The AG's review also found that:
- Even though outpatient volume generally increased, profits overall declined from FY10 because expenses outpaced revenues.
- Steward spent heavily on capital improvements and hospital and physician acquisitions. To support this spending, the system supplemented the initial Cerberus investment of $246 million with a revolving bank line of credit, under which it had borrowed $96.3 million as of the close of FY11.
- Steward's financial condition, even more so than Caritas's, is complicated by special expenses such as necessary contributions to its significantly underfunded pensions and its commitments in connection with its provider acquisitions. It will be important to monitor how these expenses affect Steward's long-term financial performance.
Healthcare economist Adam Powell, president of Boston-based Payer+Provider Syndicate, says the first-year losses were anticipated.
"Steward Health Care has built its business model around acquiring financially struggling hospitals. Substantial changes are needed to bolster the financial strength of the hospitals that it has acquired. While Steward is in the process of weaving its newly acquired hospitals into a system that can deliver value in part through economies of scale, it is still a work in progress," Powell wrote in an email exchange with HealthLeaders Media.