Over the past couple of decades, a large number of formerly non-profit hospitals, health systems and health insurers have been purchased by for-profit corporations. Many of them purchases were initially defended as “rescues” but later turned out badly, raising serious questions about who should be allowed to own a healthcare organisation.
What does it actually mean to own a company? This sounds intuitive. Ownership means you can do whatever you want with something, right? Well, not quite, but close. Ownership is basically a broad set of rights, such as the right to to restrict others from being able to use something, the right to sell access to it or even sell the whole thing (i.e. transfer of ownership). And if it’s a company with cash or other assets such as real estate, then it includes the right to take that money and use it for other things. These rights are constrained in certain ways by laws and legal contracts. But they’re still quite broad.
The news stories that prompted this week’s newsletter were all about the travails of Steward Healthcare, including some about the CEO’s yachts. Credit here to Boston Globe reporters for a series of stories on Steward’s finances and interactions with Massachusetts state government. Steward was created in 2010 when the Catholic nonprofit Caritas Christi healthcare system in Massachusetts was purchased by Cerberus Capital Management, a New York-based private equity fund. The health system’s CEO, cardiac surgeon Ralph de la Torre, stayed on as CEO of the now-rebranded Steward Healthcare. (It’s likely not likely a coincidence that the word “stewardship” is widely used in ecclesiastical contexts.) Steward went on to acquire other hospital systems across the country, at one point becoming the country’s largest private owner of hospitals. In 2016, Cerberus and de la Torre extracted hundreds of millions of dollars out of Steward by selling off its real estate to a holding company, Medical Properties Trust. Subsequently, Cerberus cashed out by selling the whole system to a de la Torre-led physician group and Medical Properties Trust, with MPT financing the sale through a massive loan to the physician group.
Why did the Boston Catholic arch diocese sell the Caritas Christi system in the first place? The hospitals were struggling financially, and there was hope that private ownership would bring in new capital to rescue the system. Were there concerns about selling out to a for-profit? Absolutely, including from the Commonwealth of Massachusetts, who insisted on a 5 year period of financial oversight following the sale. Yet the deal went through anyway.
So where do the yachts and planes come in? Over the years, de la Torre has personally extracted enough wealth from the system to purchase not just one, but two luxury yachts, one of which is displayed on this newsletter. He also has two private jets, which are apparently owned by the Steward physician group which he controls, but that’s more or less equivalent to his owning them personally.
And what’s happened to Steward? It’s on the verge of bankruptcy, unable to make its rent payments. The hospitals are understaffed and undersupplied, so much so that for a period of time the Mass General Brigham physician’s group pulled back their doctors from admitting patients to their hospitals out of safety concerns.
And now the latest rumours indicate that United Health’s Optum division (already the nations largest employer of physicians) is bidding to purchase Steward’s physician group (but not the money-losing hospitals), according to this Boston business-and-politics podcast, which covers the Steward story in gory detail. Worth a listen.
Bottom line: ownership matters. When for-profit corporations are allowed to own hospitals and physician groups (not to mention dialysis centres) there are real-world consequences.
So what can be done? Is this just a hopeless situation? The Codcast discussants certainly don’t think so, and they suggest a number of different pathways forward for hospital ownership (non-profit ownership, that is). Meanwhile, on the opposite coast, an interesting bill has just been introduced into the Oregon Legislature. HB4130 would limited the “Corporate practice of medicine” by disallowing substantive ownership of medical groups by non physicians. Not that this is a complete solution — keep in mind that Ralph the yachter is/was a cardiac surgeon — but it’s a step toward health professionals taking back medicine from purely financial interests. Stay tuned.