Steward Health Care System is already a force for change
For-profit hospital chain is growing fast
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De la Torre said the losses in Steward’s first year were largely the result of investments plowed into the system, including more than $325 million for renovations, construction projects, and information technology at newly acquired hospitals. The improvements include lobby renovations at Carney, Quincy, and Morton, new emergency departments at Good Samaritan and Saint Anne’s, and a new cardiac catheterization lab at Norwood.
At most of these hospitals, arriving patients can immediately notice changes that range from the updated lobbies to new emergency room beds to resurfaced parking lots.
“They’re making major investments in the plant, upgrading the rooms and the beds,” said Quincy Mayor Thomas P. Koch , who pointed out that the formerly nonprofit Quincy Medical Center is now generating tax revenue for the city. “That helps,” he said, “especially in these times.”
Koch said the Quincy hospital, which lost $18 million in 2011, the year it was acquired by Steward, still has more than 1,000 employees and that fewer local residents are choosing to go into Boston for routine care.
“They’d been struggling for years up there. We were concerned with, ‘Are we going to lose a local hospital?’ ” he said. “Now there’s a greater comfort level for a growing segment of the population.”
Many Steward skeptics point to its ownership by Cerberus, a firm that typically borrows heavily against money raised from institutional investors to take over businesses, improve their operations, and bolster their balance sheets before selling them off at a big profits. Steward has obtained a revolving credit line of $200 million from three banks, pledging “substantially all its assets as collateral,” according to the attorney general’s office.
Usually, private equity firms try to cash out in five to eight years. That has Steward patients, employees, regulators, and community leaders wondering what will happen when — not that long from now — Cerberus decides it is time to exit.
De la Torre said Steward’s goal is straightforward: “To create value and change the way health care is delivered in Massachusetts.” The implication: If it succeeds, its hospitals will be better off no matter who ultimately owns them.
Some of Steward’s moves seem to follow the classic private equity playbook. Last year, it got a cash infusion by selling 13 medical buildings to Healthcare Trust of America, an Arizona real estate investment trust, for about $100 million, agreeing to lease back space. Thus far, however, it has not filed financial documents indicating that the chain paid out a dividend generated by cash from its operations to its corporate owners, another common practice of buyout firms.
While everyone in the Massachusetts health care industry is wondering how the Steward strategy will ultimately play out, some say the newcomer has been a mostly positive force in the state, helping to rein in costs and serve as a counterweight to higher-cost hospitals.
Steward has had “the most significant impact on the market since the  creation of Partners,” said Andrew Dreyfus, chief executive of Blue Cross Blue Shield of Massachusetts. Blue Cross Blue Shield, the state’s largest health insurance company, chose Steward as one of the first providers in a new “alternative quality contract.” Such contracts reward hospitals and doctors for keeping patients healthy, and puts medical care providers on fixed budgets for patients rather than paying for individual tests and procedures.
At Steward’s headquarters in the Back Bay, top executives speak of the need to “right-size” and “right-site” a health care market that has grown too large and prone to unnecessary tests and routine procedures at expensive teaching hospitals.
Following de la Torre’s lead, Steward’s top executives talk in the vernacular of business consultants in describing their strategy. They have used “operational efficiencies” and “cost efficiencies,” they say, to build a lower-cost, high-quality network of physicians, hospitals, and post-acute care sites that seek to keep care in the community, halting the “leakage” of routine care to Boston’s academic medical centers.
“We’re trying to move care as close to home as possible and treat people there,” said Mark J. Girard, president of Steward Health Care Network, the company’s 2,900-doctor physician organization. “In our model, the focus is on wellness and prevention.”
Steward also has mounted an ambitious community outreach campaign to build up business and win over doubters.
Its managers have lobbied state regulators to let them restore obstetric services at Quincy Medical Center, which has not delivered a baby in 15 years. They have trekked door to door in Dorchester with representatives of Local 1199 of the Service Employees International Union — which represents workers at several Steward hospitals — to attract new patients to Carney. They have even set up Boston’s first Bikur Cholim room, designed to accommodate Jewish customs, to draw Orthodox Jewish families to St. Elizabeth’s from larger hospitals in Boston.Continued...