Sunday, October 2, 2016

PEU Cerberus Selling Caritas Christi Hospital Facilities: Will Hold Free Shares

Cerberus Capital Management's Steward Health Care will monetize it's buyout of Caritas Christi Health System by selling the hospital facilities to a healthcare real estate investment trust for $1.25 billion.  Private equity underwriter (PEU) Cerberus purchased the Catholic healthcare system nearly six years ago in a $895 million transaction.  Part of the $895 million was a promise to invest in facilities, provide catch up funding for the employee pension plan and repay existing debt.

This isn't the first asset sale/leaseback deal for Steward.  In 2012:

"... it got a cash infusion by selling 13 medical buildings to Healthcare Trust of America, an Arizona real estate investment trust, for about $100 million, agreeing to lease back space." 
It's not clear what Steward did with the $100 million.  Did it stay in the system for capital expenditures or did Cerberus get a fat dividend?

Steward's current value is $2.2 billion, $1.2 billion for hospital facilities it plans to sell/leaseback and $1 billion for the revenue stream and assets left after the facility sale.  The $1 billion valuation for the system without actual buildings came from the 5% equity stake Cerberus sold Medical Properties Trust for $50 million.  That equates to a 100% valuation of $1 billion for Steward without walls.

Steward CEO Ralph de la Torre and other senior leaders can benefit from the facility sale:

The deal, which is expected to close during the next quarter, is also designed to allow top Steward leaders to have a “substantially larger stake” in the company.
This looks and smells like reward from Cerberus as it will own Steward with free money.

The entire initial investment to Cerberus will be paid back, but the amount is proprietary, de la Torre said. The deal will also pay down all of the company’s $400 million in debt, he said. 
No one shared how much Cerberus made in deal fees or annual management fees since November 2011.

All this occurred under PPACA, widely known as ObamaCare.  PEU hellhound Cerberus/Steward will pocket $1.3 billion from its asset sale-leaseback trickery, $1.2 billion for hospitals and $100 million for medical office buildings.

The question is how this washes through Steward's Medicare cost reports and impacts money paid the system by Medicare and Medicaid.  Outside Medicare's byzantine "pay for performance" schedules is there a legacy facility component? Surely a revenue cycle number cruncher has modeled the financial benefits of the deal on Medicare reimbursement.  Is that the reason some facilities are leased and others are mortgaged? 

Only 20% of Steward employees on GlassDoor approve of CEO Ralph de la Torre.  The other 80% know they're there to follow orders, meet financial hard targets and enrich executives and their PEU sponsor.

Cerberus ownership of Caritas Christi is a window into today's healthcare world, where prices soar courtesy of greedy leaders.

Cerberus will eventually sell the mostly asset-less Steward Health and executives will get their final cash reward.  Let's hope Catholic leaders, who sold them Caritas Christi, inform them they cannot take their millions or billions with them.  The bills and their dollar signs stay here.  Their deeds however go with them.

PEU Report posts on Cerberus-Caritas Christi
State of the Division posts on Cerberus-Caritas Christi

Update 2-18-17:  Steward needs more hospitals to bleed.  Debt bloated Community Health Systems will sell eight hospitals in three states to Steward.  So far there's no purchase price but CHS is a public company and their shareholders have a right to know.  CHS employees should know only 18% of Steward's employees approve of their CEO on Glassdoor.