Report says Steward Health Care lost money in its first year of operations, but complied with conditions imposed by state

Steward Health Care System lost money in its first year of operations but complied with conditions imposed by the state in 2010 when it recommended Steward be allowed to take over the six Caritas Christi Health Care hospitals, according to a report released Wednesday by the Massachusetts attorney general’s office.

The 70-page report looks at the Boston-based chain’s compliance with its commitments, such as whether it retained employees, maintained services and made capital improvements at its community hospitals, as well as its market impact. But it only covers the fiscal year ending Sept. 30, 2011, and the eight hospitals and 1,840 physicians that were part of the health care system that year.

In fiscal year 2011, the for-profit system, which is owned by New York private equity firm Cerberus Capital Management, posted a $14.6 million operating loss and a total deficit of $56.9 million that includes one-time expenses related to the hospital purchases, the report said. While outpatient volume increased, expenses outpaced revenues.

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In a letter accompanying the report, which had been highly anticipated by the state’s health care industry, Attorney General Martha Coakley said the one-year review “does not provide a reasonable basis to predict or draw conclusions about Steward’s ongoing performance.”

Instead, officials in Coakley’s office said their main goal was to compile baseline data about the performance of Steward so they are better able to make comparisons as they continue to monitor the growing hospital and doctors organization. Its formation through the acquisition of Caritas was approved by the Supreme Judicial Court of Massachusetts on Coakley’s recommendation.

“Our first year of review reinforces previous findings that Steward acquired community hospitals in deteriorating financial condition and with significant deferred capital investment needs,” Coakley wrote in her letter. “Our review of Steward’s impact in its first year of operations indicates it is striving to meet its stated objective.”

Coakley was not available for comment Wednesday.

Her report was not the first indication that Steward is losing money. A financial report posted last summer by the state Division of Health Care Finance and Policy showed the system lost $38.9 million for the 2011 fiscal year. But it included hospitals Steward did not own for the entire year, such as Quincy Medical Center and Morton Hospital, and omitted parts of the business such as pharmacies and home health care. Coakley’s report examined the financial health of the overall Steward system.

Other new financial information in the report includes disclosure of a five-year revolving credit line of $150 million that Steward obtained from a trio of banks in June 2011. The credit line was increased to $200 million last year, with Steward pledging “substantially all its assets as collateral.” Steward was in compliance with the terms of the loan in fiscal 2011, the report said.

The report also said the number of full-time jobs at Steward’s holdings increased about 3 percent to 9,277 that year. Its physician network expanded by 14 percent to more than 1,800 affiliated physicians as Steward stepped up efforts to attract more doctors.

“The competitive implications of this growth are not yet fully apparent,” the report said, “but important monitoring questions include whether continued acquisitions of hospitals and physicians materially change how important insurers view the Steward system to their respective networks, the competitive impact of Steward’s physician recruitment practices, and how Steward’s strategy for growing its physician network interplays with changes in its patient volume and financial performance.”