Bloomberg Businessweek - USA (2020-08-10)

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BloombergBusinessweek August 10, 2020

fromrivals,suchasFrankPomposelliJr.,chiefofsurgery

atSt.Elizabeth’s.“Thecareyougethereis asgood,if notbet-

ter,thanatanyBostonhospital,”saysPomposelli,recruited

fromBoston’sHarvard-affiliatedBethIsraelDeaconessMedical

Centerin2011.

Butalmostassoonasthestatemonitoringperiodended,

Cerberusdidwhatmanyprivateequityskepticsfeared.In2016,

Stewardsoldoffsomeofthehospitals’propertyfor$1.25bil-

lion.Thehospitalsnowhadtopayrenttousebuildingsthey

onceowned.ThathelpedCerberusextracta giantgain;oneof

itsfundscollecteda $484million dividend, according to a con-

fidential investor document. Mostly because of the real estate

transaction, the fund tripled its money. The deal also enabled

an acquisition spree. Steward now owns 34 hospitals in nine

states, including Florida, Ohio, Pennsylvania, and Texas, as well

as two in, of all places, Malta.

Steward ended up with $1.3 billion in long-term debt in 2018.

On top of that, it owed more than $3 billion in future lease

payments. In keeping with the private equity model, Cerberus

didn’t owe that. Steward did. The hospital company is bleed-

ing—a combined half a billion dollars in losses in 2017 and 2018

alone, according its last publicly available financial statements.

Based on 2018, the Massachusetts agency monitoring hospital

finance rated Steward’s solvency lower than that of any other

hospital system in the state.

A spokesman for Steward says it has plenty of cash to meet

its obligations, and its underlying businesses are sound and

growing. Still, current and former employees complain about

chronic maintenance problems and supply shortages, and

some vendors have cut off business with Steward. Since early

2019, several companies have taken Steward to court over

past-due invoices: two advertising firms, Rev77 in Arizona

and Richards Group in Texas, for billings that topped $2 mil-

lion; Angelica, for $317,000 in hospital linens; Great Eastern

Energy, a New York utility, for $250,000 in natural gas bills;

and Ohio vendors for $213,000 in flooring and $36,000 for

boiler repair. Not long ago, Cape Cod Cafe stopped delivering

pizzas for the cafeteria at Steward’s Good Samaritan Medical

Center, in Brockton, Mass. Cafe co-owner Jonathan Jamoulis

saysStewardwouldpayonlyafterthousandsofdollarsinbills

piled up for six months. “It was a lot of money for us,” he says.

Late payments weren’t just an oversight, according to sev-

eral former finance employees. Steward instructed staff to delay

payments. Mike Green, who worked briefly as a controller for

three of Steward’s Ohio hospitals in 2018, says the company

wanted to improve its short-term cash flow. “Vendors that were

used to receiving a payment in 30 days were waiting 90 and

sometimes more than that,” says Green, now chief financial

officer at Jaro Transportation Services Inc., an Ohio trucking

company. “It snowballed to where we were struggling to get

supplies in a timely manner.”

Steward says disputes with vendors have been resolved

and reflect a negligible part of its spending. The delays, it says,

reflect the difficulty of integrating payments systems in the com-

panies it bought. “We continue to work diligently on this trans-

formation,”thecompanysaidina statement.

teward and its financial backer pride themselves on

being shrewd hospital operators. Under Cerberus,

Steward adopted software that it says can predict hos-

pital occupancy with 95% accuracy. That way, rather

than focusing on a hospital’s average patient count—and risk

being overstaffed or understaffed—Steward can get closer to

the ideal. When, as is inevitable, hospitals have more than the

expected number of patients, they rely on overtime and con-

tract nurses. Several years ago, the software helped alert one

hospital to a coming surge related to a bad flu outbreak. The

approach has saved tens of millions of dollars a year, says Mark

Girard,a StewardexecutiveandradiologistinMassachusetts.

Inaninvestorupdate,CerberussaidSteward’s“proprietary

proactive labor management IT tool” enabled it to reduce staff-

ing by 532 employees in 2013.

But more than two dozen current and former employees say

the hospitals are often short-staffed. In their view, the situation

can threaten patients, such as those who need supervision to

prevent falls. In the business, certain mishaps are considered

unacceptable, or “never events.” In 2018, the latest year avail-

able, Steward reported 754 falls to the Massachusetts Health &

Hospital Association, including 156 with injuries. In many of its

units,it hada higherrateoffallsthanatsimilarsizedhospitals.

TheCentersforMedicareandMedicaidServices(CMS)crit-

icizedSteward’sresponsetoanelderlypatient’sFebruaryfall

atitsHolyFamilyHospitalinHaverhill,sayingit hadfailedto

takestepsto“preventa likeeventfromoccurringinthefuture.”

Accordingtoa federalinspectionreport,theemergencyroom

hadordereda one-to-oneaide,orsitter,butthepatientdidn’t

haveone.Thehospitalblameda nurseforturningoffa bed

alarm;thenursesaidshehadbeenoverwhelmedwithother

patients.Thecompanysaysit hasincreasedsittersatHoly

Familyandelsewhereinrecentyears.

Twootherindicatorssuggestinadequatestaffing.Leapfrog

Group,a qualityratingservice,saysStewardhospitalssuchas

St.Elizabeth’s,HolyFamily,andGoodSamaritanhaveabove-

average rates of some hospital-acquired infections. In Medicare

and Medicaid surveys, a lower percentage of patients at those

Patient Fall Rates at Steward Hospitals in 2018

Hospital

Fallsin hospital’smedical/surgicalunitper1,000patient days

Allfalls Fallswithinjury Peergrouprate

Carney

Holy Family Methuen

Saint Anne’s

Holy Family Haverhill

Nashoba

Good Samaritan

Morton

St. Elizabeth’s

Norwood

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