Dallas-based Steward Health Care, the largest physician-led hospital operator in the country, filed for Chapter 11 bankruptcy this morning in the U.S. Bankruptcy Court for the Southern District of Texas, following months of financial struggles including missed payments to its landlord and vendors.
Steward operates more than 30 hospitals across eight states, according to a spokesperson for the company. The filing marks the largest provider bankruptcy in decades, according to Laura Coordes, professor of law at the Sandra Day O’Connor College of Law at Arizona State University.
Regulators and experts have been anticipating the filing since April 30, when the for-profit chain missed its deadline to pay back at least a portion of its $750 million debt to half a dozen lenders. The private lenders, it appears, declined to extend Steward further credit.
The operator said its is working to finalize terms of debtor-in-possession financing from its landlord, Medical Properties Trust, for initial funding of $75 million and up to an additional $225 million in funding upon the satisfaction of additional terms, according to a Monday press release.
Regulators react
In Massachusetts, where Steward operates eight hospitals, lawmakers have been preparing for this day for months.
Regulators escalated their efforts to receive financial information from distressed Steward beginning this winter. They first sent letters requesting information about the system’s financial health and a plan for action. Then they invited Steward to public hearings to brief the community about the brewing crisis — Steward officials were a no-show.
Finally, officials hunkered down late last month for closed-door contingency planning sessions to consider how a possible Steward bankruptcy might impact Massachusetts’ health system writ large.
Among those present during April 24’s strategy session were David Seltz, executive director of the Massachusetts Health Policy Commission, which oversees the finances of hospitals in the state; Kate Walsh, secretary of Massachusetts’ Health and Human Services; and Robbie Goldstein, commissioner of the state’s Department of Public Health.
Walsh described the meetings to the Boston Globe as going “to bankruptcy school” to map out all the possible outcomes that could come with a filing. Walsh stressed that hospitals would not necessarily close when Steward declared bankruptcy and entered restructuring — at least in the short term — based on her conversations with experts.
However, Seltz is concerned the state’s Southeastern region can’t withstand any disruption to care given the region is already rated by state officials as “high risk for or active constraints on hospital capacity,” according to testimony from Seltz on April 24.
Capacity constraints could significantly worsen with healthcare service disruptions resulting from a Steward bankruptcy, warned Seltz. He added southeastern Massachusetts residents are particularly vulnerable to disruptions in care because they have lower-than-average incomes and “substantial” care access challenges.
“These compounding challenges signal the need for collaborative action to ensure the stability of the health care landscape in Southeastern Massachusetts,” Seltz said in a statement accompanying his testimony.
Steward said it does not expect any interruptions in its day-to-day operations, which will continue in the ordinary course throughout the Chapter 11 process.
Monday morning, the Massachusetts HHS released a statement on X, formerly known as Twitter, saying the state had been preparing for this outcome and had plans in place to preserve care access,
“Steward hospitals remain open, and patients should not hesitate to seek care. The Healey-Driscoll administration is working with Steward and any potential partners to support an orderly transfer of ownership that protects access to care, preserves jobs and stabilizes our health care system,” the HHS said.
Steward’s failed turnaround plan
Although Steward put forth a plan to return to financial good standing in February, experts were dubious about whether the health system could execute a turnaround in such short order — especially given the plan was dependent on asset sales.
Steward said it would sell its physician group, Stewardship Health, and re-tenant some of its hospital portfolio to free up liquidity to pay down debts.
However, as of April 24, the HPC said it had not begun its formal review of the deal, noting it was yet to receive all of the documents required to do so.
In a statement Monday about the bankruptcy, CEO Ralph de la Torre said the delayed sale contributed to the bankruptcy filing.
“Steward Health Care has done everything in its power to operate successfully in a highly challenging health care environment,” said de la Torre. “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.”
The CEO also said external factors contributed to the company’s financial woes, citing insufficient reimbursement from government payers, high labor costs, inflationary pressures and lingering impacts of the COVID-19 pandemic.
Why didn’t analysts predict Steward’s collapse?
Steward has earned a reputation for being secretive about its finances. In February, Massachusetts Gov. Maura Healey accused Steward of acting like a black box to obscure regulatory efforts and hide its financial condition.
The health system has spent years immersed in a legal battle with Massachusetts regulators over submitting routine financial data for auditing, citing the need to protect confidential business information.
The company has also failed to provide its own landlord with audited year-end financials, according to MPT’s 2023 annual report. MPT was required to disclose Steward’s 2022 audited financials to the Securities and Exchange Commission because Steward accounted for more than 20% of MPT’s assets that year.
The watchdog agency requested Steward’s financial information from MPT over 200 days ago in July, and has since sent two follow-up letters, according to MPT’s annual report. Steward has maintained the documents are unavailable.
With limited data, analysts told Healthcare Dive that it became very difficult to see the full scope of Steward’s struggles. Even Stuart Altman, who chaired the Massachusetts regulatory agency charged with overseeing hospital spending between 2012 and 2022, said his board missed the full scope of Steward’s problems.
“I wish I could help you,” he said. “We at the Health Policy Commission did not hear in any way that they were in trouble. It just didn't come up until fairly recently.”
