HOSPITALS FOR SALE?
Tower Health might be looking to unload assets in 2021
West Reading-based Tower Health might sell hospitals or other assets in Chester, Montgomery and Philadelphia counties as soon as the first quarter of 2021, Tower executives told bond investors this week.
Executives said hospitals, ambulatory assets, urgent cares and partnerships would be evaluated with the help of turnaround specialists, Guidepost, which the health system contracted last week.
The only thing not on the table is Reading Hospital, which, despite the coronavirus shutdown, turned a $66 million profit in fiscal year 2020. Prior to COVID-19, four of six hospitals were performing better than the previous year, executives told investors.
“We will knowingly do nothing to detract from the clinical excellence that we built in this place for the last 10 years,” said C. Thomas Work, chairman of the board of directors. “There is a very strong preference, if not an
obsession, to preserve the mothership, Reading Hospital.”
Work also said the board remained committed to a medical school it plans to open in 2021.
“Recognizing that we will need to grow as most organizations do, but perhaps at a measured pace, and also the academic affiliation with Drexel (University) as a key part of our growth, if for no other reason than to recruit physicians in the specialties we need,” Work said. “By attracting talented residents to the medical school to our campus here in Reading to what we have to offer at the Reading Hospital and in many cases we hope to retain the best talent we can in part relieving some of the brain drain in Pennsylvania.”
The construction of the Drexel University College of Medicine campus in Wyomissing is underway and operations are set to begin in the 2021-22 academic year, with 40 medical students per class. Once the campus is fully operational, management expects it will have 200 medical students.
Guidehouse’s David Burik told
investors that loss, revenue and productivity of each of its 600 physicians in its medical group will also be evaluated.
The ‘streamlining’
On the same day as the investor’s call, Tower announced the consolidation of leadership at two Chester County hospitals.
Claire Mooney, president and CEO at Jennersville Hospital,
Penn Township, will assume the same role at Brandywine Hospital, Caln Township. Vik Acharya, who had been serving as interim CEO at Brandywine Hospital, has resigned.
The two hospitals will also consolidate leadership in finance and nursing.
Clint Matthews, president and CEO of Tower Health, said
in a memo to employees the changes are “part of Tower Health’s broader strategy of streamlining and centralizing decision-making within the system so we can better meet the many challenges of providing quality healthcare to our communities.”
The investors call on Tuesday comes after the threeyear-old hospital system saw its bond ratings decline to junk status. Standard & Poor’s and Fitch Inc. said operating losses resulted from underlying operating issues that were further exacerbated by the COVID-19 pandemic. Tower’s operating losses for fiscal year 2020 of almost $400 million trig
gered the downgrades. Fiscal year 2020 ended June 30.
Dan Ahern, Tower’s executive vice president, said a team of management and board members has evaluated its assets, considering options that would improve Tower’s performance and competitive position. He expected to bring those options to the board by the end of 2020 and consummate deals in early 2021.
“We have reviewed all assets in the business portfolio and are in early stages of discussion with several strategic partners about those assets,” Ahern said. “They involve an array of potential transactions, including certain hospitals and ambulatory assets as well as individual assets transactions. We anticipate recommending opportunities around those transactions by
the end of the calendar year 2020 with potentially those transactions being consummated by the first half of the calendar year 2021.”
Asked by an investor what they would do if there were no buyers, executives said options include closing properties, repurposing properties and looking for other strategic partners.
Weighty debt
On top of losses due to the coronavirus, Tower has struggled under $1.3 billion debt that funded its expansion from a community hospital to a system in the competitive southeastern Pennsylvania market. It paid $423 million to acquire five hospitals and associated assets from Community Health Systems in 2017. Reading Health System purchased Pottstown
Memorial Medical Center, Pottstown; Brandywine Hospital, Coatesville; Phoenixville Hospital, Phoenixville; Jennersville Regional Hospital, West Grove; and Chestnut Hill Hospital, Philadelphia.
In 2018, it also purchased a chain of urgent cares for $24 million. Tower views the urgent cares as a key driver in its system and is evaluating closing ones in part based on location, executives told investors.
In December 2019, Tower paid $29 million toward the $58 million price of St. Christopher’s Hospital for Children in partnership with Drexel University in Philadelphia.
Tower Health also operates Reading Hospital Rehabilitation at Wyomissing; Reading Hospital School of Health Sciences in West Reading; home health care
services provided by Tower Health at Home.
‘Good decisions’; ‘bad decisions’
Work addressed the issue of growing too quickly and the involvement of the board, issues raised by the rating agencies.
“This was a strategic move,” Work said. “It was one for which we had the best possible advice and the very best motive and information. It was an effort, really, to leverage an excellent clinical platform.”
Work spoke about Reading Hospital’s turnaround in 2010, when it focused on quality, infrastructure and morale. The system wanted to leverage its clinical excellence for a broader footprint.
“There are good decisions,”
Work said. “There are bad decisions.”
“There are ones in which you second guess what you have done and at the end of the day there’s really one thing about taking steps in expanding your footprint in any business, if not in life.
“The two things about footprints are: first of all, some footprints don’t turn out the way you expected them to. And, at the point, the wisdom is in acknowledging that, having no pride of authorship, (you must) revisit everything from every vantage point. But the other part of the footprint is that if you don’t take them you die. That’s true in life and true with organizations.
“We took a step, made a footprint, and some aspects of that simply have not worked out.”