State Says Exiting Steward Health Lacks Required Insurance for Employees, Physicians

Thousands of Massachusetts medical professionals and other employees of troubled hospital operator Steward Health Care are at risk because Steward does not have adequate liability or workers’ compensation coverage in place to protect them after Steward exits the state, officials have charged in a court filing.

The state argues that Steward “cannot cut and run from Massachusetts leaving their former employees and patients without any coverage.”

The state has asked the Texas court handling Steward’s bankruptcy to issue an emergency order requiring Steward to maintain insurance coverage for any claims that may arise in 2024 and until the expiration of the statutes of limitations of seven years for medical malpractice claims and four years for workers’ injuries.

The request was filed after the transition of six of Steward’s hospitals in Massachusetts to new owners and operators and the closure of two others, and right before the sale of the Stewardship physician practices to a Nashville company was approved by state regulators. The state is concerned that the hospital company appears unprepared to maintain coverage now that transitions have occurred.

According to the filing, Steward’s exit from Massachusetts does not relieve it from compliance with the state’s laws relating to insurance coverage, and even if it did, Steward “explicitly confirmed” that it would provide both coverage in the asset purchase agreements it executes with each of the acquirers of the hospitals and Stewardship practices.

The state says efforts to resolve the insurance issues consensually have failed.

Steward has not yet filed a response to the Massachusetts request. The Texas-based Steward operated about 30 hospitals before filing for bankruptcy citing $9 billion in debt.

Massachusetts law requires that physicians and other licensed healthcare professionals must have medical malpractice insurance. Also, employers are required to provide workers’ compensation coverage for employees.

Steward’s Insurance Plans

Steward has a self-insurance plan for workers’ compensation. The company has claimed there is a $22 million bond in place to cover claims but the state says that bond is for claims from 2023, not 2024. Steward also has reinsurance for workers’ compensation for claims above $750,000 which expires at the end of this year. Steward has been honoring its obligations to pay current workers’ compensation claims, but it has not posted the bond required to cover its self-insured obligations for claims arising in 2024, according to the filing.

“Not only are recipients of current benefits at risk now when Steward stops funding claims, workers that may have sustained an injury now while employed by Steward may not have coverage in the future when they timely submit claims. As a result, there is a significant window of future exposure, which would normally be covered by a posted bond for year in question. But there is no such bond here,” the state maintains.

For medical liability claims, Steward has a Panama-domiciled captive insurer, TRACO International Group, which Massachusetts officials describe as just a “pass-through” entity that is dependent upon Steward to fund claim payments. TRACO is supposed to cover 1,400 medical professionals in the Steward system, including 1,200 physicians. According to the court filing, Steward says it has reserved $6 million for malpractice claims across its entire network. The state says that $6 million for the entire network is insufficient to even cover anticipated claims in just Massachusetts, which sees an average of $8 million in medical malpractice claims per year against Steward physicians alone.

“In blunt terms, for providers without adequate coverage, this means personal liability for defense costs and adverse decisions. For patients, it means uncompensated damages. Neither the providers nor the patients deserve to suffer this result,” the filing says.

The state is asking the court to require Steward to maintain and the estate to pay for medical malpractice tail insurance coverage for all of its Massachusetts-based licensed healthcare workers for a period of seven years, in amounts determined to be adequate by an independent actuarial analysis. It also wants Steward to purchase a non-cancelable workers’ compensation policy or a surety bond in an amount and form approved by the state.