CFOs should ensure strategy always accompanies private equity in their health system.
With the bids closing for Steward Health’s bankrupt hospitals, fears of the health system’s collapse seemed to be abated. However, Steward has now postponed the sale of six of its hospitals, extending the painstaking process.
News of the system’s bankruptcy has been widely circulated: from securing a loan days before declaring bankruptcy, to not selling hospitals because of ‘unqualified bids,’ to facing an investigation called on by Massachusetts Gov. Maura Healy, to inciting firm legislature for financial misconduct.
Not only is the fiasco affecting patient care across the eastern Massachusetts, but over 1,000 health workers are losing their jobs.
The ongoing saga has been heavily criticized, with some outlets calling it a case study in executive greed.
Late last week, Healey suggested a federal investigation of Steward’s bankruptcy, and its CEO, Dr. Ralph de la Torre.
“He basically stole millions out of Steward on the backs of workers and patients and bought himself fancy yachts, mansions and now apparently lavish trips to Versailles. I hope he gets his just due and that federal investigators will come after him for his actions. Our administration is working night and day to protect jobs, protect patients, and pick up the pieces of the situation that Ralph De La Torre has put us in,” Healey said in a statement.
Private Equity
The presence of private equity in healthcare has been controversial, and for good reason: studies show the PE-owned hospitals are associated with more negative patient outcomes, eventually affecting finances and other business operations.
Private equity can cause deep financial issues for health systems, and it’s not going unnoticed by lawmakers. A bill is currently pending in California’s legislature that would require private equity groups and hedge funds to notify the Attorney General’s office of planned purchases of various types of healthcare businesses and obtain its permission. It would also reinforce state laws that prohibit nonphysicians from directly employing doctors or directing their activities.
Although more recent surveys show that the amount of PE in healthcare may be exaggerated, when it is implemented, there must be a financial game plan for the long term to avoid adverse effects. CFOs must be strategic about how they implement and introduce private equity funding.
The CFO Homework
As the CFO role evolves, it’s no longer focused solely on finances. Instead, it’s expanding to consider business structure, operations, culture and strategy.
CFOs must take note of the business evolutions that happen around them and pay attention to the strategies, wins and downfalls of other health systems that can influence their own decisions. They must also develop a symbiotic relationship with CEOs, as the two roles depend on each other.
In addition to acting as the financial police within the C-suite, they must also be proactive in every other aspect of the business. If a CFO is equipped with knowledge about every aspect of the organization, they can better strategize sound financial decisions, know when to cut back and where to grow and innovate.
Marie DeFreitas is the CFO editor for HealthLeaders.
KEY TAKEAWAYS
Steward Health is still in the process of auctioning off its hospitals after filing for bankruptcy, a collapse that has sparked national legislation changes.
Private equity must be executed carefully and strategically within a health system, or it could face legal action.
CFOs should ensure they are pushing innovation and successful partnerships with their colleagues, especially CEOs.