Steward’s legal battles offer insight into pattern of mismanagement

The health system has been hit with at least 35 lawsuits in the last year alleging issues ranging from unpaid bills and falsified checks to doctor kickback schemes.

Article By: Susanna Vogel

Blog Source From : https://www.healthcaredive.com/

Steward Health Care, the nation’s largest physician-owned private hospital operator, has shown increasing signs of financial distress since late last year. 

The company has shuttered hospitals, allegedly missed millions of dollars worth of payments to its landlord and vendors, and has been served at least 35 lawsuits over the past year, according to a Healthcare Dive review.

Officials in Massachusetts, where Steward operates nine hospitals, worry the company is on the brink of failure. Regulators have repeatedly pressed Steward to disclose financial documents to help them better understand the extent of the Dallas-based operator’s financial troubles.

However, Massachusetts Gov. Maura Healey’s office told Healthcare Dive earlier this month that Steward has yet to comply with those requests, and dismissed documents Steward has provided to date, saying they’re both incomplete and insufficient. 

While an unobstructed view into Steward’s finances may be off the table for now, attorneys and analysts familiar with Steward said court documents offer a window into Steward’s operational record. 

In a slew of recently filed court cases, plaintiffs allege financial shortfall and operational mismanagement at Steward that goes back years. 

The number of pending suits would be enough to raise eyebrows about the system’s viability, according to Larry Vernaglia, partner at Foley & Lardner.

“It’s certainly uncommon to see such a volume — except, you know, when they’re in financial distress, which is what appears to be the case here,” said Vernaglia, who serves as outside policy counsel for the Massachusetts Health & Hospital Association.

Of the lawsuits,Vernaglia is most concerned about those that allege Steward cut corners in patient care.

“Not all vendors are equally critical to the operations of a hospital,” Vernaglia said. “Not paying consultants — sad. Not paying your nurse staffing company when you need them to run the third floor? That’s bad.”

Below are three lawsuits facing Steward that illustrate some of the major claims against the company that has led to its current crisis.

Steward allegedly falsified checks to stall vendors

A complaint, filed in the U.S. District Court of Jefferson County, Texasalleges members of Steward’s C-suite engaged in evasive payment tactics, including issuing false checks, when the company couldn’t afford to pay a staffing firm that serviced some of its hospitals.  

Beginning in 2020, Steward contracted hospitalist staffing firm HNI MSO and HNI Physician Services of Texas to provide physicians and other healthcare staff. However, Steward began missing payments, and by November of last year, an emergency arbitrator found HNI offered “strong evidence” that Steward owed the staffing firm approximately $4.9 million. 

HNI sued Steward and its hospital, The Medical Center of Southeast Texas, for breach of contract, fraud, negligent misrepresentation and unjust enrichment of funds on Dec. 1. 

The staffing firm alleges some of Steward’s top executives — including Sanjay Shetty, then-president of Steward Health Care and current president of Humana’s CenterWell, and Laura Tortorella, then-chief operating officer and current CEO of AccentCare — engaged in evasive tactics to avoid payment. 

Both executives promised Steward had issued payments to HNI, according to the lawsuit. Shetty told HNI twice that the operator had paid $1.7 million in a lump sum payment, only to later retract the statements. On a separate occasion Tortorella, after receiving a request from HNI to send tracking details for payments she promised, forwarded copies of checks with watermarks clarifying the documents were “Not a Real Check.” 

Healthcare Dive previously reported that Steward’s finance employees engaged in tactics to avoid paying vendors in full since at least 2018. One former finance employee said last month that when they worked for Steward beginning around 2018, they would make a monthly list of unpaid bills to review with their boss. The finance team only paid accounts where vendors were “screaming,” the employee said. 

HNI successfully sought an Emergency Motion for Expedited Discovery in January, citing evidence that Steward is in “a precarious and worsening financial position and, thus, there is a legitimate risk of losing the subject debt.” 

“Based on this information, it is very likely that Defendants will be insolvent or otherwise will be unable to pay any judgment awarded in favor of HNI,” HNI said in its motion.

Doctor referral kickback scheme

The federal government filed a False Claims Act lawsuit in December against Steward and its Massachusetts-based St. Elizabeth’s Medical Center, accusing the hospital of violating federal kickback laws.

The lawsuit accused St. Elizabeth’s Medical Center of recruiting a cardiologist and improperly paying him nearly $5 million in illegal incentive-based pay to increase the number of cardiac surgeries at the hospital. The government further alleged St. Elizabeth submitted over 1,000 referred claims to Medicare despite knowing they weren’t eligible for payment.

The incentive-based pay violated physician self-referral rules, also known as the Stark Law, according to the suit. The Stark Law prohibits hospitals from billing Medicare for services referred by a physician with whom the hospital has an improper compensation relationship. It sits alongside the False Claims Act aiming to prevent fraud and improper billing relations in Medicare plans.

Steward has denied wrongdoing, saying in a statement to Healthcare Dive that they were disappointed and surprised by the allegations, and said that a single contract with a single physician should not be considered a violation of the complex and highly technical Stark Law governing physician compensation. 

“[The complaint] does not allege that the physician’s employment contract influenced his clinical decision making in any way. And it does not allege any harm to patient safety,” Steward added.

In a separate instance, Steward paid $4.7 million to settle another FCA suit in 2022. The suit said the company provided kickbacks at what a special agent from the FBI Boston Division called a “bogus cancer center.” At the time, Steward admitted to paying a referring physician for services they couldn’t confirm were provided.

A pattern of contested bills

In Healthcare Dive’s review of the cases pending against Steward, the majority concerned breaches of contract, with more than 20 cases claiming Steward failed to make payments for services rendered. Claims were filed by vendors ranging from staffing firmsconsultantssnow removal companiesmedical equipment companieshuman resource and finance services and electricians

In one case, Steward allegedly reneged on a somewhat odd line item. In April 2022, bats took up residency in the ceilings of Steward-owned Rockledge Regional Medical Center.

The fifth floor was among the three floors impacted — it was also the floor that housed Rockledge’s intensive care unit, according to a report from WESH-2, a Florida-based news outlet. The pest swarm forced Steward to temporarily relocate its ICU, according to the report.

Steward had contracted Rentokil North America for general pest control services in March 2022, and amended the contract to cover “bat eviction” services in April 2023.

However, a lawsuit filed by Rentokil in the District Court for Dallas County, Texas, in October alleges Steward failed to pay its extermination bills — including $936,320 for bat removal services — despite repeated promises to do so.

Rentokil says it’s owed more than $1.3 million for services rendered, according to the complaint.

Although Steward missed its initial Dec. 1 deadline to respond to the claim, Steward responded days later and denied the allegations.

Steward also argued Rentokil was “barred as to any portion of damages attributable to any period of time after which Steward no longer owned or operated a premises Plaintiff serviced or to which it made products or services available.” 

Healthcare Dive asked Steward whether the company planned to sell either of its two Florida hospitals that had been serviced by the extermination company. In the past Steward had sold hospitals to ostensibly help pay off its debt. (It initially promised HNI, for example, that it would make payments upon the closure of its 2023 Utah sale to CommonSpirt.) However, Steward said Tuesday it has “no plans to sell hospitals in Florida.”

Even if Steward was pursuing a sale, selling Rockledge might not absolve Steward of its debt obligations so easily, according to Foley & Lardner’s Vernaglia.

“They might sell the assets of the hospital, but those liabilities may not travel with it,” he said.

Plus, if Steward received a cash infusion from a sale, Vernaglia said that owed vendors are likely to want a piece of it. How that would be divided among the aggrieved, he said, is an open question.

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