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LET THEM EAT INVOICES  
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Maureen Tkacik
August 13, 2024
The American Prospect
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_ Steward grifter Ralph de la Torre, supposedly under criminal
investigation on two continents, is now telecommuting from Versailles.
_

The Paris Olympics torch relay takes place at the Palace of
Versailles, July 23, 2024., Kyodo via AP Images

 

Debra Russell was working a shift at the Glenwood Regional Medical
Center in West Monroe, Louisiana, when a relatively young patient
began having a heart attack. When an emergency room physician read his
EKG and attempted to call a cardiologist, the cardiologist refused to
have the conversation; the hospital hadn’t paid him in months. So
the doctor ordered a vial of the emergency anti-clot agent TNKase and
asked Russell to administer it immediately, which is when she learned
that Cardinal Health had also cut the hospital off for not paying its
bills, so there wouldn’t be any TNKase either.

Glenwood’s parent company, Steward Health Care, had spent most of
the year failing to pay millions of dollars
[[link removed]] to supply its
Texas and Louisiana hospitals with generalist doctors and nurse
practitioners like Russell. In its desperation to keep the clinicians
showing up, Steward execs constantly claimed to have sent payments
they had not actually sent, at one point even emailing the staffing
agency copies of fake checks they claimed to have mailed.

“The last couple of weeks that I was there at Glenwood, I would pray
every morning, ‘Lord give me a sign to stay or to get out of
this,’” Russell recalled last spring at a hearing
[[link removed]]
of the Louisiana House of Representatives. One morning, she saw the
community coffee service man, who had been restocking the cafeteria
for 30 years, repossessing all the pots and urns, and she knew it was
time. She worked her final shift last November, just a week or two
before a team of inspectors from the Centers for Medicare & Medicaid
Services composed a report
[[link removed]] identifying
48 basic critical supplies, from blood to milk to biopsy needles to
ICU beds, that the hospital had run out of altogether due to “the
current corporate practice of not paying vendors in a timely
manner.”

The inspection was the first of three CMS visits in the space of 120
days
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during which the agency would deem Glenwood to be putting the lives of
patients in “immediate jeopardy,” a finding that by definition
puts the institution’s Medicare funding in jeopardy. “The
[radiology director] stated that the hospital cannot go much longer
like this and that it will eventually fall like a ‘house of
cards,’” inspectors wrote
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third visit. When a Louisiana state representative asked the
hospital’s CEO under oath if he felt “personally responsible for
any deaths or declining care” at Glenwood, he did not hesitate:
“Yes.”

Since Russell testified in April, her erstwhile hospital chain Steward
has filed for Chapter 11 bankruptcy protection; had three of its
executives indicted in Malta and an FBI criminal investigation
formally opened into its management; been described
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as an “elaborate Ponzi scheme” by Sen. Bernie Sanders (I-VT) in a
speech before the successful vote of the Senate Health, Education,
Labor and Pensions Committee to issue a formal subpoena to the
company’s notoriously extravagant founder; and been revealed in a
series of articles published by the Organized Crime and Corruption
Reporting Project [[link removed]] (OCCRP) to have spent more than
$7 million paying private intelligence firms to carry out elaborate
“false flag” operations against critics and internal
whistleblowers, during the same months Glenwood was going without
blood and coffee.

And yet it is still far from clear if the house of cards has finally
fallen. Last Wednesday, _The Boston Globe_ reported
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that the aforementioned extravagant CEO Ralph de la Torre had been
spotted at Versailles, of all places, viewing equestrian events at the
Olympics. While he has been subpoenaed, de la Torre has somehow not
been fired as Steward’s chief executive. More than three months into
the bankruptcy proceedings, no one has made any overture to claw back
the hundreds of millions of dollars Dr. de la Torre extracted from a
chain of safety net hospitals. And the only mention of the criminal
investigations supposedly under way into the hospital chain’s
treachery during nearly five hours of bankruptcy hearings the
_Prospect _listened in on over the past week came in a single
throwaway line in a PowerPoint presentation.

