an interview, adding that she’ d support regulations to ensure this doesn’ t happen again.“ We weren’ t looking at this or regulating this. It’ s like nobody was watching the henhouse except the foxes maybe.”
The harms of porous insurance oversight have also surfaced in the bankruptcy of Steward Health Care, an even larger hospital chain bankrolled by private equity.
Backed by giant Cerberus Capital Management in 2010, Steward grew to 37 hospitals over a decade. In 2021, Cerberus exited the investment with a reported $ 800 million in profits, while Steward CEO Ralph de la Torre, a former heart surgeon who reaped more than $ 250 million from the company, bought himself a $ 40 million yacht. Three years later, Steward filed for bankruptcy, owing hundreds of millions to vendors and employees and facing accusations of fraud and abysmal patient care.
( Cerberus declined to respond to questions from ProPublica, instead pointing to a public statement in which it said Steward’ s problems“ appear to be overwhelmingly related to the post-Cerberus ownership period.” A spokesperson for de la Torre, who led the ownership group until he resigned in late 2024, said he“ firmly disputes” the allegations against him,“ including claims of greed and bad-faith misconduct,” and intends to“ vigorously defend himself against them.”)
To cover its malpractice costs, Steward operated a selfinsurance subsidiary, called TRACO, which it had relocated to Panama, where it faced little regulatory oversight. According to a Boston Globe investigation, instead of setting aside adequate reserves, Steward treated TRACO like“ a piggy bank,” siphoning out hundreds of millions to pay operating costs and buy more hospitals. By 2024, when Steward went bankrupt, TRACO had just $ 3.5 million left to defend and pay for more than 500 malpractice lawsuits, according to documents cited by the Globe.
Last year, a malpractice case brought against a Steward hospital outside Salt Lake City went before a Utah state judge. It involved allegations that a 19-year-old pregnant woman’ s delivery was botched by inexperienced, ill-trained nurses. According to medical records and court testimony, they gave her overdoses of the labor-inducing drug Pitocin, starving her baby of blood and oxygen, then ignored fetal monitoring that signaled distress while an on-call doctor dozed in a room nearby. The baby suffered brain damage that has left her largely unable to speak. She is likely to remain disabled for life.
Steward’ s defense lawyers had withdrawn after the company stopped paying and communicating with them, leaving the family and its expert witnesses to present their case. In an emotional 42-minute discourse from the bench, Judge Patrick Corum said what had happened“ literally took my breath away.” The family“ would have been better off delivering this baby in the bathroom of a gas station, or in a hut somewhere in Africa, than in this hospital,” he declared. In October, he awarded the family $ 543.2 million in damages, one of the biggest malpractice awards in Utah’ s history.
The injured child is now 6 and requires costly care. But because TRACO has no money— and Steward’ s“ excess” insurers are refusing to step in because TRACO hasn’ t paid its share— it’ s unclear when, or whether, the family will get anything. David Creasy, the family’ s attorney, said the battle to resolve the matter could take years.“ We’ ve got to be able to find some way to get them the money they need to take care of her,” he said in an interview.“ There was absolutely no oversight of TRACO.”
The Steward and Prospect bankruptcies make clear“ this is a national issue,” said Stacy Paterno, CEO of the Rhode Island Medical Society. Paterno said she has begun convening regular meetings with her counterparts from a half-dozen states where Prospect and Steward operated hospitals about the risks posed by unregulated self-insurance plans, both to doctors and injured patients.
Steward’ s creditors are trying to claw back money from the company’ s former leaders. In November, a Steward creditors committee filed a 178-page lawsuit against former CEO de la Torre and more than a dozen other individuals and corporate entities that details the company’ s alleged plundering of TRACO’ s insurance reserves. The complaint does not name Cerberus as a defendant but suggests Cerberus may be a future target of the creditors’“ ongoing” investigation.( In court filings, de la Torre and other Steward defendants have denied the creditor lawsuit’ s allegations.)
Prospect’ s creditors are poised to launch a similar effort. The bankruptcy court has approved $ 10 million to pursue legal claims against former Prospect principals, with Leonard Green and Prospect’ s former top executives, Lee and Topper, as the big targets.“ We really do believe there are potentially hundreds of millions” that can be recouped from those who“ may have contributed to the downfall of this company,” Charles Persons, an attorney for the unsecured creditors committee, told the judge at a Dec. 12 court hearing.
It’ s unclear how much might be recovered, but it would likely be a fraction of what the company owes, and malpractice victims would share these funds with thousands of other unsecured creditors.
“ The folks who have the lawsuits,” said D’ Amico, the lawyer representing Dorn,“ essentially go to the bottom of the barrel.”
This story was originally published by ProPublica.
56 The Trial Lawyer