Steward Health Care, a bankrupt Dallas-based hospital system that runs three hospitals in the Mahoning Valley, is set to auction off those hospitals to the highest bidder.
Steward’s downfall has attracted national attention as a cautionary tale of private equity in health care. Meanwhile, residents in Warren are waiting to see what becomes of two of their local hospitals.
What happened with Steward Health Care to lead the system to file for bankruptcy?
Steward was a venture capital-backed health system that once owned more than 30 hospitals, making it the largest for-profit system in the country. They started by buying up several underperforming community hospitals. They then sold the real estate of their hospitals to another company and made the hospitals pay rent on their own facilities. They did this to raise money quickly and pay back loans and purchase more hospitals. Then, they began cutting unprofitable services, like maternity wards. In just 10 years, the private equity company netted a $800 million profit, leading the investors to pay themselves $100 million in 2020.
But last year, Steward showed signs it was overextended. The company began selling off some of their hospitals, and stopped paying bills. Medical supply companies began repossessing some of their equipment, which led to death of a woman in Massachusetts. Shortly after, Steward hospitals’ landlord said that Steward owed them $50 million in unpaid rent. In May, the system filed for chapter 11 bankruptcy.
Who might buy the Warren hospitals in question — Trumbull Regional Medical Center and Hillside Rehabilitation Hospital? And does a buyer guarantee the hospitals will stay open?
According to bankruptcy filings from last week, Steward identified UnitedHealth Group Inc., of Minnetonka, Minnesota, as a lead bidder for its assets.
But other bidders may emerge before the auction. You could have a nearby health system in Akron, Youngstown, or even Columbus or Cleveland, buy the Warren hospitals and run them. Or the hospitals could be converted to an outpatient facility, sending patients that need more extensive care to a larger, main hospital.
J.B. Silvers, a health care analyst at Case Western Reserve University, said whether the hospitals sell depends on if a health system sees the site as an opportunity, or if the price is too good to pass up.
“If it's a distressed property, somebody might see it as a bargain," Silvers explained. "And so even if they bought it and then closed it, it could still make financial sense for them."
He said that's because the hospital’s assets would still have value.
However, if Steward sets too high of a reserve price — the lowest amount they would sell for — they might not get any bids, Silvers noted. In that case, Steward told the bankruptcy judge it would close hospitals or appoint interim operators.
What could this mean for Warren?
Residents are understandably concerned about losing health care in a region that has already lost several community hospitals over two decades. Some of that is due to declining population and national trends in health care. People are more willing to travel to bigger hospitals for some things, and a lot of hospitals have become outpatient facilities.
In Warren, hospitals are a top employer. Honeya Price, a Warren city councilmember, said hundreds of jobs are at stake, including cafeteria workers and janitorial services. There’s no guarantee a sale will mean they can keep their jobs, or even keep the hospital open.
“I'm worried about history repeating itself," Price said. "So you can have a buyer and they not do anything. They could just be sitting there and then eventually they have to tear it down.”
The hospitals also paid millions in taxes to the city and county each year, Price said. That tax revenue, which funds many services, also hangs in the balance.
What could be coming down the pike at other health systems in Northeast Ohio. Should we be on the lookout?
Steward’s situation has cast a spotlight on private equity in health care.
The majority of Northeast Ohio’s health systems are non-profits, but private equity backs behavioral health hospitals in Youngstown, Geneva and Beachwood, and rehab hospitals in Avon and Beachwood.
Any time private equity is involved, you must worry about where the companies are cutting costs and where the profits are going, Silvers noted.
“In some cases, they could do a better job of getting the cash flow in better than that local, small level facility that was sort of understaffed. But in a lot of cases, they just closed down," Silvers said.
