Back in 2020, Steward Health Care System needed $400 million to dig it “out of a deep financial hole.” Instead of investing in the struggling health system, Steward’s owner, Cerberus Capital Management, reportedly convinced Steward’s landlord, Medical Properties Trust (MPT), to provide the cash infusion.
Cerberus also sold its majority stake in Steward to a group that included the health system’s CEO Ralph de la Torre, MD, WSJ reported.
MPT had to put up millions of dollars for its tenant over a series of financial deals, and recent Congressional inquiries uncovered more details about how that went down. The first part of the cash infusion came in $205 million from MPT to invest in overseas hospitals in a joint venture with Steward. The second half was covered when MPT forgave the mortgage for a Steward hospital and paid $200 million for two Utah hospitals.
In the end, Cerberus ended up with a whopping $800 million in profit while Steward filed for Chapter 11 bankruptcy this week, WSJ reported.
Oh, and de la Torre bought a $40 million yacht with the proceeds of a 2021 payout related to his ownership of Steward.
Since filing for bankruptcy Monday, Steward Health Care revealed it’s carrying more than $1 billion in debt and said its entire hospital portfolio is for sale.
Eleven minutes later, Steward employees had an email waiting from their CEO, Ralph de la Torre. The CEO told his staff that industrywide economic headwinds and delays in Steward’s planned asset sales had forced the physician-owned health network to initiate restructuring proceedings.
“It is incumbent on all of us to ensure that this process has no impact on the quality care our patients, their families, and our communities can continue to receive at our hospitals,” de la Torre wrote in an email viewed by Healthcare Dive. “To the vast majority of you, operations will either not be different or improve.”
“To be clear, this is a restructuring under chapter 11; it is not a closure and it is not a liquidation,” he wrote.
The email was the first time employees had heard directly from Steward leadership about the company’s financial distress — though rumorsanduncertainty about the operatorhad been festering for weeks, according to Marlishia Aho, regional communications director for the union 1199SEIU United Healthcare Workers East.
Leading up to Monday’s filing, state and federal lawmakers were increasingly worried about how a bankruptcy at the largest physician-led hospital operator in the country would impact access to care.
Regulators in Massachusetts — where Steward operates eight hospitals — held closed-door strategy sessions to map out contingency in case of a bankruptcy, and workers staged rallies to protest possible hospital closures.
Steward provides care for more than 2 million patients each year across 31 hospitals and 400 facility locations, according to bankruptcy filings. The company also employs nearly 30,000 employees across its eight-state portfolio, including 4,500 primary and specialty care physicians.
Steward’s first-day bankruptcy motions shed light on the operator’s future — and outlines its strategy for paying down its massive debt by selling assets. Here are the biggest takeaways.
Steward’s sprawling debt
Steward has earned a reputation for being cagey about its finances — to the dismayof Massachusetts Gov. Maura Healey, who accused the company of operating in a “black box” in a letter to its CEO earlier this year.
The operator has refused to file routine finances with Massachusetts regulators for years, citing a need to protect confidential business data. Even as the company shutteredhospitals this winter, regulators said Steward still dragged its feet on providing financial data, frustrating policymakers’ efforts to build out contingency plans.
“One of the good things about bankruptcy is that Steward and its CEO … will no longer be able to lie,” said Healey during a press conference Monday morning. “Transparency is really important here, and that’s why you know we’re looking forward to seeing what is in the various documents … We need clarity about debts and liabilities.”
In a slew of first-day motions, Steward now revealed it owes around $1.2 billion in total loan debts and about $6.6 billion in long-term lease payments.
Steward owes north of $600 million to 30 of its largest lenders, which include UnitedHealth-owned Change Healthcare, Philips North America LLC, Medline Industries, AYA Healthcare and Cerner.
The healthcare operator owes $289.8 million in unpaid compensation obligations, including $68 million to its own workers in unpaid employee salaries, $105.6 million in payments for physician services and $47.7 million owed to staffing agencies.
It also has approximately $979.4 million outstanding in trade obligations, of which approximately 70% are over 120 days past due.
Though Steward had a consortium of six private lenders financing its asset-based loans this year, now only one lender is listed in bankruptcy filings as funding its debtor-in-possession financing: its landlord, Medical Properties Trust.
The change in vendors is notable, according to Laura Coordes, professor of law at the Sandra Day O’Connor College of Law at Arizona State University.
“Something went on to get these other lenders to drop out,” she said.
The landlord may be opting to fund Steward during bankruptcy proceedings in hopes of getting its own money back more expediently, according to Coordes.
Steward is MPT’s largest tenant and the healthcare network will owe MPT at least $6.9 billion in debt and lease obligations by 2041, according to the filings.
During Tuesday morning’s first day hearing a representative for Steward told Judge Chris Lopez that all of Steward’s 31 hospitals are for sale. But to receive the $225 million from MPT, Steward has to hit aggressive sales milestones. It must host an auction for all non-Florida hospitals by June 28 and all Florida properties by July 30.
Since February, MPT executives have said there is strong interest from buyers in taking over Steward leases. However, Steward has yet to sell a hospital.
Experts have told Healthcare Dive they’re skeptical other operators would take on Steward’s leases at MPT’s current rental rates.
“Given the unaffordability of the leases and given that it hasn’t worked in the past, I do think that really material rent concessions are going to be needed to get this done,” said Rob Simone, sector head of real estate investment trusts at analyst firm Hedgeye.
Steward also signed a letter of intent to sell its physician group, Stewardship Health, to UnitedHealth. Although the deal was first announced in March, regulators have not yet begun reviewing the deal, according to David Seltz, executive director of the Massachusetts Health Policy Commission. Seltz said missing paperwork is delaying the review.
The Stewardship deal is not tied to further funding. A representative from UnitedHealth declined to comment on the pending deal and whether the bankruptcy proceeding would impact the sale.
Future of Steward
Employees have received conflicting messages about the future of Steward hospitals.
On one hand, both de la Torre and Massachusetts officials said Monday that Steward hospitals would remain open this week. However, Healey also emphasized that she wants Steward out of the state.
“Ultimately, [bankruptcy] is a step toward our goal of getting Steward out of Massachusetts,” Healey said during a press conference Monday.
