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Can bankruptcy court 'claw back' Steward CEO Ralph de la Torre's yachts? What to know
Can bankruptcy court 'claw back' Steward CEO Ralph de la Torre's yachts? What to know
Can bankruptcy court 'claw back' Steward CEO Ralph de la Torre's yachts? What to know

Published on: 05/29/2024

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BROCKTON — If Steward Health Care wrongly stripped local community hospitals like Good Samaritan Medical Center for parts, what's the chance of the public getting money back?

Folks who favor some kind of restitution include Sen. Elizabeth Warren.

"Regulators need to seek all possible means to claw back the riches sucked out of these hospitals. No matter where they try to shift the blame, Steward executives are responsible for this crisis," the Democrat said in a press statement earlier this month.

Staffers for Warren said the senator was not available for an interview at this time to expand on her ideas about clawing back profits from Steward or Cerberus, the private equity firm that bankrolled the network's transition from six non-profit Bay State hospitals to 31 for-profit hospitals across the country. Steward filed for bankruptcy protection on Monday, May 6.

Steward operates eight hospitals in Massachusetts, including Brockton's Good Samaritan Medical Center, Saint Anne's in Fall River and Morton in Taunton.

To answer how likely it is for the public to get any "claw back," The Enterprise tapped local experts including John E. McDonough, professor of practice at Harvard's T.H. Chan School of Public Health. A skeptic of private equity's role in health care, McDonough brings both academic and political experience to the question.

The former state representative said it won't happen unless investigators bring criminal charges.

"It depends on whether it turns to the criminal side," McDonough said. "It would require action by the Department of Justice or the Federal Trade Commission."

Could the bankruptcy court force the sale of assets like, most infamously, the two yachts and two jets owned by Steward CEO Dr. Ralph de la Torre? Not likely.

"I don't have high hopes for thoughtful and far-reaching resolution here," McDonough said. "I think it's going to be as quick and dirty as it possibly can. It's probably going to represent a missed opportunity for the state."

McDonough said restitution or reparations are likely beyond the scope of the bankruptcy process. The South Texas district court handling the bankruptcy, he said, has a reputation for movingly slowly and viewing its role narrowly.

"The court is going to be seeking national solutions. It's hard to foresee how they would come up with some relief just for Massachusetts," said McDonough.

The dean of Bridgewater State University's business school also doesn't have high expectations of the public clawing back money from Steward.

Dean Jeanean J. Davis-Street cautioned that while she is an expert in finance but not bankruptcy, there are "fairly well-defined" provisions for clawbacks. If Steward improperly paid individuals in the six months before the company declared bankruptcy, those payments might be viable for a clawback. It would have to be the case that the individual was given preferential treatment, she said.

Corporate wrongdoers don't always escape penalties. The dean made an analogy to the mortgage crisis of 2007-2008. That economic shock led to creation of the Consumer Financial Protection Bureau and new clawback provisions that, 10 years later, forced several Wells Fargo executives to give back ill-gotten gains.

"If we did it then, we can do it now," Davis-Street said.

Davis-Street said a reform that could make a difference going forward would be to craft some kind of policy in which revenue generated from hospital services operates on an "investment model" where a percentage of the financial return after paying vendors must be held in trust to stabilize future operations.

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Steward's early investor, Cerberus, defends its role.

"During our nearly 11-year ownership of Steward, we supported the revitalization of failing community hospitals into a leading healthcare system," the company said in response to an April 3 Senate sub-committee hearing hosted by Warren and Sen. Ed Markey, also a Democrat. "Cerberus’ long-term investment made it possible for Steward to continue to serve its communities, employ tens of thousands of professionals, and positively impact millions of patients’ lives."

Cerberus sold its stake in Steward in 2020. Its total profit was about $800 million, a Cerberus spokesperson told the Boston Globe. The company said those profits did not go just to executives.

"These returns primarily benefited our investors, including millions of teachers, firefighters, law enforcement personnel, and municipal workers as well as other pension funds, universities and endowments," Cerberus said.

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Cerberus contends it left Steward in solid financial shape.

"When our controlling interest concluded in 2020, Steward was financially healthy with substantial liquidity and in compliance with all financial covenants," the firm said.

Send your news tips to reporter Chris Helms by email at [email protected] or connect on X at @HelmsNews.

News Source : https://www.enterprisenews.com/story/news/healthcare/2024/05/28/steward-ma-steward-health-care-bankruptcy-hospitals-brockton-good-sam-ralph-de-la-torre-yachts/73626198007/

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