Parent company’s accounting practices put Sebastian hospital financials in new light


Sebastian River Medical Center’s most recent financial statements paint a somewhat encouraging picture for Steward Health’s Florida operations, and the accounting practices noted by the auditor go a long way toward explaining why things like SRMC’s utility bills aren’t getting paid on time.

The 2021 financials filed with the Florida Agency for Health Care Administration are consolidated for Steward Florida Holdings LLC, meaning that the numbers reflect the company’s 10 Florida hospitals combined. The last two pages feature a profit-and-loss statement for each hospital.

Though Sebastian River Medical Center showed a net loss of nearly a half-million dollars for 2021, Steward’s Florida hospitals as a whole were quite profitable, with a combined bottom line showing $37.7 in profits statewide.

Rolled into the expenses for the 10 hospitals were $42 million in “management fees” paid to the Steward parent corporation by the hospitals located between Hialeah in Miami-Dade County and Rocklege in Brevard County. Steward handles various administrative duties for each hospital, including legal and accounting work, for which the corporation gets paid handsomely. Those fees cut deeply into the profits of each of the 10 hospitals.

Not only does Steward reap profits from its hospitals, it literally takes all of the hospitals’ liquid assets, presumably leaving Sebastian River Medical Center administrators without the ability to even write a check or authorize a debit to pay an invoice.

“On a daily basis, available funds are swept from the facilities’ depository accounts into a concentration account and used to repay borrowings under Parent’s credit and cash management program,” page 10 of the audit report reads.

In January, Vero Beach 32963 reported that Sebastian River Medical Center was $75,000 in arrears on its water and sewer bills for Indian River County Utilities service, and that critical surgical supplies were not available, requiring the cancellation or rescheduling of elective surgeries.

Based upon the daily siphoning of all the hospital’s cash, it appears SRMC’s hospital administrator has no ability to pay the bills. That fits with what a reliable source close to the hospital told our reporters off-the-record, that “the money goes up to Corporate, but it doesn’t seem to come back down.”

Steward’s hospital properties are now owned by a subsidiary called Medical Properties Trust. In 2017, Steward sold its Sebastian, Melbourne and Rockledge properties to MPT for $129.7 billion, then leased the properties back. In 2021, Sebastian River Medical Center paid $7.5 million in “financing obligations” and $960,000 in “lease obligations.”

In 2021, Steward used an asset-based loan (ABL), leveraging existing properties to purchase five Miami-area hospitals to expand the company’s Florida operation. In the management comments of the 2021 financial statements, the auditors acknowledged the heavily leveraged nature of Steward’s holdings, and the way money is moved around among various subsidiaries. Note number 16 called “Management’s plans” attempts to address this in a reassuring way.

“Management believes that the Parent has the ability and intent to support the facilities and has evaluated whether there are any conditions and events, considered in the aggregate, that raise substantial doubt about Steward’s ability to continue as a going concern within one year beyond the release date of these combined financial statements (June 7, 2023),” the auditors at the Beach Fleischman accounting firm in Tucson said. “Based on the current and expected liquidity needs and sources, coupled with management’s cost-cutting actions, the Parent expects to be able to meet its obligations for one year from the issue date of these combined financial statements.”

Steward has not yet filed the 2022 financials, which were due to the state in May 2023, so unfortunately there’s nothing available in the public record showing a more recent financial position. The 10 hospitals are incurring late fees and penalties for the 2022 financials – a fourth violation of filing requirements, according to public records.

Indian River County Property Appraiser Wesley Davis has served on Sebastian River Medical Center’s Board of Trustees for many years, since he was elected to the Board of County Commissioners. Davis, who voluntarily provided all emails from SRMC sent to his county email address as public records, said he’d never seen a copy of the hospital’s audited financials before.

“There’s nothing like what you’re talking about as far as profit and loss, depreciation, all that kind of stuff that I’ve ever gotten,” Davis said.

Fellsmere City Manager Mark Mathes also serves on the SRMC Board of Trustees and said he does not recall whether or not he’d ever been shown the hospital’s audited financials.

According to a board packet obtained from Davis’ emails, the board receives a one-page “financial report” mostly consisting of the basic statistics involved in operating a hospital such as occupancy, admissions, length of stay and the number of surgeries or procedures performed, plus the number of employees and physicians. Mathes said he’s kept well-informed about financial trends in the industry.

“We’re abreast of many of the financial conditions, I guess you would say, of the hospital, but not at the individual invoice level,” Mathes said.

Mathes said the board discussed some of the disruptions that unpaid bills are causing. “We heard some of those same stories at board meetings, where things had to get canceled and that’s not a very good experience for the patient, for sure, or the workers,” Mathes said.

Regarding the past-due utility bills, “the county is not going to shut off water-sewer service to a hospital, however, there is an obligation to discuss all available options and ultimately pursue the option that will result in payment for services rendered,” said Indian River Utility Services Director Sean Lieske.

The financials give the community an idea of the scope of the Sebastian hospital’s operations. In 2021, SRMC took in $114.5 million in revenues, $112.5 million of which was from patient care. On behalf of the hospital, $41.4 million was paid out in salaries, wages and fringe benefits. Under a line item called “Supplies and other expenses,” which includes the Steward LLC management fee, the hospital paid out $60.8 million. The hospital’s electric bill was $1.5 million and it paid $405,000 for security services and $1.6 million for housekeeping. Food services costs $2.6 million and laundry and linens cost $272,000.

At the end of 2021, Sebastian River Medical Center had $13.5 million on the books for patient account receivables. Three out of four SRMC patients are covered by Medicare or Medicaid – which both pay low reimbursement rates for services.

Steward’s Florida hospitals benefited from $19.6 million in CARES Act Public Health and Social Services funding between 2020 and 2021. Steward’s Florida hospitals provided $34.4 million in charity care to patients living on incomes below 200 percent of the federal poverty line.

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