(Bloomberg) -- US senators investigating the collapse of Steward Health Care, one of the nation’s largest private health systems, are confronting a problem they rarely face: a corporate leader who refused to testify before Congress.
The Senate Committee on Health, Education, Labor and Pensions held a hearing on Thursday focused on the crisis spawned by Steward’s financial woes, including allegations of poor care, hospital closures and state bailouts aimed at preventing even more shuttering.
The main person the senators want to talk to is Steward’s majority owner and Chief Executive Officer Ralph de la Torre. They even went so far as to issue the committee’s first subpoena since 1981. But de la Torre didn’t show up, citing a risk of jeopardizing Steward’s precarious bankruptcy and a not-yet-finalized legal settlement meant to keep most of its hospitals open and preserve about 30,000 jobs.
The hearing went ahead anyway, with nurses and local elected officials testifying instead. The Steward bankruptcy has attracted criticism from both Republican and Democrat lawmakers amid harrowing reports of deficient care. Even without de la Torre’s physical presence, his role in Steward’s financial unraveling and his personal enrichment while leading the faltering hospital chain was under scrutiny.
Steward executives “looted hospitals across the country and took millions in profit for themselves,” Massachusetts Senator Ed Markey, a Democrat, said in a statement. “We need answers and accountability.”
Senator Bill Cassidy, a Louisiana Republican, said in the hearing that he and Senator Bernie Sanders, a Vermont Independent who chairs the committee, would seek a resolution to authorize civil enforcement and criminal contempt proceedings against de la Torre to require him to comply with the subpoena.
“A witness cannot disregard and evade a duly authorized subpoena,” Cassidy said.
The committee will vote Sept. 19 on two resolutions, one for civil enforcement of the subpoena and the other for civil contempt, Sanders and Cassidy said in a statement after the hearing. If approved, the next step would be a vote by the full Senate.
Depending on the outcome of any vote, the Senate could authorize a civil suit requiring de la Torre to comply and refer the the matter to the US Attorney for the District of Columbia, which could prosecute de la Torre for failing to comply with the subpoena.
CEO Testimony
Corporate chiefs are frequently called to appear before Congress when their business is under scrutiny. It’s unusual for executives to refuse a request to testify, even if their company is embroiled in litigation.
The heads of Johnson & Johnson, Merck & Co. and Bristol-Myers Squibb Co. were questioned by the same committee in February about high drug prices. Former Boeing Co. CEO Dave Calhoun testified in June after a midair blowout of a 737 Max jet sparked scrutiny of its manufacturing practices. Former Lehman Brothers CEO Richard Fuld was grilled about bonuses and the firm’s substantial leverage in 2008 just weeks after it collapsed.
De la Torre has sought to postpone his Congressional testimony until after Steward’s bankruptcy concludes. Being forced to testify this week could jeopardize a recently announced settlement with the health system’s landlord, Medical Properties Trust Inc., de la Torre’s lawyers said in a letter earlier this month to Sanders.
Other CEOs who testified before Congress “were not dealing with an active situation in federal court that could potentially close the businesses that they work for,” said Rebecca Kral, a spokesperson for de la Torre. She declined to comment on Cassidy’s statement.
De la Torre’s lawyers also said lawmakers are attempting to turn the hearing “into a pseudo-criminal proceeding” to “convict Dr. de la Torre in the eyes of public opinion.” The senators have said they authorized the subpoena because de la Torre refused previous invitations to testify.
Unpaid Bills
Steward has blamed its bankruptcy on a significant decline in patient visits during the pandemic as well as increased labor costs and insufficient government reimbursements, trends that have also stressed other medical providers.
While Steward’s hospitals spanned 10 states when it filed for bankruptcy, the company got its start in Massachusetts. The state has committed to spending almost $500 million to help keep Steward hospitals open while they transition to new owners, according to a spokesperson.
Outrage from Massachusetts lawmakers underscores what’s at stake for a region known for its robust health-care system.
Former nurses testified at Thursday’s hearing about poor care at Steward hospitals. When newborn babies die, the practice is to place the babies’ remains in a bereavement box and take it to the morgue, said Ellen MacInnis, who was a nurse in the emergency department at St. Elizabeth’s Medical Center in Boston.
“Steward didn’t pay the vendor and there weren’t any bereavement boxes,” she said. “And nurses were forced to put babies’ remains in cardboard shipping boxes.”
The nurses then put their own money together and bought bereavement boxes on Amazon, she said.
Last October, a woman died after giving birth at St. Elizabeth’s. A vendor had repossessed equipment over unpaid bills and the hospital didn’t have the tools it needed to stop her bleeding, Massachusetts Department of Public Health Commissioner Robbie Goldstein said in a sworn statement. State monitors earlier this year identified other issues at Steward’s Massachusetts hospitals including broken machines and supply shortages, according to court documents.
A bankruptcy judge authorized closing two of Steward’s Massachusetts facilities, Carney Hospital and Nashoba Valley Medical Center, cutting off an essential medical lifeline for the surrounding low-income and rural communities. Meanwhile, Pennsylvania has said Steward threatened to close a hospital in that state if authorities didn’t provide emergency funding.
Earlier this month, the judge approved the sale of Steward’s six other Massachusetts hospitals and a separate deal for medical centers in northern Florida.
Private Equity in Focus
Cerberus Capital Management owned a majority stake in Steward from 2010 to 2020, when the firm sold its holding to a company management group led by de la Torre, four years before the health system filed for bankruptcy. Cerberus earned a profit of about $800 million from its investment in Steward.
Lawmakers have criticized a 2016 deal that Steward entered into with MPT to sell and lease back the company’s hospital real estate, including its Massachusetts facilities. The transaction saddled Steward with “exorbitant rent obligations,” Massachusetts Attorney General Andrea Joy Campbell said in a court filing.
Cerberus has said the deal provided $485 million for Steward, which it used to invest in its business. It also generated a “significant dividend” for Cerberus, which benefited its investors including pension funds and university endowments, the firm said.
After the management buyout, Steward issued a more than $100 million dividend to its new owners, including about $11 million to MPT, according to a securities filing. The company had sufficient liquidity to fund the dividend at the time and the payment also served to repay de la Torre for personally guaranteeing a $200 million note to support Steward, his spokesperson said.
Sanders has said de la Torre enriched himself while the health system incurred substantial debt, including by purchasing a 190-foot yacht and a sport fishing boat.
Steward’s collapse has sparked a broader push by lawmakers to scrutinize private equity firms’ role in the health-care industry. California’s legislature recently sent a bill to Governor Gavin Newsom that would give the state more oversight of private equity transactions.
Massachusetts lawmakers are targeting similar reforms and the state’s US senators, Markey and Elizabeth Warren, both Democrats, have proposed stiffer federal penalties for financial mismanagement of health-care companies.
(Updates with next week’s vote in eighth paragraph.)
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