority is keeping these Massachusetts hospitals open, protecting patients and supporting frontline healthcare workers. The next step should be a serious reexamination of whether we should allow private equity in healthcare.”
Warren said she plans to introduce new legislation in the Senate to “hold corporate actors accountable when they look our hospitals to boost their profits.” Her proposal comes amid increased interest in radiology from private equity firms and other corporate entities. Steward joins other PE-backed radiology providers in filing for bankruptcy, including multispecialty physician group Envision Healthcare.
“After years of disastrous decisions, CEO Ralph de la Torre should be fired, along with Steward’s entire executive team,” Warren said in the statement. “Regulators need to seek all possible means to claw back the riches sucked out of these hospitals. No matter where they try to shift the blame, Steward executives are responsible for this crisis.”
Marty Stempniak has covered healthcare since 2012, with his byline appearing in the American Hospital Association's member magazine, Modern Healthcare and McKnight's. Prior to that, he wrote about village government and local business for his hometown newspaper in Oak Park, Illinois. He won a Peter Lisagor and Gold EXCEL awards in 2017 for his coverage of the opioid epidemic.