Steward Health Care System has maintained important medical services for elderly and low-income patients, but its mounting losses raise concerns about the for-profit hospital company's financial stability, Attorney General Maura Healey said in a new report Wednesday.
The company lost $75 million on operations in 2014, up from $55 million in 2013 and $22 million in 2012, according to the report. The company also has large amounts of debt and $369 million in unfunded pension liabilities.
"Steward acquired hospitals that were experiencing financial difficulties, and Steward has continued to experience challenges in its financial performance," the report said. "Its ability to meet the requirements of its lenders and investors may be an important challenge for Steward."
The attorney general is required to monitor Steward and issue reports on the health system's progress as part of the 2010 deal that allowed Steward to buy several struggling Caritas Christi hospitals run by the Archdiocese of Boston. Steward, backed by the New York private equity firm Cerberus Capital Management, now operates nine hospitals in Eastern Massachusetts, including St. Elizabeth's Medical Center and Carney Hospital in Boston.
The report noted that the Steward story is still unfolding. When Steward launched five years ago, residents and state officials were concerned that, as a for-profit company, it would close hospitals, raise prices, or cut less profitable services such as psychiatric care. But the report said: "The most dire of these concerns have not come to pass. Steward has kept the former Caritas system intact and operated the system as it had proposed, albeit in a health care market that remains challenging and dynamic."
Steward spokeswoman Brooke Thurston said the loss in 2014 was largely due to the financial struggles and eventual closing of Quincy Medical Center, a 196-bed hospital Steward shuttered at the end of 2014. Thurston added that the company has spent heavily to upgrade its technology and health care facilities.
"Faced with the choice of making short-term cost cuts to create immediate financial returns, Steward instead has invested $850 million in the system to produce long-term financial sustainability," she said.
Thurston said the attorney general's report recognizes Steward's progress in providing affordable health care through its network of community-based doctors and hospitals.
The company is an important provider of medical services to elderly and low-income patients covered by the government health plans Medicare and Medicaid, the report said. These populations are not as profitable for hospitals as younger and higher-income patients with commercial health insurance.
Steward's prices remain low or moderate compared with competitors, but that is a challenge for the company in a state where higher-cost providers dominate the market, the report added.
Dr. Paul Hattis, a professor at Tufts University School of Medicine and outgoing member of the state's Health Policy Commission, which monitors the health care market, said Steward likely needs to negotiate higher reimbursements from private and government insurers in order to succeed: "Their major challenge seems to be on the revenue side."
Although Steward shared some financial information with the attorney general's office, the company has yet to submit required financial documents to another state entity, the Center for Health Information and Analysis. That agency has fined Steward $25,000 to date for failing to submit the information, which was due in April.
Boston-based Steward is the second-biggest hospital operator in Massachusetts after Partners HealthCare, the owner of 10 hospitals including Massachusetts General and Brigham and Women's in Boston. Steward had grown to 11 hospitals, but closed Quincy Medical Center last year, citing a shortage of patients and severe financial losses there. Steward also merged its hospitals in Methuen and Haverhill under one license last year.
Competing against hospitals owned by Partners and other health systems, Steward has spent the last five years building a brand as a good-quality, lower-cost, convenient, community-based health care system. It has expanded its pool of patients by aggressively hiring and affiliating with doctors groups; it now has about 3,000 doctors in its network.
Steward has been among the state's strongest proponents of new health care payment systems that compensate health care providers based on how well they manage the health of a population.
When Steward cuts costs under such payment models, and meets certain quality scores, it can keep the savings.
"While most providers in the Boston area remain focused on driving patient volume to high-cost academic medical centers, Steward has developed a system where patients can receive high-quality care in the communities where they live," Thurston said.