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Steward Health files for Chapter 11

Illustration of a frowny face with "11" as the eyes.

Illustration: Shoshana Gordon/Axios

Troubled hospital chain Steward Health Care officially filed for Chapter 11 bankruptcy as it finalizes a rescue loan with Medical Properties Trust.

Why it's the BFD: While not unexpected, Steward's implosion will draw more heat to private equity's involvement in health care.

Zoom in: Dallas-based Steward, which filed in the Southern District Court of Texas, is finalizing the terms of a $75 million loan from MPT, the company that bought its Massachusetts hospitals in 2016.

  • Steward will get $225 million more if it meets unspecified conditions acceptable to MPT.
  • Its bankruptcy filing lists 30 creditors owed more than $500 million, including the U.S. government, which is owed more than $32 million in reimbursements for insurance overpayments.

Catch up quick: The operator of nine hospitals throughout Massachusetts has been struggling with liquidity and stopped paying vendors, per reports from earlier this year.

  • Massachusetts Gov. Maura Healey and House Speaker Ron Mariano in February called for Steward to reveal finances, sell its hospitals and leave Massachusetts entirely.

What we're watching: UnitedHealth subsidiary Optum was planning to buy Steward's physician network Stewardship Health — to the chagrin of Massachusetts legislators, many of whom expressed concerns.

  • Steward did not immediately respond to Axios' request for comment. UnitedHealth declined to comment.

Flashback: Cerberus Capital Management bought Steward in 2010, embarking on an acquisition spree that eventually made Steward the country's largest private for-profit hospital chain.

  • In 2014, it closed one of the Massachusetts hospitals it had acquired, despite having pledged not to do so for at least 10 years after the acquisition, as part of the state regulatory approval process.
  • Cerberus began to exit in 2020, agreeing to sell control in Steward to the hospitals' physicians in exchange for an interest-paying note. The physicians soon borrowed $335 million from MPT to buy back the note.

The big picture: Sen. Ed Markey (D-Mass.) used Steward as a springboard for a new bill calling for increased transparency around private equity investment in health care services companies.

  • State regulators are also getting increasingly stringent on merger notification requirements for health care deals involving private equity.

Yes, but: While Markey's ambitious draft Senate bill is drawing attention, provisions like granting HHS increased deal oversight are not likely to be popular with Republican lawmakers.

The bottom line: Regulators didn't need more ammunition against private equity in health care, but this latest development is another strike against the industries' involvement in health care and hospitals.

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