Hospital execs ‘no-shows’ at city council hearing

Little more than thirteen years ago, Dr. Ralph de la Torre was a rising star.

In 2010, the cardiac surgeon turned executive was hosting President Barack Obama at his Newton home for a Democratic Party fundraiser, shortly after de la Torre had received state approval for his new venture, the for-profit Steward Health Care System. Only four months later, de la Torre was at a national conference, pitching a big idea to potential investors: With more pressures to control costs and more access for patients under the Affordable Care Act, Steward’s private equity takeover of six financially troubled Catholic hospitals in the Boston area could be repositioned as a national model.

Last Thursday morning, despite the convenience of a virtual hearing offered by the Boston City Council’s Committee on Public Health, Homelessness, and Recovery, de la Torre and even the top executives at his hospitals in Dorchester and Brighton were no-shows. The committee’s chair, District 3 (Dorchester) Councillor John FitzGerald, wasn’t surprised.

“It is my strong assumption that they were asked not to attend, probably by their higher executives, which is an unfortunate move by Steward,” FitzGerald surmised. “And not having a representative allowed to speak today,” he added, “I only think it further damages their reputation.”
Steward’s reputation was already floundering amid recent news reports of de la Torre’s two private yachts and the system’s rising tide of debt.

There were unpaid bills from vendors and unpaid rent to the owner of Steward’s facilities, Medical Properties Trust (MPT), despite outlays on corporate jets. But reports about insufficient financial disclosures to state regulators date back at least as far as 2015, though still legally contested by Steward, which is citing a need to protect proprietary and sensitive information.

On Jan. 4 of this year, it was MPT that broke the news about $50 million in unpaid rent from its biggest tenant. MPT’s press release also announced an “action plan” to recover unpaid rent and outstanding loans. “As part of this plan,” MPT disclosed, “Steward is pursuing several strategic transactions, including the potential sale or re-tenanting of certain hospital operations…” One day later, according to Bloomberg Law, MPT shares plunged by a record 32 percent.

By the time the City Council committee held its hearing, Steward’s original market base — from government officials to providers, support staff, and local communities — was awash in uncertainty. Gov. Healey has called on Steward to find a new operator for its facilities in Massachusetts, including the Carney Hospital in Dorchester and St. Elizabeth’s Medical Center in Brighton. City officials taking part in the hearing acknowledged their lack of regulatory power, but they tried to reposition the national business story as a local health crisis, in which Steward patients might have to go elsewhere –and sometimes in emergencies.

“I think all of us are very concerned and worried about anybody taking on that number of patients,” said Dr. Bisola Ojikutu, the executive director of the Boston Public Health Commission. “I think it would overwhelm our hospital system. It would lead to ripple effects certainly within the City of Boston and I think that, as I mentioned, the ‘pre-hospital system,’ the fact that we would not be able to move our ambulances around the city as quickly, I think, is very important.”

That was seconded by Nicholas Mutter, a Dorchester resident and secretary of the Boston Police Patrolmen’s Assn. Emergency Medical Services Division.

“With the possibility of these hospitals closing,” said Mutter, “we’re heavily concerned the burden will be placed on other hospitals, creating increased wait times for patient transfers, often referred to as ‘holding the wall,’ decreased patient satisfaction, and overall backlog in ambulances being able to respond to 911 calls within the neighborhoods, which will systemically place itself throughout all of our neighborhoods, not just the Allston-Brighton and Dorchester neighborhoods.”

Councillors also heard about the possible disruption of relationships with patients and community providers such as health centers. One perspective came from Maureen Rate, a medical procedures secretary and member of SEIU, Local 1199, who has worked at the Carney since 1979. She recalled when the 159-bed hospital had more than 400 beds, long before the acquisition by Steward.

“Being sick and needing medical attention is a scary situation” she told councillors. “But coming here through the doors of Carney, where everybody knows your name, really alleviates some of that scariness.”

The chief medical officer at DotHouse Health, Dr. Monica Vohra, counted 365 of its patients who used emergency services at the Carney Hospital over the past three months. She noted that the hospital was also a partner with DotHouse Health for colon cancer screenings.

“Many of our patients have shared with me that they seek care at Carney because of its neighborhood-based location and language capacity. A large portion of our patients speak Vietnamese and have found great comfort in receiving care at Carney by health care staff interpreters who speak their language, often during periods of physical and mental distress,” said Dr. Vohra.

“My patients have complex medical conditions that often warrant immediate emergency services,” she explained. “Every additional minute it takes to get to the hospital for someone having a stroke or a heart attack is a matter of life or death.”

Dr. Vohra and Dr. Ojikutu both emphasized that any disruption of care would pose an even greater risk to Dorchester because of health disparities.

“When we look at health outcomes in the neighborhood, across all the zip codes, we’re really talking about a neighborhood that has the highest age-adjusted premature mortality rate in Boston, meaning that’s a high rate of death before the age of 65,” said Dr. Ojikutu, citing indicators such as high rates of hypertension and hospitalizations for diabetes.

“My point in sharing these is that these are preventable” she explained. “What we really need to be doing is focusing on building our capacity to help people to prevent the chronic diseases that get out of control and they end up having folks who are overwhelming the hospital system.”

In 2010, when former Massachusetts Attorney General Martha Coakley approved Steward’s acquisition of the six Catholic hospitals in the Caritas Christi network, she said it would preserve jobs and access to care, along with providing new jobs and capital improvements to facilities. Her approval included safeguards for services and an additional five years of monitoring by the state. It also came after de la Torre had hosted a fundraiser at his home for Coakley’s US senate campaign—and before the Steward CEO and other employees would contribute to her later campaign for governor.