Some Steward facilities may wind down during the bankruptcy proceedings, said Massachusetts Attorney General Andrea Campbell. Her office will oversee that process closely, and Steward will be required to provide licensing and notice obligations.
A healthcare worker at Steward’s Nashoba Valley Hospital told Healthcare Dive Monday she’s particularly concerned about the fate of her facility, which she says serves 14 communities but is small compared to some other hospitals in Steward’s portfolio. She doesn’t want regulators to forget about Nashoba.
“What I’m hoping for is that our state representatives and our local representatives really push to keep the hospital open,” she said. “But my concern is we get overlooked.”
State officials said they would continue monitoring Steward facilities to ensure quality care and push for the appointment of a patient care ombudsman to represent the interests of patients and employees during bankruptcy proceedings. Officials have already launched a website to offer resources about the bankruptcy process.
Still, employees are unsure of the path forward.
The Nashoba Valley Hospital employee told Healthcare Dive they’re conflicted about whether to stay at the hospital they’ve worked at for years or try to find a new position while they can.
“I’ve used the hospital since I moved out here. I’ve been living out in this area for like 25 years … I’ve brought my mother to this hospital,” the worker said. “It’s my hospital. It’s not just where I work. It’s what I use, and it’s vitally important to the community.”
Former New York Jets superstar Joe Namath can be seen every year during Medicare open enrollment hocking plans that tell seniors how great their life would be if only they signed up for a Medicare Advantage plan. From October 15 to December 7 last year alone, Joe Namath ads ran 3,670 times, according to iSpot, which tracks TV advertising.
But the company behind those ads, now called Blue Lantern Health, and their products, HealthInsurance.com and the Medicare Coverage Helpline, have an expansive rap sheet of misconduct, including prosecutions by the Securities and Exchange Commission and the Federal Trade Commission, and a recent bankruptcy filing that critics say is designed to jettison the substantial legal liabilities the firm has incurred. In September 2023, the company became Blue Lantern; before that, it was called Benefytt; and before that, Health Insurance Innovations. Forty-three state attorneys general had settled with the company in 2018, with it paying a $3.4 million fine. A close associate of the company, Steven Dorfman, has also been prosecuted by the FTC, in addition to the Department of Justice.
Namath himself has a bit of a checkered past when it comes to his business associates—in the early 1970s, he co-owned a bar frequented by members of the Colombo and Lucchese crime families, according to reporting at the time cited in a 2004 biography. Due to the controversy surrounding the bar, Namath was forced by the NFL Commissioner to sell his interest in it. Last year, it was revealed that Namath had employed a prolific pedophile coach at his football camp, also in the 1970s, and the 80-year-old ex-quarterback is now being sued by one of the coach’s victims.
The Namath ads are the main illustration of the behemoth Medicare Advantage marketing industry, which is designed to herd seniors into Medicare Advantage plans that restrict the doctors and hospitals that seniors can go to and the procedures they can access through the onerous “prior authorization” process, and it costs the federal government as much as $140 billion annually compared to traditional Medicare. Over half of seniors—nearly 31 million people—are now in Medicare Advantage, and there is little understanding of the drawbacks of the program. Seniors are aware that they may receive modest gym or food benefits but typically do not realize that they may be giving up their doctors, their specialists, their outpatient clinics, and their hospitals in favor of an in-network alternative that may be lower quality and farther away.
How so many seniors are lured into Medicare Advantage
Blue Lantern—with its powerful private equity owner Madison Dearborn—may be the key to understanding how so many people have been ushered into Medicare Advantage—and the pitfalls that private equity’s rapid entrance into health care can create for ordinary Americans.
While Blue Lantern is just one company, it is a Rosetta Stone for everything that is wrong with American health care today—fraud, profiteering, lawbreaking, no regard for patient care—where only the public comes out the loser.
Blue Lantern uses TV ads and, at least until regulators began poking around, a widespread telemarketing operation, being one of the main firms charged with generating “leads” that are then sold to brokers and insurers, as Medicare Advantage plans are banned from cold-calling. Court filings reviewed by HEALTH CARE Un-Covered allege that after legal discovery, Blue Lantern (then known as Benefytt) at minimum dialed seniors over 17 million times, potentially in violation of federal law that requires telemarketers to properly identify themselves and who they are working for—ultimately, in this case, insurers that generate huge profits from Medicare Advantage.
The Namath ads have been running since 2018 when the company was named Health Insurance Innovations—the same year the FTC began prosecuting Simple Health Plans, along with its then-CEO Steven Dorfman. The Fort Lauderdale Sun-Sentinel identified Health Insurance Innovations as a “successor” to Simple Health Plans. After five years of likely exceptionally costly litigation, for which Dorfman is represented by jet-set law firm DLA Piper, on February 9, the FTC won a $195 million judgment against Simple Health Plans and Dorfman. The FTC alleged in 2019 that Dorfman had lied to the court when he said that he did not control any offshore accounts. The FTC found $20 million, but the real number is probably higher.
Friends in high places
In February 2020, Trump’s Secretary of Health and Human Services, Alex Azar, said that the Namath ads might not “look or sound like the future of health care,” but that they represented “real savings, real options” for older Americans.
In March 2020, Health Insurance Innovations (HII) changed its name to Benefytt, and in August 2020, it was acquired by Madison Dearborn Partners. Madison Dearborn has close ties to the Illinois Democratic elite, pumping over $916,000 into U.S. Ambassador to Japan Rahm Emanuel’s campaigns for Congress and mayor of Chicago.
In September 2021, HII settled a $27.5 million class action lawsuit. The 230,000 victims received an average payout of just $80.
In July 2022, the SEC charged HII/Benefytt and its then-CEO Gavin Southwell with making fraudulent representations to investors about the quality of the health plans it was marketing. “HII and Southwell…told investors in earnings calls and investor presentations that HII’s consumer satisfaction was 99.99 percent and state insurance regulators received very few consumer complaints regarding HII. In reality, HII tracked tens of thousands of dissatisfied consumers who complained that HII’s distributors made misrepresentations to sell the health insurance products, charged consumers for products they did not authorize and failed to cancel plans upon consumers’ requests,” the SEC found, with HII/Benefytt and Southwell ultimately paying a $12 million settlement in November 2022.
