Senate committee to vote on contempt for Steward CEO, a no-show at hearing

The Senate Health, Education, Labor and Pensions Committee announced Thursday that it will meet Sept. 19 to vote on whether to hold Dr. Ralph de la Torre, the chief executive officer of Steward Health Care, in contempt for failing to comply with a subpoena requiring him to appear Thursday at a committee hearing on the hospital company’s bankruptcy.

Related: Senate panel votes to subpoena Steward Health CEO about hospitals’ bankruptcy

The committee is considering resolutions seeking to pursue de la Torre through both civil and criminal proceedings. The full Senate could then vote on whether to approve the resolutions.

Senate HELP Chair Bernie Sanders, an independent from Vermont who has allied himself with the Democrats, said he believes the Steward bankruptcy is just one example of the harm private equity ownership does to the U.S. health care system.

“Private equity firms have bought up hundreds of hospitals, thousands of nursing homes and tens of thousands of medical practices, saddling them with unsustainable debt and stripping their assets to make huge profits,” Sanders said.

The highest-ranking Republican on the committee, Sen. Bill Cassidy, R-La., said he supports the contempt resolutions.

“A witness cannot disregard and evade a duly authorized subpoena,” Cassidy said.

At the hearing, Sanders and Cassidy had backing from a colleague who is intimately familiar with private equity funds: Sen. Mitt Romney, R-Utah.

Romney became wealthy by starting Bain Capital’s private equity business.

What it means

The Senate HELP Steward investigation could have hard-to-predict effects on ownership of all kinds of companies that provide care for employers’ health plan participants.

Because of the intense focus on the role of Cerberus Capital Management, the private equity firm that owned Steward Health, the investigation could also have hard-to-predict effects on the rules governing private equity firm involvement in health care and other industries.

Private equity firms have invested in a wide range of businesses, including many of the employers that benefits advisors serve and benefits advisors’ own firms.

Steward Health

Cerberus acquired Steward in 2010 and turned it into the largest privately owned U.S. hospital company.

At its peak, Steward owned 33 hospitals in nine states and had 7,900 beds under management.

Steward raised cash a few years before the COVID-19 pandemic began by selling hospital buildings to a real estate investment trust. Steward then leased the buildings back from the REIT. When COVID hit and disrupted health care organizations’ cash flow, Steward had trouble making the facility lease payments.

Steward has said that other factors hurting its solvency included changes in reimbursement policies at Medicare and other programs, the turmoil caused by the COVID-19 pandemic, and rising labor costs.

Private equity firms

A private equity firm is a company that uses cash from wealthy individuals and businesses to buy company stock or make other types of investments.

By shutting out cash from ordinary individual investors, a private equity firm can avoid coming under the quarterly financial statement filing rules and other rules that face public mutual funds or business that sell shares of their stock to the public.

Advocates for private equity firms have argued that they can make better owners of some types of companies than public companies, because they face less pressure to report high earnings every quarter and have an easier time locking investor cash in.

Private equity analysts at Vanguard have argued that many private equity critics have exaggerated the impact of private equity ownership on health care organizations for political reasons and that careful analysis shows that the performance of private equity-owned health care organizations is comparable to the performance of other health care organizations.

What Mitt Romney said

Romney noted at the hearing that Steward operated five hospitals in Utah from 2017 through 2023.

“They understaffed health care facilities,” Romney said. “They didn’t pay for required medical equipment. The failed to meet minimum operating standards. They refused to pay a number of vendors, to the tune of $40 million in my states. And, most importantly, they endangered lives.”

The Senate HELP Committee should have had a witness from the current presidential administration or a former administration to talk about the role of the U.S. Department of Health and Human Services in overseeing the quality of care, Romney said.

“Is there something that needs to be done at the federal level?” Romney asked.

Louisiana state Rep. Michael Echols, a Republican, told Romney that state regulators did have the authority to punish Steward. But Steward used the threat of closing the hospitals and hurting their communities to avoid having to make major changes, he said.

When Romney asked what could improve the situation, Echols said the U.S. Securities and Exchange Commission, Congress and others could start by changing hospital ownership rules and the rules governing real estate investment trust involvement in health care.

“I’m shocked that a real estate investment trust can have such a large ownership of a facility,” Echols said.