By December of 2015, Steward was already showing signs of financial trouble. Coakley’s successor at the time, Maura Healey, reported “substantial losses” at Steward facilities going back to 2012. In the three years covered by her report, the Carney accounted for almost 60 percent of the losses by the system’s hospitals.

“The market trends Steward has experienced are similar to those experienced by other lower cost community providers across the state,” the report concluded. “As documented by this office, health care market dysfunction persists, with negative consequences for many lower cost providers. Without improvement to market functioning, community-based care in the Commonwealth will likely continue to experience challenges.”

Steward executives, including de la Torre, would repeatedly blame part of the system’s financial problems on the lower rates paid for patients insured by government programs, with prestigious teaching hospitals commanding higher reimbursements from patients with private coverage. But, in 2016, with the state scaling back scrutiny, and less than two years after the closing of Quincy Medical Center, which had been acquired by Steward in 2011, de la Torre would soon move ahead with more expansion plans outside New England and even abroad.

Making the move possible was the $1.2 billion that would be paid for Steward’s facilities by Medical Properties Trust, Inc., which would become Steward’s landlord. In a full-page ad that Stewart ran in The Boston Globe in September, 2016, the deal was headlined in large capital letters as a “HOME RUN” for patients, communities, employees, and facilities. “It strengthens our financial health for years to come,” the ad copy boasted. “It proves our model for providing high-quality affordable care close to home is working.”

The model worked for Cerberus. By 2021, after more borrowing and expansion by Steward, its original backer checked out with a net profit of $800 million, according to Bloomberg. Helping to make it possible in 2020 was the transfer of controlling interest from Cerberus to a “management group” led by de la Torre.

As the Globe reported, the transfer made Steward “the largest physician-owned and operated hospital system in the United States.” According to a report by the progressive think tank, the Center for Economic and Policy Research, the transfer also converted stock equity into a type of five-year bond with interest payments to Cerberus, giving the private equity firm more financial protection in the event of a bankruptcy.

Back in September, 2015, the Globe reported that Carney Hospital was bringing in more patients and “turning a corner.” And, in 2016, it reported that Steward finished the previous year with a net profit, substantially boosted by a one-time “pension settlement.” Three years later, the reports were about losses in the hundreds of millions, partly attributed by Steward to acquisition costs, with the Carney’s 2018 loss at $23 million.

“The rapid, scattered (merger and acquisition) strategy,” the Center’s researchers concluded, “was designed to create a large corporation that could be sold off in five years for financial gain — not for healthcare integration. Its debt load exploded, and by 2019, the financial ratings of its Massachusetts hospitals were the lowest of any system in the state.”

In a letter last week to Gov. Healey that was shared with FitzGerald, Steward denied that it was pursuing corporate and personal gain at the expense of patients. In a Feb. 15 letter addressed to Cerberus, US Sen. Elizabeth Warren (D-Massachusetts) expressed a different view.
“We are particularly concerned about the extent to which Cerberus and its affiliates literally stripped out and sold the property from underneath these hospitals, creating hundreds of millions of dollars in profits for private equity executives, while leaving the facilities with long-term liabilities that are magnifying – if not creating – the current crisis,” the senator wrote.

“Ownership by private equity investors increases health care costs and reduces quality of care, and private equity firms have played a role in the collapse of hospitals around the country, hurting communities and the health care workers and other staff that serve them,” she argued. “The dire threat of Steward’s collapse appears to be a textbook example of the grave risks posed by a private equity takeover of the health care system.”
Making a similar point at the City Council hearing was Alan Sager, a professor of Public Law Policy and Management at the Boston University School of Public Health.

“We don’t have a free market anywhere in healthcare, and relying on one is like believing in the tooth fairy,” he said. “This mindset allowed Steward, Cerberus, and Medical Properties Trust to treat our hospitals like chips in a game of strip poker—stripping away assets and leaving behind unpayable debt.”

Instead, Sager called for stronger intervention from the public sector. “But state officials and legislators are much clearer about what they will not do than they are about what they will do,” he said. “They won’t give Steward public money. They won’t identify which Steward services are essential to protect the health of the people. They won’t declare a public health emergency and petition the court to put Steward in receivership, allowing the state to take control of Steward. They won’t accept responsibility for dozens of years of inaction that have left the state without understanding or the legal tools or the financial tools to identify and move quickly to stabilize needed hospitals.”

Any transition to a new operator will depend on what becomes of Steward’s financial obligations. “Those heavy rents on the sale and lease-back are a huge financial burden on the Steward hospitals,” Sager warned, “and would be a big impediment to another operator coming in, unless legal action could be taken to either cancel the rents or recover the money from those that have it.”

During the hearing, Councilor At-Large Councillor Erin Murphy asked whether transition could also be supported by having patients from overburdened providers in Boston redirected to the Carney Hospital or St. Elizabeth’s Medical Center. The day after the hearing, Dr. John E. McDonough, Professor in the Dept. of Health Policy & Management in the Harvard T.H. Chan School of Public Health, suggested that part of a longer-term solution could be a conversion of unused capacity at the Carney to relieve backlogs in post-acute care at other facilities resulting from shortages of space and staffing.

“All the Steward institutions,” he added in an email response, “have been carrying loads of debt at the service of corporate Steward, Medical Properties Trust, Cerberus, and other unsavory characters for the benefit of providing Dr. de la Torre with two yachts and two jets, among other bennies.”

McDonough went on to add, “I hope that federal and state prosecutions happen and the responsible corporate entities are hung out to dry. Lots of bad behavior and misused dollars to claw back.”