By August 2022, Benefytt had paid $100 million to settle allegations that it had fraudulently directed people into “sham” health care plans. “Benefytt pocketed millions selling sham insurance to seniors and other consumers looking for health coverage,” the FTC’s Director of Consumer Protection, Samuel Levine, said at the time.
Bankruptcy and another name change
In May 2023, Benefytt declared Chapter 11 bankruptcy—where the company seeks to continue to exist as a going concern, as opposed to Chapter 9, when the company is stripped apart for creditors—in the Southern District of Texas. The plan of bankruptcy was approved in August. The Southern Texas Bankruptcy Court has been mired in controversy in recent months as one of the two judges was revealed to be in a romantic relationship with a woman employed by a firm, Jackson Walker, that worked in concert with the major Chicago law firm Kirkland and Ellis to move bankruptcy cases to Southern Texas and monopolize them under a friendly court. While the other judge on the two-judge panel handled the Benefytt case, Jackson Walker and Kirkland and Ellis were retained by Benefytt, and the fees paid to Jackson Walker by Benefytt were delayed by the court as a result of the controversy.
In September 2023, Benefytt exited bankruptcy and became Blue Lantern.
The August approval of the bankruptcy plan was vocally opposed by a group of creditors who had sued Benefytt over violations of the Telephone Consumer Privacy Act (TCPA). The creditors asserted that Benefytt had substantial liabilities, with millions of calls made where Benefytt did not identify the ultimate seller—Medicare Advantage plans run by UnitedHealth, Humana, and other firms prohibited from directly contacting people they have no relationship with—and violations fined at $1,500 per willful violation.
Attorneys for those creditors stated in a filing reviewed by HEALTH CARE Un-Covered that Madison Dearborn always planned “to steer Benefytt into bankruptcy,” if they were unable to resolve the substantial liabilities they owed under the TCPA.
Madison Dearborn “knew that Benefytt’s TCPA liabilities exceeded its value, but purchased Benefytt anyway, for the purpose of trying to quickly extract as much money and value as they could before those liabilities became due,”
the August 25, 2023, filing stated on behalf of Wes Newman, Mary Bilek, George Moore, and Robert Hossfeld, all plaintiffs in proposed TCPA class action suits. The filing went on to say that the bankruptcy was inevitable “if—after siphoning off any benefit from the illegal telemarketing alleged herein—[Madison Dearborn] could not obtain favorable settlements or dismissals for the telemarketing-related lawsuits against Benefytt.”
Under the bankruptcy plan, Blue Lantern/Benefytt is released from the TCPA claims, but individuals harmed can affirmatively opt-out of the release, which is why the bankruptcy court justified its approval. Over 7 million people—the total numbers in Benefytt’s database, according to the plaintiffs—opting out of the third-party release is an enormous administrative hurdle for plaintiffs’ lawyers to pass, massively limiting the likelihood of success of any class-action litigation against Blue Lantern going forward.
Their attorney, Alex Burke, stated in court that “[t]his bankruptcy is an intentional and preplanned continuation of a fraud.” His statement was before 3,670 more Namath ads ran during 2023 open enrollment.
In response to requests for comment from HEALTH CARE un-covered, the Centers for Medicare and Medicaid Services did not answer questions about Benefytt and why the company was simply not barred from the Medicare Advantage market altogether.
Corporations have used the bankruptcy process in recent years to free themselves from criminal and civil liability, with opioid marketer Purdue Pharma being the most prominent recent example. The Supreme Court is reviewing the legality of Purdue’s third-party releases currently, with a decision expected in late spring.
The role that private equity plays in keeping Benefytt going cannot be overstated.
Without Madison Dearborn or another private equity firm eager to take on such a risky business with such a long history of legal imbroglios, it is almost certain that Benefytt would no longer exist—and the Joe Namath ads would disappear from our televisions. Instead, Madison Dearborn keeps them going, suckering seniors into Medicare Advantage plans.
This is part and parcel of the ongoing colonization by private equity into America’s health care system. Private equity is making a major play into Medicare Advantage.
It has pumped billions of dollars into purchasing hospitals. It has invested in hospice care. It is gobbling up doctors’ groups. It is acquiring ambulance companies. It is hoovering up nurse staffing firms. It is making huge investments into health tech. It is in nursing homes. And it is in health insurance. Nothing about America’s health care system is untouched by private equity.
That’s a problem, experts say.
“I’ve been screaming at the TV every time Joe Namath gets on—it is not an official Medicare website,” said Laura Katz Olson, a professor of political science at Lehigh University who has written on private equity’s role in the health care system.
“Private equity has so much money to deploy, which is far more than they have opportunities to buy. As such, they are desperately looking for opportunities to invest. There’s a lot of money in Medicare Advantage—it’s guaranteed money from the federal government, which makes it perfect for the private equity playbook.”
Eileen Appelbaum, the co-director at the Center for Economic and Policy Research, who has also studied private equity’s role in health care, concurred that private equity was a perfect fit for Medicare marketing organizations.
“I think basically the whole privatized Medicare situation is ready for all kinds of exploitation and misrepresentations and denying people the coverage that they need,” she said. “My email is inundated with these totally misleading ads. Private equity took a look at this and said, “look at that, it’s possible to do something that’s misleading and make a lot of money.”
Madison Dearborn receives a large portion of its capital from public pension funds like the California Public Employees Retirement System (CalPERS) and the Washington State Investment Fund—people who are dependent on Medicare. Appelbaum said that the pension funds exercise little oversight over their investments in private equity. “Pension funds may have the name of the company that they are invested in, they’re told that it’s ‘part of our health care investment portfolio,’ but they don’t find out what they really do until there’s a scandal.
It is amazing that pension funds give so much money to private equity with so little information about how their money is being spent.”
Published this week in The Atlantic, this piece chronicles the increase in Americans using crowdfunding sites like GoFundMe to cover—or at least attempt to cover—their catastrophic medical expenses. Envisioned as a tool to fund “ideas and dreams,” the GoFundMe platform saw a 25-fold increase in the number of campaigns dedicated to medical care from 2011 to 2020.
Medical campaigns have garnered at least one third of all donations and raised $650M in contributions.
