The High Stakes of Healthcare Governance: Lessons from Steward's Collapse and the Road Ahead for Investors

The collapse of Steward Health Care in 2024 and its subsequent legal entanglements with former CEO Ralph de la Torre have exposed a rot at the heart of corporate governance in the U.S. healthcare system. What began as a financial crisis—a $9 billion debt burden, $290 million in unpaid wages, and the closure of six hospitals—has evolved into a broader reckoning with how private equity and extractive business models are reshaping the industry. For investors, the Steward saga is not just a cautionary tale but a signal to scrutinize risk management, executive accountability, and the structural vulnerabilities of healthcare REITs, hospital operators, and insurance-linked securities (ILS).

A Systemic Failure in Governance

Steward's downfall was not an accident. It was the result of a governance model that prioritized short-term profits over patient care. Cerberus Capital Management, Steward's private equity owner, and Medical Properties Trust (MPT), its landlord, engineered a financial strategy that siphoned over $1.3 billion from the hospital chain through dividends, luxury expenditures (including a $40 million yacht for de la Torre), and aggressive debt structures. The result? A health system that could no longer sustain its operations, leaving hospitals shuttered and communities without access to critical services.

The Senate's contempt ruling against de la Torre, who refused to testify in a 2024 hearing, underscored the lack of accountability. Meanwhile, Cerberus and MPT faced minimal scrutiny, highlighting a regulatory blind spot: private equity's ability to extract value while leaving operational and clinical responsibilities in disarray. This pattern—of executives and investors shielding themselves from liability while communities bear the cost—is now a blueprint for systemic risk in healthcare.

Investment Implications for Healthcare REITs

Healthcare real estate investment trusts (REITs) like MPT have thrived in this environment, leveraging the sector's resilience and demographic tailwinds. In 2025, healthcare REITs returned 8.5%, outperforming most other REIT sectors, driven by demand for senior housing and skilled nursing facilities. However, the Massachusetts legislation enacted in response to Steward's collapse—HB 5159—signals a shift. The law now prohibits new acute-care hospital licenses for facilities leased from REITs, imposes stricter reporting requirements, and expands liability under the False Claims Act.

For REITs, this means navigating a dual challenge: maintaining growth in a tightening regulatory environment while defending against lawsuits tied to their role in hospital distress. Investors must weigh the sector's long-term demographic strengths (an aging population) against the risks of political backlash and legal exposure. The question is whether REITs can adapt their business models to prioritize sustainable partnerships over extractive strategies.

Hospital Operators: A New Era of Scrutiny

The Steward case has also amplified scrutiny of hospital operators, particularly those tied to private equity. Quorum Health, another private equity-owned chain, filed for bankruptcy in 2020 and continues to struggle, while Insight Health's abrupt hospital closures in Ohio—resulting in 700 layoffs—have drawn accusations of “predatory” behavior. These episodes highlight a sector where governance flaws can cascade into operational failures, regulatory penalties, and reputational damage.

Investors in hospital operators must now ask: Can companies rebuild trust by adopting transparent governance practices? The Massachusetts model, which mandates expanded reporting and post-transaction oversight, may spread to other states, pressuring operators to align with public health goals rather than private gain. For now, the sector remains a high-risk, high-reward play, with valuations likely to reflect the success or failure of governance reforms.

Insurance-Linked Securities: A Shield Against Systemic Risk?

As healthcare REITs and operators face increased legal and regulatory risks, insurance-linked securities (ILS) have emerged as a tool to hedge against catastrophic losses. The ILS market, which includes catastrophe bonds, has grown by 10.5% in 2025, with investors drawn to its event-driven returns. For healthcare entities exposed to geographic or operational risks (e.g., hospitals in hurricane-prone areas), ILS offers a way to transfer risk to capital markets.

However, the Steward crisis raises a new question: Can ILS instruments account for governance-related risks, such as lawsuits or regulatory penalties? While traditional ILS focuses on natural disasters or cyberattacks, the rise of “governance risk” as a liability factor may spur innovation in this space. Investors should monitor how ILS structures evolve to address non-traditional perils, particularly as healthcare entities face heightened scrutiny.

The Path Forward for Investors

The Steward case is a wake-up call for the healthcare sector. For REITs, operators, and insurers, the lesson is clear: governance must become a core component of risk management. Investors should prioritize companies that demonstrate transparency, accountability, and a commitment to public health over short-term profits.

1. Healthcare REITs: Look for firms adapting to regulatory shifts, such as those diversifying into senior housing (a sector with strong fundamentals) while avoiding overexposure to distressed hospital assets.
2. Hospital Operators: Favor organizations with governance structures that include independent oversight and community engagement, particularly in states like Massachusetts where legislative scrutiny is intensifying.
3. ILS Investors: Consider allocations to instruments that cover emerging risks, including governance-related liabilities, as the sector's risk profile broadens.

The healthcare industry's next chapter will be defined by its ability to reconcile profit motives with public health imperatives. For investors, the opportunity lies not in exploiting vulnerabilities but in supporting models that align with long-term resilience. As Steward's collapse shows, the cost of ignoring governance is no longer just financial—it's human.