Steward sought to build a global medical empire, starting in Malta
It ended in disappointment for the island nation
Protesters in the tiny Mediterranean nation of Malta converged last October on the 18thcentury Baroque palace housing the prime minister’s offices chanting “thieves,” and unfurled a massive banner on the steps emblazoned with the words: “Bring back the €400 million now.”
The object of their furor wasn’t just the government. It was also Steward Health Care, the medical conglomerate that made Malta the first stop in its aggressive bid to expand inprovements
ternationally, even as its chain of hospitals in Massachusetts teeters on the verge of bankruptcy. The €400 million figure is the amount Malta’s opposition party claims the government paid an affiliate of Steward and another company over an eight-year period to provide medical care to its citizens and transform three dilapidated stateowned hospitals into world-class institutions. Instead, “not a stone was put in place,” said Adrian Delia, a member of the Maltese Parliament and former chief of the opposition party. He accused the companies of “defrauding” the Maltese people.
Over five years, Steward Malta did make some modest im
to the hospitals and delivered on its promise to build a Maltese medical school campus. But overall, the firm’s ambitious foray to the island nation proved a disappointment, one with echoes of the current furor over Steward’s alleged mismanagement of its Massachusetts properties.
Unpaid bills, detailed in a growing number of court cases filed by creditors. Broken promises, painstakingly spelled out in a pair of recent rulings handed down by Maltese judges. And allegations of profiteering.
Steward’s Maltese experiment was a brief one. By the time of the march on the capital, Steward had already pivoted from providing medical care to defending the company’s reputation in court, after a Maltese judge invalidated its initial con
tract in February 2023 and accused Steward and its predecessor company of fraud. (An appeals court later upheld the decision to invalidate the contract but said the court was wrong to suggest Steward was guilty of criminal deeds.)
The company handed back control of hospital operations to the government of Malta, just south of Sicily, last spring, 4½ years after taking over a 30-year deal to run the three dilapidated hospitals that together serve thousands of patients and are critical to the island’s medical system.
In Malta, the company’s lawyers are now fighting demands for tens of millions of dollars in unpaid taxes, and a growing list of lawsuits filed by unpaid contractors. Creditors, according to filings, include a security firm, caterers, orthopedic suppliers, and a company that provided coffee and snacks. The biggest creditor appears to be a local bank: Steward allegedly owes tens of thousands of dollars in construction loans, cosigned by the government — loans the company’s representatives now argue are no longer its responsibility.
Steward, for its part, has accused the Maltese government of violating European Union law when it terminated the hospital deal and defends its work in Malta, which it touts on its website as a case study in success and a model for its international expansion. Since 2020, Steward has opened offices in Madrid, Riyadh, Dubai, and Bogota, and in 2022 said it plans to expand into Asia. The company is a separate entity from the company that runs Steward’s US hospitals.
Critics in Malta, including leaders of the opposition party as well as union leaders representing doctors and medical workers, have accused Steward in both the media and in court of reneging on a straightforward deal: In exchange for guaranteed annual government payments that in 2021 alone topped more than $80 million according to Steward’s website, the company was supposed to modernize the three hospitals.
Instead, they allege, the company made only cosmetic changes, and did not deliver any significant improvement to the quality of the nation’s health care. Aside from the construction of the medical school campus and “pockets of progress registered in other respects, all other concession milestones were not achieved,” government auditors wrote in May.
To this day one of the three hospitals Steward was to upgrade sits largely abandoned, the interior of its main building littered with debris and infested with pigeons, according to news video footage that has circulated widely in recent months and other press coverage. Much of the promised work at the other two hospitals also never began, according to government auditors and court testimony.
“To the great surprise of this court,” a judge wrote in his February 2023 decision annulling the deal, the only evidence Steward presented to back up its claims that it honored its commitments was a one-page affidavit from Steward’s director of facilities management and 76 pages of photos that included “a new helicopter which was allegedly bought in the year 2016,” and a photo showing “the refurbishment of the telephone operator’s bathroom within the Gozo Hospital, with details of all the ceramics installed.”
This court “is really perplexed by the poverty of the evidence Steward brought before this court,” the judge wrote, adding that it “probably reflects the poverty of investment” in the project.
In a later, October 2023 decision, an appeals court suggested more work was carried out than simply laying bathroom tiles, and noted that it was only after Steward took over the project that “some serious work began to be carried out.” But it confirmed that Steward had failed to meet obligations spelled out in the initial concession.
“They were a nightmare,” said Joseph Vella, chief executive officer of UHM Voice of the Workers, the main union representing Maltese medical workers, who testified at the initial trial. In an interview with the Globe, he accused Steward of “daylight robbery” and said it did little to improve the quality of health care and sought to pay workers even less than the government had when it ran the hospitals.
Officials at Steward International tell a very different story. Steward made “significant, long-term investments” in Malta, according to the company’s website, which highlights the replacement of a ferry with an air-ambulance service (and includes a photograph of the helicopter mentioned by the court) and the construction of a state-of-the art medical school campus affiliated with the London School of Medicine and Dentistry. The firm also says it added 28 beds to one hospital and a new laboratory and new 10-bed ward for orthopedic cases at another.
“We are proud of what we have achieved in a short period of time,” Armin Ernst, who headed the company’s Malta effort and now serves as CEO of Steward International, wrote in a brief email to the Globe.
To be sure, Malta’s health care system had plenty of problems long before Steward arrived. Though Malta has a vibrant tourism industry, its state-run hospitals have long waiting lists for many services, and most are in dire need of modernization.