The article’s accounts of life-saving care leading to bankrupting medical bills are heartbreaking and familiar, and despite some success stories, the average GoFundMe medical campaign falls well short of its target donation goal.
The Gist:
Although unfortunately not surprising, these crowdfunding stats reflect ournation’s healthcare affordability crisis.
Online campaigns can alleviate real financial burdens for some people; however, they come at the costs of publicly exposing personal medical information, potentially offering false hope, and financially imposing on friends and family.
The majority of personal bankruptcies are caused by medical expenses, and recent changes like removingsome levels of medical debt from credit reports are only a small step toward reducing the personal financial effects of medical debt.
Absent larger-scale healthcare payment and coverage reform, healthcare industry leaders continue to be challenged with finding ways to decouple the provision of essential medical care from the risk of financial ruin for patients.
On Sunday, Miami, FL-based Cano Health, a Medicare Advantage (MA)-focused primary care clinic operator, filed for bankruptcy protection to reorganize and convert around $1B of secured debt into new debt.
The company, which went public in 2020 via a SPAC deal worth over $4B, has now been delisted from the New York Stock Exchange. After posting a $270M loss in Q2 of 2023, Cano began laying off employees, divesting assets, and seeking a buyer. As of Q3 2023, it managed the care of over 300K members, including nearly 200K in Medicare capitation arrangements, at its 126 medical centers.
The Gist:
Like Babylon Health before it, another “tech-enabled” member of the early-COVID healthcare SPAC wave is facing hard times. While the low interest rate-fueled trend of splashy public offerings was not limitedto healthcare, several prominent primary care innovators and “insurtechs” from this wave have struggled, adding further evidence to the adages that healthcare is both hard and difficult to disrupt.
Given that Cano sold its senior-focused clinics in Texas and Nevada to Humana’s CenterWell last fall, Cano may draw interest from other organizations looking to expand their MA footprints.
The physician-led healthcare network formed to save hospitals from financial distress. Now, hospitals in its own portfolio need bailing out after years of alleged mismanagement.
Steward Health Care formed over a decade ago when a private equity firm and a CEO looking to disrupt a regional healthcare environment teamed up to save six Boston-based hospitals from the brink of financial collapse. Since that time, Steward has expanded from a handful of facilities to become the largest physician-led for-profit healthcare network in the country, operating 33 community hospitals in eight states, according to its own corporate site.
However, Steward has also found itself once again on the precipice of failure.
Steward’s ongoing issues in Massachusetts have played out in regional media outlets in recent weeks. Massachusetts Gov. Maura Healey warned there would be no bailout for Steward in an interview on WBUR’s Radio Boston.
The Massachusetts Department of Public Health said it is investigating concerns raised about Steward facilities and began conducting daily site inspections at some Steward sites to ensure patient safety beginning Jan. 31.
However, the tide may have begun to change. Steward executives said on Feb. 2 they had secured a deal to stabilize operations and keep Massachusetts hospitals open — for now. Steward will receive bridge financing under the deal and consider transferring ownership of one or more hospitals to other companies, a Steward spokesperson confirmed to Healthcare Dive on Feb. 7.
While politicians welcomed the news, some say Steward’s long term outlook in the state is uncertain. Other politicians sought answers for how a prominent system could seemingly implode overnight.
“I am cautiously optimistic at this point that [Steward] will be able to remain open, because it’s really critical they do,” said Brockton City Councilor Phil Griffin. “But they owe a lot of people a lot of money, so we’ll see.”
However, the business model wasn’t immediately a financial success. Steward didn’t turn a profit between 2011 and 2014, according to a 2015 monitoring report from the Massachusetts attorney general. Instead, Steward’s debt increased from $326 million in 2011 to $413 million at the end of the 2014 fiscal year, while total liabilities ballooned to $1.4 billion in the same period as Steward engaged in real estate sale and leaseback plays.
Under the 2010 deal, Steward agreed to assume Caritas’ debt and carry out $400 million in capital expenditures over four years to upgrade the hospitals’ infrastructure. However, that capital expenditure could come in part from financial engineering, such as monetizing Steward’s own assets, according to Zirui Song, associate professor of health care policy and medicine at the Harvard Medical School who has studied private equity’s impact on healthcare since 2019.
Cerberus did not contribute equity into Steward after making its initial investment of $245.9 million, according to the December 2015 monitoring report. Meanwhile, according to reporting at the time, de la Torre wanted to expand Steward. Steward was on its own to raise funds.
Such deals are typically short-sighted, Song explained. When hospitals sell their property, they voluntarily forfeit their most valuable assets and tend to be saddled with high rent payments.
Healthcare Dive spoke with four workers across Steward’s portfolio who said Steward’s emphasis on the bottom line negatively impacted the company’s operations for years.
Terra Ciurro worked in the emergency department at Steward Health Care-owned Odessa Regional Medical Center in January 2022 as a travel nurse. She recalled researching Steward and being attracted to the fact the company was physician owned.
“I remember thinking, ‘That’s all I need to know. Surely, doctors will have their heart in the right place,’” Ciurro said. “But yeah — that’s not the experience I had at all.”
The emergency department was “shabby, rundown and ill-equipped,” and management didn’t fix broken equipment that could have been hazardous, she said. Nine weeks into her 13-week contract and three hours before Ciurro was scheduled to work, Ciurro said her staffing agency called to cut her contract unceremoniously short. Steward hadn’t paid its bills in six months, and the agency was pulling its nurses, she said she was told.
In Massachusetts, Katie Murphy, president of the Massachusetts Nurses Association, which represents more than 3,000 registered nurses and healthcare professionals who work in eight Steward hospitals, said there were “signals” that Steward facilities had been on the brink of collapse for “well over a year.”
Steward hospitals are often “significantly” short staffed and lack supplies from the basics, like dressings, to advanced operating room equipment, said Murphy. While most hospitals in the region got a handle on staffing and supply shortages in the aftermath of the COVID pandemic, at Steward hospitals shortages “continued to accelerate,” Murphy said.
A review of Steward’s finances by BDO USA, a tax and advisory firm contracted last summer by the health system itself to demonstrate it was solvent enough to construct a new hospital in Massachusetts, showed Steward had a liquidity problem. The health system had few reserves on hand last year to pay down its debts owed to vendors, possibly contributing to the shortages. The operator carried only 10.2 days of cash on hand in 2023. In comparison, most healthy nonprofit hospital systems carried 150 days of cash on hand or more in 2022, according to KFF.