LATE LAST MONTH, STEWARD’S BANKRUPTCY ATTORNEYS announced that
Glenwood was one of just two facilities in the chain that had found a
“qualified buyer”: a small California-based company called
American Health Systems. Republican state Rep. Mike Echols, a managed
care executive who represents Glenwood’s district and organized the
April hearing on the hospital, wanted to be optimistic, but after a
year of watching his old hospital collapse into humanitarian crisis,
he was bothered by the dearth of basic financial details about the
transaction. How much capital did the company have to invest? How did
it intend to mend fences with a community full of clinicians and small
businesses that had been stiffed by its corporate predecessor?

Then he googled American Healthcare Systems. A Missouri hospital whose
operations it had assumed in 2022 had already shut down
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An AHS hospital in Randolph County, North Carolina, which the state
had successfully agreed to subsidize with a $12 million loan, was
reported
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to be transferring funds outside the state to other ventures,
including a Texas hospital it had purchased out of bankruptcy that was
recently reported by a patient care watchdog to be in the throes of a
death spiral brought about by its failure to pay its electronic health
records vendor. And most troublingly, an Illinois hospital AHS had
purchased last summer had been stripped of its trauma center
designation over the spring after a CMS inspection
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state of disarray eerily similar to Glenwood’s. It was direly
understaffed, almost wholly bereft of basic supplies since having been
placed on credit hold with numerous vendors, blacklisted for
nonpayment of all of its on-call surgeons, and forced to cancel the
four elective colonoscopies it had scheduled that day for lack of
anesthesiologist coverage.

Nurse practitioner Debra Russell testifying before the Louisiana House
of Representatives, April 9, 2024

Echols called the number on the AHS website, but no one answered and
the voice mailbox was full. The company’s CEO Michael Sarian and
general counsel Faisal Gill returned his call later that evening and
confirmed his worst fears. “I asked whether they were ready to prove
they had the capital to spend $40 to $60 million in deferred
maintenance expenses on the facility,” he told the _Prospect_.
“And they said, ‘Oh, well Medical Properties Trust will be taking
care of that.’ And then I asked what they thought were the
hospital’s most urgent needs, and they said something that just blew
my mind. They said they hadn’t visited the hospital, because Medical
Properties Trust _wouldn’t let them_. I said, ‘Guys, I don’t
think it’s legal for them to forbid you from walking into a public
hospital.’”

Neither Gill nor Sarian responded to a detailed list of questions
about its plans for Glenwood or the status of its hospital operations
generally.

MEDICAL PROPERTIES TRUST (MPT), AS WE HAVE DETAILED in these pages
many times over the past year and a half, is an Alabama real estate
investment trust that is a landlord to many of the most struggling
hospitals in America, including Steward’s facilities. That isn’t a
coincidence. Many, like Glenwood, were once vibrant facilities with
serious neurosurgery departments and state-of-the-art cancer centers
and cath labs that were the source of considerable community pride.
But when health care profiteers sold their real estate out from under
them, forcing the hospitals to pay to rent buildings they once had
owned, most of the hospitals had to cut corners, then entire
departments, then sometimes whole hospitals.

In Glenwood’s case, former hospital employees say, the decline
started out gradually. The private equity firm TPG sold the underlying
real estate to MPT in 2013 for about $87 million, meaning the hospital
owed annual rent of just under $7 million in the early days. The
hospital cut pediatrics and lost some top surgeons, but the results
were not cataclysmic because Glenwood was profitable and TPG only used
about one-third of the transaction proceeds to pay itself a dividend,
leaving the rest to retire debt. The austerity began to accelerate
when TPG sold its entire hospital chain to a strangely structured
partnership of MPT and Steward, a collection of money-losing
neighborhood hospitals in eastern Massachusetts owned by the private
equity firm Cerberus, mostly purchased in 2010 from the Catholic
Church.

