Waste of the Day: Hospital CEOs Stick Taxpayers with the Bill

Topline: Following two of the largest hospital bankruptcies in recent memory, state and local governments in Massachusetts, California and Pennsylvania have been forced to spend $130 million to keep the hospitals open and avoid putting their communities in danger, according to the Wall Street Journal.

How two hospital CEOs stiffed taxpayers

Key facts: Steward Health Care, the largest for-profit hospital system in the U.S., filed for bankruptcy in May 2024. Prospect Medical Group, which owned 16 hospitals, went bankrupt in January of this year.

Many of the private hospitals were essential for their patients. Prospect’s Crozer-Chester Medical Center was the only trauma center in Chester, Penn.. The state and local governments and the nonprofit Foundation for Delaware County spent $40 million trying to keep it open, but the hospital closed anyway. The medical center has $20 million in unpaid local taxes, which the Wall Street Journal says contributed to an increase in property taxes for other residents. Patients in Chester now often wait up to one year for doctors’ appointments or go to the emergency room for non-emergency care, the Wall Street Journal reported.

Massachusetts spent $67 million keeping eight Steward hospitals open. Six of them were eventually sold to a new company, but two shut down. Court filings show that Massachusetts “may recoup at best a fraction of its contributions,” according to the Wall Street Journal.

California spent $25 million trying to keep seven of Prospect’s hospitals open. Prospect also has $61 million in unpaid state taxes meant to help fund Medicaid.

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A bad real estate sale/leaseback deal

Background: Prospect and Steward owned their own property for years, but they both sold their land to Medical Properties Trust, a real estate investment firm that agreed to lease the property back to Prospect and Steward. Prospect sold most of its land for $1.5 billion in 2019, and Steward sold for $1.25 billion in 2016. When the hospitals later declared bankruptcy, their owners had already collected the huge payouts. 

Mary Bugbee of the Private Equity Stakeholder Project explained to Axios, “There were financially extractive business practices that were used that stripped value from the hospital system and loaded it with debt, and put the system in a pretty bad place financially.”

A congressional probe into Prospect and an internal investigation of Steward confirmed that the huge payouts “weakened the two hospital chains’ finances,” according to the Wall Street Journal.

CBS News reported that in 2018, Prospect took out a $1.12 billion loan to help fund its Los Angeles hospital. Prospect paid itself $457 million in dividends using the loan, including $90 million for its CEO.

The CEO of Medical Properties Trust earned $70 million of total compensation from 2017 to 2021, CBS News found.

Summary: The hospital failures in Massachusetts, California and Pennsylvania have seemingly hurt everyone except the private equity firms who owned the hospitals.

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This article was originally published by RealClearInvestigations and made available via RealClearWire.