One former finance employee, who worked for Steward beginning around 2018, said that the books were routinely left unbalanced during her tenure. Each month, she made a list of outstanding bills to determine who must be paid and who “we can get away with holding off” and paying later.
Food, pharmaceuticals and staff were always paid, while all other vendors were placed on an “escalation list,” she said. Her team prioritized paying vendors that had placed Steward on a credit hold.
The worker permanently soured on Steward when she said operating room staff had to “make do” without a piece of a crash cart — which is used in the event of a heart attack, stroke or trauma.
She stopped referring friends to Steward facilities, telling them “Don’t go — if you can go anywhere else, don’t go [to Steward], because there’s no telling if they’ll have the supplies needed to treat you.”
Away from regulatory review
Massachusetts officials maintain that it hasn’t been easy to see what was happening inside Steward.
Steward is legally required to submit financial data to the MA Center for Health Information and Analysis (CHIA) and to the Massachusetts Registration of Provider Organizations Program (MA-RPO Program), according to a spokesperson from the Health Policy Commission, which analyzes the reported data. Under the latter requirement, Steward is supposed to provide “a comprehensive financial statement, including information on parent entities and corporate affiliates as applicable.”
However, Steward fought the requirements. During Stuart Altman’s tenure as the chair of the Commission from 2012 to 2022, Altman told Healthcare Dive that the for-profit never submitted documents, despite CHIA levying fines against Steward for non-compliance. Steward even sued CHIA and HPC for relief against the reporting obligations.
Steward is currently appealing a superior court decision and order from June 2023 that required it to comply with the financial reporting requirements and produce audited financial reports that cover the full health system, Mickey O’Neill, communications director for the HPC told Healthcare Dive. As of Feb. 6, Steward’s non-compliance remained ongoing, O’Neill said.
Without direct insight into Steward’s finances, the state was operating at a disadvantage, said John McDonough, professor of the practice of public health at The Harvard T.H. Chan School of Public Health. He added that some regulators saw a crisis coming generally, “but the timing was hard to predict.”
Altman gives his team even more of a pass for not spotting the Steward problem.
“There was no indication while I was there that Steward was in deep trouble,” Altman said. Although Steward was the only hospital system that failed to report financial data to the HPC, that alone had not raised red flags for him. “[CEO] Ralph [de la Torre] was just a very contrarian guy. He didn’t do a lot of things.”
Song and his co-author, Sneha Kannan, a clinical research fellow at Harvard Medical School, are hopeful that in the future, regulatory agencies can make better use of the data they collect annually to track changes in healthcare performance over time. They can potentially identify problem operators before they become crises.
“State legislators, even national legislators, are not in the habit of comparing hospitals’ performances on [quality] measures to themselves over time — they compare to hospitals’ regional partners,” Kannan said. “Legislators, Medicare, [and] CMS has access to that information.”
However, although there’s interest from regulators in scrutinizing healthcare quality more closely — particularly when private equity gets involved — a streamlined approach to analyzing such data is still a “ways off,” according to the pair. For now, all parties interviewed for this piece agreed that the best way to avoid being caught off guard by a failing system was to know how such implosions could occur.
“If there’s a lesson from [Steward],” McDonough ventured, “it is that the entire state health system and state government need to be much more wary of all for-profits.”
Issue: Medical debt negatively affects many Americans, especially people of color, women, and low-income families. Federal and state governments have set some standards to protect patients from medical debt.
Goal: To evaluate the current landscape of medical debt protections at the federal and state levels and identify where they fall short.
Methods: Analysis of federal and state laws, as well as discussions with state experts in medical debt law and policy. We focus on laws and regulations governing hospitals and debt collectors.
Key Findings and Conclusion: Federal medical debt protection standards are vague and rarely enforced. Patient protections at the state level help address key gaps in federal protections. Twenty states have their own financial assistance standards, and 27 have community benefit standards. However, the strength of these standards varies widely. Relatively few states regulate billing and collections practices or limit the legal remedies available to creditors. Only five states have reporting requirements that are robust enough to identify noncompliance with state law and trends of discriminatory practices. Future patient protections could improve access to financial assistance, ensure that nonprofit hospitals are earning their tax exemption, and limit aggressive billing and collections practices.
Introduction
Medical debt, or personal debt incurred from unpaid medical bills, is a leading cause of bankruptcy in the United States. As many as 40 percent of U.S. adults, or about 100 million people, are currently in debt because of medical or dental bills. This debt can take many forms, including:
past-due payments directly owed to a health care provider
ongoing payment plans
money owed to a bank or collections agency that has been assigned or sold the medical debt
credit card debt from medical bills
money borrowed from family or friends to pay for medical bills.
This report discusses findings from our review of federal and state laws that regulate hospitals and debt collectors to protect patients from medical debt and its negative consequences. First, we briefly discuss the impact and causes of medical debt. Then, we present federal medical debt protections and discuss gaps in standards as well as enforcement. Then, we provide an overview of what states are doing to:
strengthen requirements for financial assistance and community benefits
regulate hospitals’ and debt collectors’ billing and collections activities
limit home liens, foreclosures, and wage garnishment
develop reporting systems to ensure all hospitals are adhering to standards and not disproportionately targeting people of color and low-income communities.
(See the appendix for an overview of medical debt protections in all 50 states and the District of Columbia.)
Impact of Medical Debt
More than half of people in medical and dental debt owe less than $2,500, but because most Americans cannot cover even minor emergency expenses, this debt disrupts their lives in serious ways. Fear of incurring medical debt also deters many Americans from seeking medical care. About 60 percent of adults who have incurred medical debt say they have had to cut back on basic necessities like food or clothing, and more than half the adults from low-income households (less than $40,000) report that they have used up their savings to pay for their medical debt.
A significant amount of medical debt is either sold or assigned to third-party debt-collecting agencies, who often engage in aggressive efforts to collect on the debt, creating stress for patients. Both hospitals and debt collectors have won judgments against patients, allowing them to take money directly from a patient’s paycheck or place liens on a patient’s home. In some cases, patients have also lost their homes. Medical debt can also have a negative impact on a patient’s credit score.
