Steward Health Care left Utah hospitals with unsettled debt, lawsuits claim

A hospital chain that sold off its Utah locations last year is being accused by investors — including several dozen physicians and a few state lawmakers — of shortchanging them millions of dollars, according to several lawsuits.

To pay bills it had run up in other states, Steward Health Care took funds from its five Utah hospitals, investors allege. Three separate lawsuits recently filed in Davis and Salt Lake counties sought a combined $40 million in damages.

The filings show that the Utah hospitals were being governed under a complicated for-profit ownership structure — the kind that one expert on hospital management said often threatens to put money over quality of care.

A dozen businesses, mostly in Utah, also have sued Steward in the last year, claiming it owes them a combined $3.4 million for goods and services that range from medical supplies and staffing to snow removal and pest control. The state of Utah is among the vendors who claim Steward left its bills unpaid — demanding $316,000 for newborn testing kits.

The hospitals owned by Steward were then known as Salt Lake Regional Medical Center in Salt Lake City; Davis Hospital and Medical Center in Layton; Jordan Valley Medical Center in West Jordan and its West Valley campus; and Mountain Point Medical Center in Lehi.

The lawsuits also name IASIS Holdings, the hospitals’ previous owner, which merged with Steward in 2017 and was a general partner under Steward’s ownership.

Steward sold all five in 2023 to Centura Health and its subsidiary, CommonSpirit Health — which, in a nod to the company’s Catholic heritage and Salt Lake Regional’s original name, rebranded all five locations as Holy Cross Hospital.

Amid its financial woes across the country, Steward has blamed the costs of the COVID-19 pandemic and low Medicare and Medicaid reimbursement rates. Representatives for Dallas-based Steward did not respond to a request from The Salt Lake Tribune for comment, but Steward officials said earlier this month that they are on a path to short-term stability.

In Massachusetts, where Steward has 10 facilities, the for-profit chain had asked for a bailout last month from the state so it could keep serving its tens of thousands of patients. Officials declined. This week, lawmakers there sent a letter to Cerberus Capital Management, the private equity firm that founded Steward, asking it to account for how much money it took out of the hospital chain, The Boston Globe reported.

Doctors, partners, plaintiffs

The Utah lawsuits tell a story that, according to all three complaints, started in the early 2000s, when a group of investors — many of them doctors — became limited partners in the hospital system owned by IASIS Healthcare.

Limited partnerships are essentially passive investment opportunities. Investors have no operational control over the company in which they are investing, but they also have no liability beyond their initial investment. In theory, limited partners earn some passive income if the company performs well.

Under the initial partnership agreement, signed in 2003, IASIS Healthcare was the general partner, meaning it ran the hospitals and bore all of their financial liability. More investors joined in 2007, and a new partnership agreement was signed, according to two of the lawsuits.

Sen. Stuart Adams, R-Layton and the Senate president, is one of the investors; he was first elected in 2010, after the limited partnerships were formed. Also listed as investors are two more Davis County Republicans: Sen. Jerry Stevenson and Rep. Stewart Barlow.

It is not unusual for a doctor to buy into their hospital network, said Dr. Alan Segar, professor of health policy and management at Boston University, and it was once common for doctors to own hospitals outright.

Now, for-profit hospital systems create some distance for physicians — who can invest in corporations like IASIS, rather than their own hospital — to avoid any real or perceived conflict of interest, Segar said.

‘Insufficient’ funds

Steward merged with IASIS in 2017 and acquired IASIS’ five Utah hospitals — bringing the number of hospitals Steward owned nationwide to 22, making it the largest private hospital owner in the country.

The merger announcement included lofty projections: $8 billion in revenue companywide in the first full year, while providing high-quality care at low costs to patients.

Steward also acquired the partnerships that funded the Utah hospitals, and this is where narratives in the lawsuits start to diverge, though they are based on the same events.

According to two of the three investor complaints, Steward took out loans totaling more than $700 million to refinance the Utah hospital campuses it had just acquired.

(Rick Egan | The Salt Lake Tribune) Salt Lake Regional Medical Center in 2021, then-owned by Stewart.

But Steward did not own those campuses outright, the complaint alleges; the limited partners should have been told about the loan and reaped some of the financial benefits. Instead, one lawsuit alleges, Steward saddled limited partners with an “unnecessary” loan and then, when it sold the property to another affiliated company, kept all the profits for itself.

That suit also claims Steward pulled money that was meant for Utah hospitals and used it to pay expenses at other hospitals across the country. If Steward replenished Utah’s account funds, it was in deposits that were “a fraction of the amount” the company had taken, the complaint claims.

“Such returned funds were insufficient for the Partnerships to timely pay their ongoing obligations, including amounts owed to their vendors, suppliers and other creditors, and to make quarterly distributions to the Limited Partners,” the complaint says.

The result was a snowball effect of lost business and decreased revenue, the complaint alleges. Steward’s Utah hospitals lost the trust of businesses and of patients, who went elsewhere, according to the complaint.

A second lawsuit alleged Steward did not factor in the $727 million it got in residual proceeds from the same property sale when it calculated what to pay to buy out certain limited partners’ shares. Plaintiffs claim Steward bought their shares at a cost that was “significantly less than what should have been paid.”

A third lawsuit filed in November claims Steward stopped paying one limited parter after it bought him out. It is seeking the remaining $800,000, approximately, it says Steward owes Utah cardiologist Konstantyn Szwajkun and his associated trusts. An attorney in the case did not respond to a request for comment.

Steward company now lists on its website 32 locations in eight states.

‘Poker chips’ or ‘public utilities’?

The plaintiffs in the first two investor suits asked judges to seal those complaints while they try to resolve the disputes in mediation, and the cases are now classified as private.

Attorney Matt Orne, who filed both cases in late January on behalf of the investors, declined to comment and said the plaintiffs could not comment while they attempt to mediate.

Three of the lawsuits filed by businesses seeking payments from Steward have been dismissed. In one, a judge ordered the chain to pay $153,958 to Vericel Corporation for several orders of medical implants. The resolution of the other two is unclear.

Steward’s financial problems, and the Utah lawsuits, show the possible pitfalls of running for-profit hospitals, said Segar, who has no connection to the litigation.

“You can’t trust market forces with hospitals,” said Segar. For-profit hospitals, he said, often create a “process of enrichment at the expense of the ongoing capacity of hospitals to give good care.”

Sager, who lives in Steward’s home state of Massachusetts, said Steward’s financial troubles are indicative of a health care model that does not understand its own business. Hospitals are not “poker chips,” Sager said. They are “public utilities” in which “patients and doctors weave together a fabric of care.”

“Disrupting this, viewing hospitals as interchangeable parts in some health care machine, is crazy,” Sager said. “When you disrupt that, patients are hurt.”

Shannon Sollitt is a Report for America corps member covering business accountability and sustainability for The Salt Lake Tribune. Your donation to match our RFA grant helps keep her writing stories like this one; please consider making a tax-deductible gift of any amount today by clicking here.