When Steward did its first of many sale-leasebacks in 2016, it sold
all ten of its functioning hospitals for $1.2 billion, then used about
$800 million of the proceeds to pay insiders and investors, according
to REIT analyst Rob Simone of the financial news service Hedgeye.
Where TPG had sold its hospital assets at small premiums to the price
it had paid for them, MPT had purchased Steward’s buildings at an
extreme markup. For example, it placed a value of $232 million
[[link removed]]—later
climbing to $258 million—on the beleaguered Carney hospital, which
Steward had purchased in 2010 for just $12.5 million. The transaction
was an extraordinary payday for Cerberus investors, but it left
Steward with an impossible annual rent bill of more than $100 million.

Breach-of-contract lawsuits and mechanic’s liens piled up in the
courthouses of every county where Steward ran a hospital.

MPT ensured Steward paid its rent on time by funneling cash into the
company through a mind-bending array of mergers, joint ventures,
refinancings, and “working capital” loans. A 2021 _Wall Street
Journal_ article tabulated
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some $700 million in payments the landlord (MPT) had made to its
tenant. And between April 2022 and April 2024 alone, MPT amended one
of its leases with Steward 14 times. Along the way, executives of both
companies exploited MPT’s balance sheet to line their own pockets,
perhaps none more lustily than de la Torre, who owns two mega-yachts
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By the time Steward filed for bankruptcy protection, it operated more
than 30 hospitals, owed clinicians and vendors roughly $1 billion in
unpaid bills, and was on the hook for an annual rent bill of more than
$400 million.

Steward’s distress was no secret. Breach-of-contract lawsuits and
mechanic’s liens piled up in the courthouses of every county where
Steward ran a hospital. A former employee of the company’s
facilities management contractor CREF told the _Prospect _that Steward
was so notoriously bad at paying its bills the eastern Massachusetts
construction community joked that businesses that took jobs for the
hospital chain were committing “Steward-cide.”

Both Steward and MPT took great pains to conceal the full nature of
the distress. When Massachusetts fined Steward in 2017 for failing to
submit a customary annual financial statement to the state’s Center
for Health Information and Analysis, Steward sued the agency and
relocated its headquarters to Dallas. When the SEC demanded that MPT
disclose Steward’s financial statements in its own filings under
rules requiring REITs to report the finances of tenants that comprise
more than 20 percent of their assets, MPT claimed that Steward’s
auditors had yet to complete their review of the statements.

And when a few equity researchers and money managers began publishing
research that dared to suggest not all was kosher about MPT’s
relationship with its largest tenant, both began plowing money
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into top-shelf corporate black ops in hopes of scaring short sellers
and critics off their trail, according to the OCCRP report. Steward
paid a private security firm called Greyprism to stake out the home,
place a tracker on the car, and illegally obtain the banking records
of a British hedge fund manager who had published research on
Steward’s fiscal woes. Both MPT and Steward paid a firm called
Audere to, among other things, mine the cellphone of a former Steward
executive they suspected of sharing details of their insolvency with a
lender, and develop an elaborate plan involving a sex worker to smear
and sabotage him in the event of a leak of confidential financial
information. And Steward paid an opposition research outfit called CT
Holdings to send journalists a phony bank statement that purported to
reveal that a European bureaucrat who’d antagonized Steward had
taken a bribe.

OCCRP obtained a 2022 phone call
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in which Steward general counsel Herbert Holtz called Audere’s work
for the firm “truly existential,” clamoring to the chief financial
officer to stay current on the contract.

So it is perhaps not surprising that when the _Prospect _reached Debra
Russell, the courageous nurse practitioner whose testimony
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last spring had riveted state legislators—and by extension played a
key role in the unusual decision of her senator and HELP Committee
ranking Republican Sen. Bill Cassidy to join his Democratic colleagues
in calling to subpoena the Steward brass—she was unwilling to
comment further on anything she had said, for fear of inviting
retaliation over and above that which she claimed (without
elaborating) she had already experienced.

