Markey, Warren blast Steward and its CEO at congressional hearing in Boston

The financial problems looming over Steward Health Care and its eight Massachusetts hospitals were the subject of pointed criticism during a 90-minute congressional field hearing in Boston Wednesday.

The hearing, led by U.S. Sens. Ed Markey and Elizabeth Warren and titled "When Health Care Becomes Wealth Care: How Corporate Greed Puts Patient Care and Health Workers At Risk," focused on the national picture of for-profit companies in health care and dug into Steward's problems in Massachusetts.

The company has said financial losses are jeopardizing operations at its Massachusetts hospitals, and it plans to leave the state. Markey said Steward executives trapped those hospitals with "the rot of their greed."

"What we've seen in the face of the Steward crisis is uniting people in the face of the greed, which we can see here in our home state: doctors, nurses, lab techs, hospital administrators, professors, advocates and elected officials are all saying clearly that it is long past time to make sure patient health comes before shareholder wealth in Massachusetts and across our country," Markey said at the State House hearing.

Supporters of private equity in health care accused the lawmakers of "scapegoating private equity for systemic challenges rippling throughout the U.S. health care system."

The senators both harshly criticized Steward and its CEO Ralph de la Torre, who declined an invitation to testify at the hearing.

"While we hold this hearing, Dr. de la Torre is hiding out," Warren said. "Shame on Dr. de la Torre. He owes the residents of Massachusetts an explanation for his part in looting Steward hospitals. And law enforcement authorities should carefully review every aspect of this fiasco."

Massachusetts Gov. Maura Healey has urged the company to leave Massachusetts and is working with health care leaders to plan for the future of its hospitals. The hospitals employ more than 16,000 people and serve tens of thousands of patients, with many of them in vulnerable communities with few other health care options.

Steward operates more than 30 hospitals across the country and has had trouble paying its bills.

In 2016, Steward sold its hospital real estate in Massachusetts to a real estate investment firm, Medical Properties Trust, for $1.25 billion. Steward agreed to pay rent to keep its hospitals running. This year, Medical Properties Trust said the company owed tens of millions dollars in back rent. Both Warren and Markey said the leaseback deal was a major factor behind Steward's financial difficulties.

Last month, Steward notified the state that it had reached a deal to sell its physician network, Stewardship Health, to Optum, a subsidiary of the for-profit company that also owns the insurer UnitedHealthcare. The senators urged regulators to closely review the deal.

"Optum may be willing to pay Steward hundreds of millions of dollars, but the deal provides no guarantee that the hospitals would stay open," Warren said. "In fact, the money could go into Steward and right back out the door again to corporate lenders or investors without a single penny used to help these hospitals."

Donald Berwick, president emeritus and senior fellow at the Institute for Healthcare Improvement and a Harvard Medical School lecturer, testified at the hearing. He said the Optum deal likely would cause health care costs to rise in Massachusetts, adding that Steward is just one example of how private equity involvement in health care has been shown to harm patients.

"The Steward debacle is born of unleashing gaming and profiteering and greed among private equity investors whose aim is to accumulate wealth and whose method is to layer vulnerable health care organizations with debt and rental burdens too great to bear no matter what happens to patients and communities," Berwick said. "The needs of the patient, far from coming first, are nowhere in sight."

But the American Investment Council argues that private investments have helped health care systems across the country and provide capital for innovation and new medical discoveries. Leaders of the council said private equity investments support 345 Massachusetts health care companies that employ tens of thousands of people.

"Private equity has a long history of strengthening U.S. health care and improving the lives of millions of Americans, including in Massachusetts," Drew Maloney, president and CEO of the American Investment Council said in a statement. "Unfortunately, headline-seeking politicians continue to place misguided blame on our industry instead of pursuing sound policymaking to address systemic challenges head-on. ”

Cerberus Capital Management, the private equity firm that bought the state hospital system that became Steward Health Care in 2010, also defended private health care investments.

In the company's response to the senators, Cerberus executives said it rescued failing Massachusetts hospitals in that deal. They added that the facilities were operating successfully in 2020, the year Cerberus ended its relationship with Steward and placed the hospitals under Steward's sole control. Cerberus officials said in the statement that Cerberus made long-term investments in the hospitals and fulfilled its fiduciary role to investors — many of whom rely on successful investing for their retirements.

"At the time that we sold our controlling interest in Steward in 2020 to Dr. de la Torre and his management team," the company's executives wrote to the senators, "Steward was a success story not just for our investors (teachers, firefighters, policemen, municipal workers, pensions and endowments, among others), but also for its stakeholders, including the numerous communities that it served."

Steward used proceeds from the sale of the Massachusetts hospital real estate to pay back Cerberus for its initial $246 million purchase of the Caritas Christi hospital chain. Warren and Markey said Cerberus made $800 million in profit from that transaction.

Ahead of the hearing, Warren and Markey said the Cerberus response was inadequate, and they want to know exactly where the profits from the hospital real estate sales went.

“Cerberus’s answers still don’t provide a clear answer for how much Cerberus made off of the people of Massachusetts," the senators said in a statement before the hearing.

At Wednesday's hearing, Markey highlighted a bill he drafted known as the "Health Over Wealth Act," which he said would give federal regulators authority to bar some private equity investments in health care and block real estate transactions that destabilize health systems.

Warren also spoke about a bill she filed called the "Stop Wall Street Looting Act," which she explained would require private equity firms to share the liabilities of companies they control.

Several other industry experts spoke at the hearing, including Dr. Ellana Stinson, president of the New England Medical Association; Eileen O’Grady of the Washington, D.C.-based Private Equity Stakeholder Project; and Hannah Drummond of the National Nurses Organizing Committee.

The U.S. Senate Committee on Health, Education, Labor and Pensions will accept public comments on the issue of private equity in health care until April 17.