Steward Health Care Puts All Hospitals for Sale After Declaring Bankruptcy

The struggling hospital operator is searching for financial solvency while keeping its facilities open.

Steward Health Care announced this week that it has filed for Chapter 11 bankruptcy and put all 31 of its U.S. hospitals up for sale as it attempts to dig its way out of financial ruin.

The Dallas-based health system, which is the largest physician-owned hospital operator in the country, has suffered a precipitous fall after accruing significant debt stemming from missed rent and vendor payments, which lawmakers have laid at the feet of its previous private equity ownership, Cerberus Capital Management. Steward marks the latest example of private equity-backed companies in healthcare going awry due to mismanagement and overleveraging.

In announcing its bankruptcy filing—a move regulators anticipated—Steward said it is finalizing debtor-in-possession financing from Medical Properties Trust for initial funding of $75 million and up to an additional $225 million upon the satisfaction of certain conditions.

“Steward Health Care has done everything in its power to operate successfully in a highly challenging health care environment. Filing for Chapter 11 restructuring is in the best interests of our patients, physicians, employees, and communities at this time,” Ralph de la Torre, CEO of Steward, said in the news release. “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.”

One day after declaring bankruptcy, the operator stated that it has put all of its hospitals across eight states up for sale.

During a court hearing in Houston, Steward attorney Ray Schrock told U.S. Bankruptcy Judge Chris Lopez that the health system wants to keep all of its hospitals open as it works to complete transactions by the end of the summer.

Steward has over $9 billion in total liabilities, including $1.2 billion in loans, $6.6 billion in long-term rent obligations, almost $1 billion in unpaid vendor bills and $290 million in unpaid wages and benefits, according to court documents. Schrock said that the operator had $6 billion in annual revenue before filing for bankruptcy.

Spotlight on private equity

Not every private equity-backed organization in healthcare has gone down the path of Steward, but the operator’s unraveling has further put private equity’s impact on the industry under the microscope.

With much of the growth in private equity happening at the level of physician employment and consolidation though, Steward’s bankruptcy is a bit of an outlier in regards to health systems, Pam Stoyanoff, president and chief operating officer at Texas-based Methodist Health System, told HealthLeaders.

“Considering private equity in general, healthcare is complicated, local, capital and labor intensive, and relational. The wheels can turn slowly,” she said. “The requirement for higher and more rapid investor financial returns that are emphasized by private equity firms can be underestimated and consequently detrimental. To some extent, I believe that’s what we are seeing with Steward.”

Bankruptcies by private equity companies in healthcare, however, are on the rise, according to a report from the Private Equity Stakeholder Project.

This past year saw 17 such bankruptcy cases, which accounted for 21% of all healthcare bankruptcies. In comparison, the previous three years combined for 13 bankruptcies.

Lawmakers have taken notice and the result could be legislation designed to create more ownership transparency.