In other words, Steward may be bankrupt, the subject of criminal
investigations on two continents and the first congressional subpoena
in the 41-year history of the HELP Committee, and an industry
laughingstock. But the company still strikes fear into the hearts of
its workers past and present, in large part because no sign has yet
emerged that the company will face legitimate consequences.

ONE OF THE CULPRITS FOR THIS STATE OF AFFAIRS is the bankruptcy code,
which gives special privileges to the lenders of so-called
“debtor-in-possession” financing, which bankrupt companies use to
reorganize their operations while in court. By providing the first $75
million of Steward’s DIP financing, MPT was able to control both the
narrative about the root causes of Steward’s downfall—COVID-19 and
declining reimbursement trends—and the terms under which Steward’s
assets would be marketed for sale.

Unsurprisingly, there weren’t many takers. Even when the state of
Massachusetts offered to give $30 million to any buyer of Steward’s
eight remaining hospitals in the state, a small Michigan company
called Insight with one hospital and three specialized surgery centers
was the only company willing to make an offer
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which was reportedly not “qualified” under Steward’s criteria.
Insight’s surgical hospital in Michigan was sued in 2022 by Allstate
Insurance Company for allegedly orchestrating a $2.4 million scheme
that involved “intentionally associating with unscrupulous medical
providers who have lengthy histories of billing for medically
unnecessary and inappropriate patient care” and submitting phony or
wildly exaggerated claims to the insurer. (That case, about which an
Insight spokesperson declined to comment, is still making its way
through the court system, though the hospital’s initial answer
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to the complaint contained roughly 350 variations on the sentence
“Defendant lacks sufficient information to form a belief as to the
truth of the allegations in paragraph X.”)

The only qualified bids for any of Steward’s assets came from an
Arkansas emergency services company called Pafford Health, which
offered to take on the management of Steward’s Wadley Regional
Medical Center in Hope, and the aforementioned AHS, the company that
bid on Glenwood Regional Medical Center despite being forbidden by its
landlord from visiting the hospital first.

[Tkacik-Steward 081324 3.jpg]
WBZ News

Two Boston City Council members introduced a resolution declaring a
public-health emergency in Dorchester, Massachusetts, over the
announced closure of Steward’s Carney Hospital.

That leaves at least 29 Steward hospitals, including 16 in Florida and
Massachusetts alone, hanging in the balance. Steward has already said
it plans to close Carney and Nashoba Valley Medical Center in
Massachusetts, leading two Boston City Council members to introduce a
resolution declaring a public-health emergency
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in Dorchester, the dense working-class neighborhood where Carney is
the only hospital. In regular reports produced for the bankruptcy,
court-appointed patient ombudsmen painted a picture of rapidly eroding
occupancy and operations at most of Steward’s other locations, which
in turn diminishes their value to potential buyers while accelerating
Steward’s $75 million-a-month cash burn.

In theory, bankruptcy isn’t supposed to work this way. Not long ago,
most of Steward’s hospitals were profitable and essential
institutions; Chapter 11 reorganization should give them a chance to
start fresh with new owners. But because MPT is both Steward’s
biggest creditor and the source of most of the funds Steward used to
hire its bankruptcy lawyers and advisers, its $8 billion in
spectacularly bloated lease obligations linger like a noose around the
necks of its hospitals. No $2,000-an-hour lawyer is about to suggest
wiping out the company that is funding his or her paycheck.

The situation is especially dire, analysts say, because the publicly
traded REIT has not sufficiently written down the value of its Steward
holdings; a Phoenix hospital shut down in 2019
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still listed on MPT’s balance sheet at a value of $90 million, even
though all that remains is a behavioral unit which last week was
forced to transfer all 100 of its patients to other facilities
following a “catastrophic”—though quite predictable, employees
say
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of its air-conditioning systems amid 105-degree heat.

When you start digging into other hospital bankruptcies that have
involved MPT, you’ll find a distinct pattern of small,
undercapitalized operators paying themselves handsomely, stiffing
vendors and service providers, and exploiting the bankruptcy code to
discharge debts to workers and medical suppliers while keeping the
hospital in hands “friendly” to MPT.