Key Terms Related to Medical Debt
Financial assistance policy: A hospital’s policy to provide free or discounted care to certain eligible patients. Eligibility for financial assistance can depend on income, insurance status, and/or residency status. A hospital may be required by law to have a financial assistance policy, or it may choose to implement one voluntarily. Financial assistance is frequently referred to as “charity care.”
Bad debt: Patient bills that a hospital has tried to collect on and failed. Typically, hospitals are not supposed to pursue collections for bills that qualify for financial assistance or charity care, so bad debt refers to debt owed by patients ineligible for financial assistance.
Community benefit requirements: Nonprofit hospitals are required by federal law and some state laws to provide community benefits, such as financial assistance and other investments targeting community need, in exchange for a tax exemption.
Debt collectors or collections agencies: Entities whose business model primarily relies on collecting unpaid debt. They can either collect on behalf of a hospital (while the hospital still technically holds the debt) or buy the debt from a hospital.
Sale of medical debt: Hospitals sometimes sell the debt patients owe them to third-party debt buyers, who can be aggressive in seeking repayment of the debt.
Creditor: A party that is owed the medical debt and often wants to collect on the medical debt. This can be a hospital, a debt collector acting on behalf of a hospital, or a third-party debt buyer.
Debtor: A patient who owes medical debt over unpaid medical bills.
Wage garnishment: The ability of a creditor to get a court order that would allow them to deduct a portion of a debtor-patient’s paycheck before it reaches the patient. Federal law limits how much can be withheld from a debtor’s paycheck, and some states exceed this federal protection.
Placing a lien: A legal claim that a creditor can place on a patient’s home, prohibiting the patient from selling, transferring, or refinancing their home without first paying off the creditor. Most states require creditors to get a court order before placing a lien on a home.
Foreclosure or forced sale: A creditor can repossess and sell a patient’s home to pay off their medical debt. Often, creditors are required to obtain a court order to do so.
Perhaps what is most troubling is that the burden of medical debt is not borne equally: Black and Hispanic/Latino adults and women are much more likely to incur medical debt. Black adults also tend to be sued more often as a result. Uninsured patients, those from low-income households, adults with disabilities, and young families with children are all at a heightened risk of being saddled with medical debt.
Causes of Medical Debt
Most people — 72 percent, according to one estimate — attribute their medical debt to bills from acute care, such as a single hospital stay or treatment for an accident. Nearly 30 percent of adults who owe medical debt owe it entirely for hospital bills.
Although uninsured patients are more likely to owe medical debt than insured patients, having insurance does not fully shield patients from medical debt and all its consequences. More than 40 percent of insured adults report incurring medical debt, likely because they either had a gap in their coverage or were enrolled in insurance with inadequate coverage. High deductibles and cost sharing can leave many exposed to unexpected medical expenses.
The problem of medical debt is further exacerbated by hospitals charging increasingly high prices for medical care and failing to provide adequate financial assistance to uninsured and underinsured patients with low income.
Key Findings
Federal Medical Debt Protections Have Many Gaps
At the federal level, the tax code, enforced by the Internal Revenue Service (IRS), requires nonprofit hospitals to broadly address medical debt. However, these requirements do not extend to for-profit hospitals (which make up about a quarter of U.S. hospitals) and have other limitations.
Further, the IRS does not have a strong track record of enforcing these requirements. In the past 10 years, the IRS has not revoked any hospital’s nonprofit status for noncompliance with these standards.
The Consumer Financial Protection Bureau and the Federal Trade Commission have additional oversight authority over credit reporting and debt collectors. The Fair Credit Reporting Act regulates credit reporting agencies and those that provide information to them (debt collectors and hospitals). Consumers have the right to dispute any incomplete or inaccurate information and remove any outdated, negative information. In some cases, patients can directly sue hospitals or debt collectors for inaccurately reporting medical debt to credit reporting agencies. In addition, the Federal Debt Collection Practices Act limits how aggressive debt collectors can be by restricting the ways and times in which they can contact debtors, requiring certain disclosures and notifications, and prohibiting unfair or deceptive practices. Patients can directly sue debt collectors in violation of the law. This law, however, does not limit or prohibit the use of certain legal remedies, like wage garnishment or foreclosure, to collect on a debt.
Many states have taken steps to fill the gaps in federal standards. Within a state, several agencies may play a role in enforcing medical debt protections. Generally speaking:
state departments of health are the primary regulators of hospitals and set standards for them
state departments of taxation are responsible for ensuring nonprofit hospitals are earning their exemption from state taxes
state attorneys general protect consumers from unfair and deceptive business practices by hospitals and debt collectors.
Fewer Than Half of States Exceed Federal Requirements for Financial Assistance, Protections Vary Widely
Federal law requires nonprofit hospitals to establish and publicize a written financial assistance policy, but these standards leave out for-profit hospitals and lack any minimum eligibility requirements. As the primary regulators of hospitals, states have the ability to fill these gaps and require hospitals to provide financial assistance to low-income residents. Twenty states require hospitals to provide financial assistance and set certain minimum standards that exceed the federal standard.
All but three of these 20 states extend their financial assistance requirements to for-profit hospitals. Of these 20 states, four states — Connecticut, Georgia, Nevada, and New York — apply their financial assistance requirements only to certain types of hospitals.
Policies also vary among the 31 states that do not have statutory or regulatory financial assistance requirements for hospitals. For example, the Minnesota attorney general has an agreement in place with nearly every hospital in the state to adhere to certain patient protections, though it falls short of requiring hospitals to provide financial assistance. Massachusetts operates a state-run financial assistance program partly funded through hospital assessments. Other states use far less prescriptive mechanisms to try to ensure that patients have access to financial assistance, such as placing the onus of treating low-income patients on individual counties or requiring hospitals to have a plan for treating low-income and/or uninsured patients without setting any specific requirements.
Enforcement of state financial assistance standards.
The only way to enforce the federal financial assistance requirement is to threaten a hospital’s nonprofit status, and the IRS has been reluctant to use this authority. Among the 20 states that have their own state financial assistance standards, 10 require compliance as a condition of licensure or as a legal mandate. These mandates are often coupled with administrative penalties, but some states have established additional consequences. For example, Maine allows patients to sue noncompliant hospitals.
