Steward Health Care is tight-lipped about its finances, but a picture of the private, for-profit hospital chain’s first year in business is starting to emerge.
The Boston-based company in 2010 pulled off a major acquisition of 10 struggling hospitals in eastern Massachusetts and began sprucing them up and streamlining their operations. The company’s strategy hinges on convincing residents in communities like Dorchester, Brockton, Fall River, Quincy, and Haverhill to get their care at the local hospital instead of going into downtown Boston to the major teaching hospitals. Steward’s entry into the market has competitors buzzing and analysts wondering whether the chain can resuscitate community hospitals that had been on life support.
Earlier this year, some tidbits from the company’s fiscal 2011 audited financial statements were released in Rhode Island as part of a regulatory review there of a pending Steward hospital acquisition. Now CommonWealth has obtained the complete statements by filing a public records request with the state of Massachusetts. Other financial data on Steward and other hospitals was released by the state’s Division of Health Care Finance and Policy.
The records show Steward had a $56.9 million net loss for the year ending Sept. 30, 2011. Eight of Steward’s 10 hospitals reported red ink, led by St. Elizabeth’s of Brighton with a $20.9 million loss and Quincy Medical Center at $18.5 million. St. Anne’s Hospital in Fall River and Good Samaritan Medical Center in Brockton were Steward’s best two performers, reporting a $12.7 million and a $108,000 profit, respectively.
According to the most recent annual report of the state Division of Health Care Finance and Policy, Steward reported the biggest loss of any multi-hospital system. Vanguard Health System had a $2.9 million loss, while Partners Healthcare, which owns Massachusetts General and Brigham and Women’s, reported a $342 million profit. Care Group, which owns Beth Israel Deaconness, reported a $95 million profit and UMass Memorial Health Care recorded a $56.1 million profit.
Steward’s financial statements also shed a bit more light on the relationship between the chain and its owner, Cerberus Capital Management, a New York private equity firm. The statements indicate Cerberus pumped $246 million into Steward in fiscal 2011 and also obtained a $200 million line of credit from three financial institutions “for large-scale capital improvements at several hospitals, acquisitions of new hospitals, and for general working capital needs.”
Steward borrowed $96 million under the original $150 million line of credit, incurring $800,000 in interest expenses, according to the 2011 financial statement. By December 2011, according to the statement, the line of credit was expanded to $200 million and another $41.3 million was borrowed.
Steward reimbursed Cerberus $6.4 million for legal, accounting, professional consulting, and other costs as well as another $2.2 million in ongoing consulting services, according to the financial statement.
In its filings, Steward disclosed that Cerberus awarded members of Steward’s management team nearly 13.5 million Class B interests in Steward Healthcare Investors LLC, which is described as a “controlled affiliate” of Cerberus. The value of the interests, which are essentially financial incentives given to managers if the company meets performance goals, is unclear. Steward’s financial statements indicate the company recognized compensation expenses of $1.2 million in connection with the interests in 2011.
A spokesman for Steward said earlier this year that the hospital chain would no longer answer questions from the magazine because of an alleged bias in its reporting.