AHS obtained its Texas hospital, for example, from Alecto Healthcare
Services, a failed hospital chain
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closely linked to MPT that closed four out of five of its hospitals
and used the bankruptcy code to dodge $49 million it allegedly owed
the federal government for Medicare overpayments. MPT also
“gifted” the operations of a hospital in Watsonville, California,
to a small company called Halsen Healthcare that quickly bankrupted it
and was only later accused of skimming $4 million from the
facility—by which point Halsen’s leadership had decamped for
another small community hospital in East Texas. Meanwhile, a former
colleague of Halsen’s CFO founded and quickly bankrupted a small
hospital chain called Pipeline Health with hundreds of millions of
dollars from MPT. While the hospital chain filed for bankruptcy
protection in October 2022 and emerged a few months later, none of its
hospitals appear to be current on their bills and a hospital it sold
in Texas just laid off 35 percent of its staff.

Without delving into the details, the irregularities and apparent
improprieties involved in all these hospitals’ financial distress
are numerous, glaring, and yet completely commonplace these days. When
there are no apparent consequences for owning an LLC that
systematically rips off small businesses and suppliers, you could
argue it’s a fiduciary obligation to do so. I’m sure Ralph de la
Torre would make that argument, and who am I to argue with someone who
telecommutes from Versailles?

At this point, it is the government’s fiduciary obligation to make
an example out of men who build vast fortunes by casually nuking the
institutions on which we rely to sustain human life. But the
government, for whatever reason, has decided to mainly express its
displeasure through mean tweets
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But there are a few small signs a reckoning might still await Steward.
In June, MPT, low on cash itself, agreed to invite other lenders into
the DIP, meaning it could not longer single-handedly steer the
bankruptcy process. Late last month, Steward finally won permission
from the bankruptcy court to sever its master lease in Massachusetts,
so at least some of the hospitals might have a prayer of finding new
owners.

More tantalizingly, Steward’s lawyers filed a document
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last week notifying the court it was using something called 2004
authority to demand that the accounting firm KPMG—which it’s worth
noting is under fire from the Public Company Accounting Oversight
Board over the 30 percent deficiency rate
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the agency found in an audit of a random sampling of its
audits—furnish a long list of documents related to the years it
served as Steward’s auditor. In particular, Steward asked for “All
Documents and Communications between You and any party other than the
Company” regarding Steward’s financial relationship with MPT and a
slew of related firms that either received large transfers from
Steward in the year before its bankruptcy filing or are suspected by
insiders and analysts of serving purposes outside the realm of
hospital operations. Notably, KPMG resigned as Steward’s auditor in
2022 and handed over the reins to a smaller firm called Crowe LLC; the
request also seeks all communications and correspondence related to
the firm’s decision to withdraw and transfer its client to Crowe.

For the most part, the information Steward’s bankruptcy lawyers now
seek—solvency and going concern analyses from over the years,
internal assessments of the value of various company assets,
discussions of the company’s multitude of sale-leasebacks and other
related party transactions—is the sort of stuff that should be
available to every creditor in every bankruptcy. Any gratuitous funds
knowingly extracted from an insolvent company are subject to clawback
provisions under the bankruptcy code, and Steward has arguably been
certifiably insolvent for the better part of a decade.

But in the age of private equity, it’s also exactly the sort of
information bankruptcy lawyers get paid to conceal and obfuscate from
creditors, the public, and if they want to stay sane, themselves. The
fact that Steward’s $2,000-an-hour lawyers are now demanding to know
what KPMG found objectionable enough to resign could mean that the end
is finally nigh for at least one hospital Ponzi scheme. Alas,
there’s more where Ralph de la Torre came from.

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Maureen Tkacik is investigations editor at the Prospect and a senior
fellow at the American Economic Liberties Project.

* Steward Health Hospitals; Ralph de la Torre; Private Equity;
Bankruptcy;
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