Six states make compliance with their financial assistance standards a condition of receiving funding from the state. Two other states use their certificate-of-need process (which requires hospitals to seek the state’s approval before establishing new facilities or expanding an existing facility’s services) to impose their financial assistance mandates.
Setting eligibility requirements for financial assistance.
The federal financial assistance standard sets no minimum eligibility requirements for hospitals to follow. However, the 20 states with financial assistance standards define which residents are eligible for aid.
One way for states to ensure that financial assistance is available to those most in need is to prevent hospitals from discriminating against undocumented immigrants. Four states explicitly prohibit such discrimination in statute and regulation. Most states, however, are less explicit. Thirteen states define eligibility broadly, basing it most frequently on income, insurance status, and state residency. However, it is unclear how hospitals are interpreting this requirement when it comes to patients’ immigration status. In contrast, three states explicitly exclude undocumented immigrants from eligibility.
States also vary widely in terms of which income brackets are eligible for financial assistance and how much financial assistance they may receive.
At least three of the 20 states with financial assistance standards allow certain patients with heavy out-of-pocket medical expenses from catastrophic illness or prior medical debt to access financial assistance. Many states also require hospitals to consider a patient’s insurance status when making financial assistance determinations. At least six states make financial assistance available for uninsured patients only, while at least eight others also make financial assistance available to underinsured patients.
Standardizing the application process.
Cumbersome applications can discourage many patients from applying for financial assistance. Five states have developed a uniform application form, while three others have set minimum standards for financial assistance applications. Eleven states require hospitals to give patients the right to appeal a denial of financial assistance.
States Split in Requiring Nonprofit Hospitals to Invest in Community Benefits
Federal and state policymakers also can require nonprofit hospitals to invest in community benefits in return for tax exemptions. Federal law requires nonprofit hospitals to produce a community health needs assessment every three years and have an implementation strategy. Almost all states exempt nonprofit hospitals from a host of state taxes, including income, property, and/or sales taxes. However, only 27 impose community benefit requirements on nonprofit hospitals.
Community benefits frequently include financial assistance but also investments that address issues like lack of access to food and housing. In the long run, these investments can reduce medical debt burden by improving population health and the financial stability of a community. Most states that require nonprofit hospitals to provide community benefits allow nonprofit hospitals to choose how they invest their community benefit dollars. This hands-off approach has given rise to concerns about the lack of transparency in community benefit spending as well as questions about whether hospitals are investing this money in ways that are most helpful to the community, such as in providing financial assistance.
Applicability of community benefit standards.
Nineteen states impose community benefit requirements on all nonprofit hospitals in the state, but three states further limit these requirements to hospitals of a certain size. At least six states have extended these requirements to for-profit hospitals as well. Of these six, the District of Columbia, South Carolina, and Virginia have incorporated community benefit requirements into their certificate-of-need laws instead of their tax laws. As a result, any hospital seeking to expand in these states becomes subject to their community benefit requirement.
Interaction between financial assistance and community benefits.
The federal standard allows nonprofit hospitals to report financial assistance as part of their community benefit spending. Most states with community benefit requirements also allow hospitals to do this. However, only seven states require hospitals to provide financial assistance to satisfy their community benefit obligations.
Setting quantitative standards for community benefit spending.
Only seven states set minimum spending thresholds that hospitals must meet or exceed to satisfy state community benefit standards. For example, Illinois and Utah require nonprofit hospitals’ community benefit contributions to equal what their property tax liability would have been. Unique among states, Pennsylvania gives taxing districts the right to sue nonprofit hospitals for not holding up their end of the bargain, which has proven to be a strong enforcement mechanism.
Fewer Than Half the States Exceed Federal Standards for Billing and Collections
Hospital billing and collections practices can significantly increase the burden of medical debt on patients. However, the current federal standard does not regulate these practices beyond imposing waiting periods and prior notification requirements for certain extraordinary collections actions (ECAs), such as garnishing wages or selling the debt to a third party.
Requiring hospitals to provide payment plans.
Federal standards do not require hospitals to make payment plans available. However, a few states do require hospitals to offer payment plans, particularly for low-income and/or uninsured patients. For example, Colorado requires hospitals to provide a payment plan and limit monthly payments to 4 percent of a patient’s monthly gross income and to discharge the debt once the patient has made 36 payments.
Limiting interest on medical debt.
Federal law does not limit the amount of interest that can be charged on medical debt. However, eight states have laws prohibiting or limiting interest for medical debt. Some states like Arizona have set a ceiling for interest on all medical debt. Others like Connecticut further prohibit charging interest to patients who are at or below 250 percent of the federal poverty level and are ineligible for public insurance programs.
Though many states do not have specific laws prohibiting or limiting interest that hospitals or debt collectors can charge on medical debt, all states do have usury laws, which limit the amount of interest than can be charged on any oral or written agreement. Usury limits are set state-by-state and can range anywhere from 5 percent to more than 20 percent, but most limits fall well below the average interest rate for a credit card (around 24%). At least one state, Minnesota, has sued a health system for charging interest rates on medical debt that exceeded the allowed limit in the state’s usury laws.
Interactions between hospitals, third-party debt collectors, and patients.
Unlike hospitals, debt collectors do not have a relationship with patients and can be more aggressive when collecting on the debt. Federal law neither limits when a hospital can send a bill to collections, nor does it require hospitals to oversee the debt collectors it uses. Most states (37) also do not regulate when a hospital can send a bill to collections, although some states have developed more protective approaches.
For example, Connecticut prohibits hospitals from sending the bills of certain low-income patients to collections, and Illinois requires hospitals to offer a reasonable payment plan first. Additionally, five states require hospitals to oversee their debt collectors.
Sale of medical debt to third-party debt buyers.
Hospitals sometimes sell old unpaid debt to third-party debt buyers for pennies on the dollar. Debt buyers can be aggressive in their efforts to collect, and sometimes even try to collect on debt that was never owed. Federal law considers the sale of medical debt an ECA and requires nonprofit hospitals to follow certain notice and waiting requirements before initiating the sale. Most states (44) do not exceed this federal standard.
