Lawmakers in Massachusetts have sent a letter to Cerberus Capital Management, a private equity firm that founded Dallas-based Steward Health Care, demanding answers related to the health system's financial troubles, The Boston Globe reported Feb. 15.
The letter, obtained by the Globe, was signed by the entire all-Democratic delegation and included questions related to Cerberus' initial investment in Steward, transaction details between Cerberus and Steward, and its total investments and profit.
"We have long been concerned about the nefarious role of private equity in our economy," the letter said, according to the publication. "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."
Lawmakers have requested Cerberus' "explanation for your actions" back no later than Feb. 28, the Globe reported.
The letter comes as Steward is facing a slew of financial troubles, including falling $50 million behind on year-end rent to Medical Properties Trust, the largest hospital landlord in the U.S.
Cerberus Capital Management initially acquired nonprofit, Boston-based Caritas Christi's six hospitals and affiliations in 2010 for $895 million and created Steward Health Care. To convert Caritas Christi, now known as Steward, into a for-profit system, Cerberus was required by the Massachusetts attorney general to meet specific requirements, like making a $400 million investment in Caritas' hospital infrastructures.
"Over the six-year period, Steward took on over a billion dollars in liabilities — while Cerberus executives profited handsomely," the letter said. "The net result of these transactions appears to be an unfolding tragedy. Cerberus and its private equity executives received $800 million in profits, while thousands of Massachusetts health care workers' jobs are at risk and 10 communities in the Commonwealth face the potential closure of hospitals that are debt-ridden, unable to pay their bills, and teetering on the financial brink."
Cerberus began its exit from Steward in 2020 amid continued financial losses. Cerberus then transferred its interest to a group of Steward physicians, led by Steward CEO Ralph de la Torre, MD. The exchange included a note that was due in five years and ensured Cerberus was paid regular interest payments that could be converted to equity, regardless of whether Steward performed well.
Steward purchased the note through the borrowing of $335 million from MPT in January of 2021, placing MPT as Steward's landlord, largest creditor and minority owner. Cerberus fully exited Steward in May of 2021, walking away with around $700 million.
The delegation also sent a similar letter to Dr. de la Torre in January highlighting the impact that the potential sale of four of Steward's nine Massachusetts hospitals would have on patients if they were to close.
However, the health system recently shared that it now has the ability to put a financial safety net around all of them and has no current plans to close its hospitals.
Massachusetts Gov. Maura Healey and her administration also expressed concerns over Steward's financial troubles and a plan of action moving forward during a Feb. 14 public health council meeting.
"I am frustrated with where we are right now as a state and what Steward has done," Ms. Healey said. "That said, our job is to work together to make sure that patients are protected, that our healthcare providers are protected, and able to continue to do the important work that they do throughout the state, and that the stability of our healthcare system is protected."
Becker's has reached out to Cerberus and Steward for a comment regarding the letter and will update this story as more information becomes available.