Private Equity and Consolidation

In 2010 Cerberus Capital Management, a New York private-equity firm better known for Chrysler and GMAC, bought Caritas Christi Health Care, the Archdiocese of Boston's six-hospital Catholic system, which was struggling with an underfunded pension and ageing buildings, for about $895 million including commitments (reported). It renamed the system Steward Health Care. Its chief executive, Ralph de la Torre, a cardiac surgeon, argued that community hospitals could deliver most care at lower cost than Boston's teaching hospitals, and that a physician network with risk contracts could keep patients local. Steward bought more Massachusetts hospitals and joined Medicare's Pioneer accountable-care programme.

The model needed capital the hospitals did not generate. In 2016 Steward sold the real estate of its Massachusetts hospitals to Medical Properties Trust, an Alabama real-estate investment trust, for about $1.25 billion and leased it back. The proceeds paid Cerberus a dividend and funded expansion, each step financed largely by MPT: eight hospitals from Community Health Systems in 2017, the IASIS chain the same year, a hospital concession in Malta in 2018 and five Miami hospitals from Tenet for about $1.1 billion in 2021. Cerberus sold out to de la Torre and a physician group in 2020, and Steward paid its owners a dividend reported at about $111 million in 2021. Then rent, debt and weak operations overwhelmed it. Vendors went unpaid, and a patient died at a Steward hospital after a medical device had been repossessed for non-payment (reported). Steward filed for Chapter 11 on 6 May 2024 with about $9 billion of liabilities and 31 hospitals. Carney Hospital and Nashoba Valley Medical Center closed in August, and the US Senate voted in September to hold de la Torre in criminal contempt for defying a subpoena. This chapter explains the private-equity playbooks in healthcare, the cases where they failed, and the rules being written in response.