Only three states prohibit the sale of medical debt. Two other states — California and Colorado — regulate debt buyers instead. For example, California prohibits debt buyers from charging interest or fees, and Colorado prohibits them from foreclosing on a patient’s home.
Reporting medical debt to credit reporting agencies.
Federal law considers reporting medical debt to a credit reporting agency to be an ECA and requires nonprofit hospitals to follow certain notice and waiting requirements beforehand. Most states (41) do not exceed this federal standard.
Of the 10 states that do go beyond the federal standard, a few like Minnesota fully prohibit hospitals from reporting medical debt. Most others require hospitals, debt collectors, and/or debt buyers to wait a certain amount of time before reporting the debt to credit agencies (Exhibit 8). Two states directly regulate credit agencies: Colorado prohibits them from reporting on any medical debt under $726,200, while Maine requires them to wait at least 180 days from the date of first delinquency before reporting that debt.
States Vary Widely on Patient Protections from Medical Debt Lawsuits
Federal law considers initiating legal action to collect on unpaid medical bills to be an extraordinary collections action and also limits how much of a debtor’s paycheck can be garnished to pay a debt.
In most states, hospitals and debt buyers can sue patients to collect on unpaid medical bills. Three states limit when hospitals and/or collections agencies can initiate legal action. Illinois prohibits lawsuits against uninsured patients who demonstrate an inability to pay. Minnesota prohibits hospitals from giving “blanket approval” to collections agencies to pursue legal action, and Idaho prohibits the initiation of lawsuits until 90 days after the insurer adjudicates the claim, all appeals are exhausted, and the patient receives notice of the outstanding balance.
Liens and foreclosures.
Most states (32) do not limit hospitals, collections agencies, or debt buyers from placing a lien or foreclosing on a patient’s home to recover on unpaid medical bills. However, almost all states provide a homestead exemption, which protects some equity in a debtor’s home from being seized by creditors during bankruptcy. The amount of homestead exemption available to debtors varies from state to state, ranging from just $5,000 to the entire value of the home. Seven states have unlimited homestead exemptions, allowing debtors to fully shield their primary homes from creditors during bankruptcy. Additionally, Louisiana offers an unlimited homestead exemption for certain uninsured, low-income patients with at least $10,000 in medical bills.
Ten states prohibit or set limits on liens or foreclosures for medical debt. For example, New York and Maryland fully prohibit both liens and foreclosures because of medical debt, while California and New Mexico only prohibit them for certain low-income populations.
Wage garnishment.
Under federal law, the amount of wages garnished weekly may not exceed the lesser of: 25 percent of the employee’s disposable earnings, or the amount by which an employee’s disposable earnings are greater than 30 times the federal minimum wage. Twenty-one states exceed the federal ceiling for wage garnishment. Only a few states go further to prohibit wage garnishment for all or some patients. For example, New York fully prohibits wage garnishment to recover on medical debt for all patients, yet California only extends this protection for certain low-income populations. While New Hampshire does not prohibit wage garnishment, it requires the creditor to keep going back to court every pay period to garnish wages, which significantly limits creditors’ ability to garnish wages in practice.
Many States Have Hospital Reporting Requirements, But Few Are Robust
Federal law requires all nonprofit hospitals to submit an annual tax form including total dollar amounts spent on financial assistance and written off as bad debt. However, these reporting requirements do not extend to for-profit hospitals and lack granularity. States, as the primary regulators of hospitals, would likely benefit from more robust data collection processes to better understand the impact of medical debt and guide their oversight and enforcement efforts.
Currently, 32 states collect some of the following:
financial data, including the total dollar amounts spent on financial assistance and/or bad debt
financial assistance program data, including the numbers of applications received, approved, denied, and appealed
demographic data on the populations most affected by medical debt
information on the number of lawsuits and types of judgments sought by hospitals against patients.
Fifteen states explicitly require hospitals to report total dollar amounts spent on financial assistance and/or bad debt, while 11 states also require hospitals to report certain data related to their financial assistance programs. Most of these 11 states limit the data they collect to the numbers of applications received, approved, denied, and appealed. However, a handful of them go further and ask hospitals to report on the amount of financial assistance provided per patient, number of financial assistance applicants approved and denied by zip code, number of payment plans created and completed, and number of accounts sent to collections.
Five states require hospitals to further break down their financial assistance data by race, ethnicity, gender, and/or preferred or primary language. For example, Maryland requires hospitals to break down the following data by race, ethnicity, and gender: the bills hospitals write off as bad debt and the number of patients against whom the hospital or the debt collector has filed a lawsuit.
Only Oregon asks hospitals to report on the number of patient accounts they refer for collections and extraordinary collections actions.
Discussion and Policy Implications
In 2022, the federal government announced administrative measures targeting the medical debt problem, which included launching a study of hospital billing practices and prohibiting federal government lenders from considering medical debt when making decisions on loan and mortgage applications. Although these measures will help some, only federal legislation and enhanced oversight will likely address current gaps in federal standards.
States can also fill the gaps in federal patient protections by improving access to financial assistance, ensuring that nonprofit hospitals are earning their tax exemption, and protecting patients against aggressive billing and collections practices. States also can leverage underutilized usury laws to protect their residents from medical debt.
Finding the most effective ways to enforce these standards at the state level could also protect patients. Absent oversight and enforcement, patients from underserved communities continue to face harm from medical debt, even when states require hospitals to provide financial assistance and prohibit them from engaging in aggressive collections practices. Bolstering reporting requirements alone would not likely ensure compliance, but states could protect patients by strengthening their penalties, providing patients with the right to sue noncompliant hospitals, and devoting funding to increase oversight by state agency officials.
To develop a comprehensive medical debt protection framework, states could also bring together state agencies like their departments of health, insurance, and taxation, as well as their state attorney general’s office. Creating an interagency office dedicated to medical debt protection would allow for greater efficiency and help the state build expertise to take on the well-resourced debt collection and hospital industries.
Still, these measures only address the symptoms of the bigger problem: the unaffordability of health care in the United States. Federal and state policymakers who want to have a meaningful impact on the medical debt problem could consider the protections discussed in this report as part of a broader plan to reduce health care costs and improve coverage.
HENRY KOTULA 