"American companies, in health care and other economic sectors, need more investment from all sources. Private equity and private credit can provide the needed capital," Drew Maloney, chief executive officer of private equity lobbyist American Investment Council, wrote in a September letter to federal lawmakers.

But financial firms often lean on cost-cutting to improve earnings, which can lead to staff reductions and adverse health outcomes, said Zirui Song, a professor of health-care policy and medicine at Harvard Medical School.

Private equity-backed companies accounted for about a fifth of bankruptcies in the health-care sector last year, according to the Private Equity Stakeholder Project, an advocacy group. Without more guardrails, crises like the collapse of Steward will keep happening, said Mary Bugbee, health-care director at PESP.

"I think our best bet continues to be state-level policy making, even though it didn't work out in Massachusetts and California this time around," Bugbee said. "But we'll likely have to see worse things than Steward -- which was horrible."

Steward Fallout

The fallout from Steward's financial unraveling sparked widespread outrage: former nurses testified to horrors such as having to put dead newborns in cardboard boxes because the company had failed to pay the vendor supplying proper bereavement boxes.

The hospital chain filed for bankruptcy with $9.15 billion in reported liabilities, the most out of any other company so far this year including Spirit Airlines Inc. and battery maker Northvolt AB, according to data compiled by Bloomberg.

But the story of how Steward came to be as large as it was and how it ultimately collapsed is complicated. The saga underscores why it's so difficult for lawmakers to pinpoint blame for business bust-ups and enact legislation that's both broad enough to make a difference and narrow enough to not spark unintended consequences, such as cutting off access to a form of financial assistance when companies face challenges.

Singling out financial dealmakers for stricter scrutiny also risks sending a message to startups in industries that rely on venture capital funding, such as life sciences and climate technology, that they should establish themselves in states with friendlier regulations.

Steward traces its roots to six financially troubled hospitals in Massachusetts that were previously owned by the Boston Archdiocese. Dr. Ralph de la Torre was tapped to lead the chain in 2008 and by 2010, he had helped negotiate a sale to private equity firm Cerberus Capital Management that provided a cash infusion. In 2016, Steward agreed to sell and lease back its properties, including Massachusetts hospitals, to real estate investment trust Medical Properties Trust Inc. in a $1.25 billion deal. In 2020, Cerberus sold its stake in Steward to a management group led by de la Torre.

Cerberus earned a profit of about $800 million from its investment. The firm also says it "rescued and restored critical community hospitals in Massachusetts."

The sale-leaseback deal with MPT gave Steward the resources to accelerate its plan to gobble up more hospitals around the country. Lawmakers also say the transaction saddled Steward with exorbitant rents and compounded its financial challenges. In Massachusetts, the House of Representatives version of the health-care bill would specifically ban hospitals from leasing their main campuses from REITs, while the Senate excluded the provision.

Plenty of Blame

Former CEO de la Torre, meanwhile, has been accused by lawmakers of enriching himself while Steward racked up large debts. Federal agents recently seized de la Torre's phone, his lawyers have said, while the Boston Globe has reported Steward board members have been summoned to answer questions as part of a grand jury probe into alleged fraud, bribery, and corruption. De la Torre, through a spokesperson, declined to comment.

"When I look at this and assess the blame, they're all responsible," US Senator Edward Markey, a Massachusetts Democrat, said of de la Torre, Cerberus and MPT. "They all made money and the hospitals crumbled. All of these players were cooperating simultaneously, which led to the collapse of the Steward system."

Markey and fellow Massachusetts Senator Elizabeth Warren introduced federal legislation this year that would have bolstered curbs on private equity and real estate investors and introduced stricter penalties for malfeasance. It hasn't advanced.

Meanwhile, in Massachusetts, House and Senate lawmakers failed to reconcile their competing versions of the state's health-care bill before the end of the regular term in July. While other unfinished bills have made it over the line in informal sessions since then, including an economic development bill championed by Healey, lawmakers haven't yet been able to come to an agreement on the health-care proposal.

There's still time for them to do so, but the window is shrinking before the session ends on Dec. 31 and it's unlikely the legislature passes the bill in its entirety, said Evan Horowitz, executive director for Tufts University's Center for State Policy Analysis.

"There is a lot of common ground" between the legislative chambers on health-care reforms, even if their proposals vary in scope, Ron Mariano, the speaker of the Massachusetts House of Representatives, said in a statement. Mariano said he remains hopeful that an agreement is reached before the end of the year. Gray Milkowski, a spokesperson for Massachusetts Senate President Karen Spilka, said the Senate will continue to work to complete the legislation this session -- "and beyond if necessary."

Should the current measure fail, Mariano also said he intends to revisit health-care reform next year. Building a consensus may be trickier than it would have been when the outrage over Steward's collapse was still fresh.

And so financial dealmakers continue to loom large in the health-care business. In October, private equity firm Kinderhook Industries acquired Steward's physicians network, which includes a large presence in Massachusetts.