To turn things around and eventually attract medical tourists, the government announced in 2015 what it billed as an innovative “public-private-partnership model” designed to remedy the situation, initially awarding the 30year concession to a little-known company called Vitals Global Healthcare to run, and upgrade, three of its four main public hospitals. (All told, Malta has eight health centers of various sizes that provide medical care.)
Vitals, which had an opaque ownership structure that could be traced through a shell company back to a Singaporean private investment firm, according to Maltese government auditors, hired Partners HealthCare International (PHI), a Harvard-affiliated health care consulting firm, to advise it. On the firm’s recommendation, Vitals director Ram Tumuluri hired Ernst, Steward Healthcare’s senior vice president of clinical affairs at the time, to serve as its chief executive officer.
Tumuluri also approached Partners HealthCare International executives about exporting the public-private-partnership model in Malta to other nations. But soon after arriving, Ernst began lobbying to instead partner with Steward, according to documents appended to a 550-page whistleblower complaint filed by Tumuluri with the US Securities and Exchange Commission, the US Department of Justice, and the Maltese Parliament.
A copy of the complaint was given by a Maltese lawmaker to the nonprofit Organized Crime and Corruption Reporting Project, or OCCRP, and the Daphne Caruana Galicia Foundation, an organization founded to carry on the work of a prominent Maltese investigative journalist killed in a 2017 car bombing. The foundation shared the filing with the Globe. Tumuluri is represented by Andrew Bakaj, a prominent Washington, D.C.-based whistle-blower attorney, who confirmed the authenticity of the Globe’s copy of the complaint and the documents attached to it.
Ernst seemed to have little interest in working with the Partners international affiliate. In one email to Tumuluri, appended to the complaint, he said Partners runs “one of the most inefficient, disjointed, duplicative — and most expensive — systems anywhere in the world.”
Steward, by contrast, is focused on growing outside the United States, he wrote, and “the level of commitment and resources we can draw on will be quite different.”
Partners declined to respond.
Tumuluri and Steward failed to reach an agreement, and in the fall of 2017, Ernst resigned from Vitals, and soon after started a new job: director of a new entity called Steward Malta and president of newly established Steward International.
Several months later, in February 2018, Vitals announced it was selling its hospital concession to Steward.
The government had had reason to be dissatisfied with the performance of Vitals: At the time of the sale to Steward, two years after Vitals arrived, it had not started on any of the promised improvements, according to government auditors.
But in the months that followed, the audits and subsequent court rulings suggest, Steward also disappointed.
Upon taking over, Steward demanded the government renegotiate its contract before moving forward with major refurbishments to the hospitals, claiming it had received assurances before taking over that the government would do so. The prime minister told auditors commitments to amend and restructure the deal “were not concrete.” Steward claimed the cost to run the hospitals exceeded the annual payments it received from the government. It also argued that the initial vision of generating enough revenue from medical tourism to pay for the upgrades the government demanded was “unrealizable.”
“The construction milestones could not be achieved with the financial model which existed prior to Steward taking over,” a Steward spokesman said in a statement.
Steward officials declined repeated requests for interviews, referring questions to a crisis management firm headed by a former spokesperson for the British prime minister David Cameron, who provided a series of statements to the Globe in response to questions.
While negotiations dragged on, Steward operated the hospitals and collected government funds. Between 2018 and 2021 alone, Steward received at least €215 million and succeeded in procuring at least two loans amounting to €28,150,000 from local Maltese banks, according to audits. In addition, between 2016 and 2021, the government shelled out an additional €188.5 million in direct salaries to health care workers made available at the hospitals. During that time, Steward failed to pay €36.8 million in value added taxes, a consumption tax assessed on the value added in each production stage of a good or service, which it would eventually challenge in court. It also repeatedly sought and received permission to delay a promised €9 million performance bond that it would forfeit if it failed to deliver on its commitments, according to government audits.
In the fall of 2019, Steward and the Maltese government were close to an agreement that would have allowed Steward to enter into a sale-leaseback deal with Medical Properties Trust, the Alabama-based REIT that has funded much of Steward’s US expansion. But then, Malta’s prime minister and the two Cabinet members who engineered the original deal resigned amid a mushrooming corruption scandal. The new Cabinet never finalized the MPT plan.
Steward has claimed the enterprise was not profitable. In financial statements, Steward Malta reported losses in two of three years reviewed by the auditor of €6.4 million in 2018 and €803,000 in 2019, before turning a net profit of €6 million in 2020. But Malta’s minister of health, “expressed skepticism” given the amount of money paid directly to Steward to cover expenses (at least €214 million between 2018 and 2021 alone, plus a large portion of the €188.5 million in salaries paid directly to workers, according to the audits) — and “the lack of investment being made” by Steward, the auditor noted.
In the October appeals court decision, the judges said it was suspicious that Steward agreed to take over the concession without performing adequate due diligence on the cost to run it but added “this court, however, believes that the new shareholders entered into the deal in good faith.”
They added that Steward “repeatedly failed to reach milestones” despite the fact that the government granted them numerous extensions.
Arbitration proceedings are currently underway before the International Chamber of Commerce, with both Steward and the government of Malta claiming the other side owes them money.
Meanwhile, Steward International appears to be going strong. In 2020, the entity that launched the Malta operation moved its headquarters to Madrid, and was reincorporated as a new joint venture, 49 percent owned by Medical Properties Trust, which paid Steward $205 million for its stake, and 51 percent by Ralph de la Torre, CEO of Steward Healthcare, and other members of his management team.
‘We are proud of what we have achieved in a short period of time.’
ARMIN ERNST, who headed the company’s Malta effort and now serves as CEO of Steward International