Steward Health Care, New England’s largest investor-owned hospital chain, has posted an eight-figure loss for the third year in a row. But while the system’s finances are raising questions about the future of the private equity-backed venture, Steward says its financial health isn’t as bad as critics think it is.
The nine-hospital Massachusetts health system owned by Cerberus Capital Management recorded a loss $52 million in 2013 on $2.1 billion of revenue, according to an audited financial statement disclosed to the Massachusetts Center for Health Information and Analysis. That loss comes after Steward lost $33 million in 2012 and $59 million in 2011.
Steward’s cash and cash equivalents also dropped, from $52 million to $36 million, and it lost more than $16 million on a number of asset selloffs, including a disaffiliation with Laboure College, a nursing and healthcare college in Milton. In 2013, Steward spent $32 million acquiring the Hawthorn Medical Associates physicians practice.
[Also: Fitch Ratings bullish on for-profit healthcare]
While every other Massachusetts health system posted an operating gain in 2013, Steward maintains that all but one of its hospitals are now profitable and that its trajectory is sound, considering the distress many of the facilities were previously in prior joining the private equity-backed health system.
New York-based Cerberus formed Steward in 2010 out of the distressed Caritas Christi Health System, in a bid to create an affordable healthcare option to the Boston academic systems, in the state with the most expensive per-capita healthcare.
“Since 2010, Steward has taken a group of chronically financially distressed community hospitals and put them on a path toward financial stability,” said media relations vice president Brooke Thurston.” The company has made more than $850 million in “long-term investments in our integrated care organization, such as investments in IT, facility infrastructure and physician practices, especially primary care physicians,” Thurston said.
[Also: Tracking 2015 mergers and acquisitions]
However, some Massachusetts healthcare observers see Steward’s 2013 loss as a sign that the company is struggling. “A persistent negative operating margin is not good news for the company's exit strategy, especially when revenue-producing assets have been sold off for short-term cash gains,” wrote Paul Levy, the former CEO of Beth Israel Deaconess, on his blog. The “transaction will have a tail that will leave Massachusetts policy-makers with difficult choices.”
Steward’s Thurston, though, notes that the disclosed statement to the Center for Health Information and Analysis (CHIA) is a little old and “does not reflect the current financial health” of the company.
Follow Healthcare Finance on Twitter and LinkedIn.
All of Steward’s hospitals are in the black, except for Carney Hospital in Dorchester, which had an operating margin of negative 8.9 percent in 2013, according to the CHIA. Four other Steward hospitals did have negative margins in 2013. But one of them, Quincy Medical Center, which had a negative 26 percent margin, was closed late last year and converted into a free-standing ER with an urgent care facility, multi-speciality clinic and radiology lab.
Another one, Merrimack Valley, which had a negative 22 percent margin, merged with Holy Family in nearby Methuen to run as a two-campus hospital. Holy Family had a 4.2 operating margin in 2013, and Steward’s Saint Elizabeth Medical Center in Boston, its largest with revenue of $300 million, had a margin of 3.1 in 2013. “By the end of 2014, our hospital business was profitable and it continues to track in that direction this year,” said Thurston.
Steward was in the news in part because of disagreement with CHIA about whether parts of its audited financial statement could be redacted. The health system was able to make certain redactions about its long-term debt, but still may face a fine for not meeting the state agency’s deadline.
Among other financial items in the statement, Steward’s cash and cash equivalents fell in 2013, from $52 million to $36 million, and it lost more than $16 million on a number of asset selloffs, including a disaffiliation with Laboure College, a nursing and healthcare college in Milton. In 2013, Steward also spent $32 million acquiring the Hawthorn Medical Associates physicians practice, and in December 2014, Quincy Medical Center was closed after an investment of $100 million in equipment and upgrades.
Steward’s goals of offering an affordable, high quality network of community based hospitals and clinics has also seen challenges when it comes to expanding beyond Massachusetts. In late 2012, it withdrew from a bid to takeover Mercy Health System, in Maine, after concluding that Mercy’s finances were misrepresented.
Editor's note: This story has been updated to include comments from Steward on its financial health.
Twitter: @AnthonyBrino