Steward healthcare hospitals are paid more, not less, than others

Last week, in an interview with the Globe, Governor Maura Healey called Steward’s argument about insufficient insurance payments “laughable.”

“Its financial concerns have more to do with its corporate governance, and its greedy business practices,” she said.

The commission examined only payments from commercial insurers, which can vary widely depending on a provider’s negotiating leverage. It did not include fees for Medicare and Medicaid patients in its analysis. Those patients are generally less profitable than patients with commercial insurance, and Steward said it is challenged by a systemwide payer mix that is over 70 percent Medicare and Medicaid.

That percentage does qualify Steward as a “high public payer” system, but it is not the most burdened. A number of hospitals serve as many or more needy patients, including Baystate Health System, independent community hospitals such as Holyoke Medical Center and Lawrence General Hospital, and Boston Medical Center.

Steward’s hospitals are mostly located in lower-income communities such as Brockton, Dorchester, and Fall River, where staff treat many underserved and elderly residents. And like other community hospitals, Steward facilities are generally paid less than academic medical centers like Massachusetts General Hospital and Brigham and Women’s Hospital.

Steward executives argued that if you consider its hospitals individually, its three larger hospitals are traditionally better paid and subsidize its smaller hospitals, which usually lose money.

But several health care experts who have closely followed Steward’s struggles said that the financial crisis at the for-profit company, which was founded by a private equity firm, is not the fault of “chronically low reimbursement,” as Steward has stated.

“Listen, every hospital wants more money,” said Stuart Altman, a health policy professor at Brandeis University and former chair of the Health Policy Commission. “The idea that they can claim they need higher rates is not unusual. The big problem for them is that their costs are probably far in excess of normal for such institutions.”

The private equity firm Cerberus Capital Management created Steward more than a decade ago out of a struggling Catholic hospital system. In 2016, Steward sold its Massachusetts hospital buildings to a publicly traded real estate investment firm for $1.25 billion, fueling Steward’s national expansion but simultaneously locking the system into long-term multimillion-dollar rent payments. The company has for months been unable to pay its full rent on its hospital buildings, and vendors say the company owes them tens of millions of dollars.

Very few other hospitals pay rent, Altman said.

Large hospital systems, like Dallas-based Tenet Healthcare and Nashville-based HCA Healthcare, prefer to own their real estate “because they understand that leases after selling the real estate are onerous and tend not to work and be economical over longer timeframes,” said Rob Simone, a real estate investment trust research analyst at Hedgeye Risk Management.

When asked if low fees from insurers led to Steward’s financial mess, John McDonough, a health policy professor at the Harvard T.H. Chan School of Public Health, said, “No. This organization … has been financially looted by aggressive financial firms that have been looking to just take every possible nickel and dime from every corner.”

The Globe has reported that Steward chairman Ralph de la Torre owns a superyacht and a sport fishing boat worth a total of about $55 million, and that Steward executives travel the world in two luxury jets owned by the company. Steward said those jets are now for sale.

The Health Policy Commission examined payments to hospital systems, computing Steward’s average relative prices by calculating average prices for all inpatient and outpatient care at the company’s eight acute-care hospitals and comparing those with average prices at other Massachusetts hospital systems

The commission has also examined hospital prices in other recent reports on the state’s health care system. In one instance, the commission found that five Steward hospitals were among the top 11 highest paid hospitals for outpatient endoscopies for adults, with Good Samaritan Medical Center in Brockton paid the fifth most of all hospitals — about $1,500 on average per procedure in 2018. Another analysis found that four Steward hospitals earned fees in the top half of hospitals for inpatient care, excluding maternity stays.

Tufts and Harvard Pilgrim would not comment on Steward’s prices. Blue Cross said in a written statement that Steward’s price increases “have been relatively consistent with the rest of our network.”

“Yes, there are hospitals around, smaller community hospitals, that are in much rougher shape than they ought to be, much of that tied to Medicaid funding not being what it should be,” McDonough said. “Steward is not one of those. So much of its wealth was torn away by Wall Street vultures. Lawrence [General Hospital] has a legitimate case for Medicaid underfunding.”

During an interview with the Globe last week, Healey rejected Steward’s argument that reimbursement rates were central to the company’s problems. She pointed to the number of other health systems in the state that similarly care for high portions of patients on government insurance, saying they were not in the same situation as Steward.

“The difference here, it seems, is that what you don’t see in those settings is an individual at a company that’s come in and essentially looked to strip as much of the asset as it can to line their own pockets, to enable them to go purchase other hospitals,” she said.

Altman said that insurers may have raised Steward’s payments because they wanted to keep the company’s community hospitals viable, as they are relatively low cost compared with academic medical centers — a disparity he says is mostly justified because academic medical centers have legitimately higher costs due to trauma centers, extremely complex patients, and physician training.

Steward’s “cost structure is not related to the care they provide,” he said.

Liz Kowalczyk can be reached at [email protected].