The current crisis in Massachusetts health care, driven by Steward Health Care’s financial meltdown, has its roots in the predatory practices of Wall Street investors that destroy institutions long after they have left the crime scene. State and federal lawmakers will need to react with concrete steps that remedy the ill effects of ownership by Wall Street private equity firms in health care.

To understand the Steward crisis, it is important to review the role of private equity in the hospital chain’s history. Steward Health Care was created by the private equity firm Cerberus Capital Management in 2010 after it gained control of several Massachusetts hospitals in an acquisition largely financed by debt. Cerberus then pursued various strategies that drained cash from the company. 

For example, Steward sold off much of its real estate, forcing the hospitals to pay $400 million a year in rent on properties they once owned. Cerberus also paid itself dividends. Extractive transactions like these allowed Cerberus to exit the ownership of Steward with $800 million in profit, while leaving Steward heavily indebted, a major factor in the current crisis and one that critics have seen coming for years.

Steward is a prime example of private equity’s business model of extracting short-term profits from entities before selling them off. In the case of health care, this can leave critical service providers worse off financially, with more money going to Wall Street and less toward long-term viability, hospital staffing, and patient care. Cerberus looted hundreds of millions of dollars from Steward hospitals, and now communities in Massachusetts and beyond are at risk. 

As the Boston Globe reported in January, Steward may need to shutter some of its Massachusetts hospital facilities, including Dorchester’s Carney Hospital. Four out of the nine Steward hospitals, including the Carney, are safety net hospitals. Seventy percent of Steward’s hospitals’ patients have Medicare or MassHealth coverage, or have their care paid for by public programs. The Massachusetts public health system now faces a serious challenge, fueled by Wall Street greed, of ensuring that communities served by Steward hospitals are not deprived of essential health care. 

State and federal policymakers have responded with outrage. The Massachusetts congressional delegation sent a letter to Steward executives demanding financial information from the firm. US Sen. Elizabeth Warren issued an additional statement last week, expressing concern over reports of patient neglect and profiteering. A Senate panel has launched a broader investigation into the role of private equity in hospitals. And Gov. Maura Healey has escalated her administration’s response with a letter calling on Steward to transfer its Massachusetts hospitals to another operator as soon as possible.

All this comes amid mounting scrutiny of private equity’s role in healthcare more broadly. A recent Biden administration initiative to lower healthcare and prescription drug costs called out private equity profiteering as a driver of higher costs and a threat to patient care throughout the sector. 
Americans for Financial Reform published a two-part report in July of 2023 detailing private equity’s footprint in healthcare and federal policy solutions to address private equity abuses in the sector. Those recommendations include curbing excessive overpayments in the Medicare Advantage program; stepping up enforcement of existing anti-fraud laws by seeking maximum penalties for violations; strengthening antitrust enforcement; and shining a light on often-obscure private equity ownership of healthcare facilities. 

We don’t need more havoc in health care. We need action at the federal and state levels so that the plight of Steward – and Massachusetts – is not repeated so that already rich people on Wall Street can make more money.

Robert Seifert is senior fellow at Americans for Financial Reform, a non-partisan, nation-wide coalition that seeks to “fix our financial sector.”