Crozer Health and ChristianaCare end talks on merger. Crozer could become a nonprofit.

ChristianaCare, Delaware’s largest health system, has dropped its bid to acquire Crozer Health, the organizations said Thursday. No reason was given.

Instead, Crozer would be turned into a nonprofit again, the status it held before Prospect Medical Holdings Inc. acquired it in a 2016 deal valued at $300 million.

“Community support of Crozer Health is vital to its success and sustainability,” top Crozer and Prospect managers said in a letter to Crozer employees. Being a nonprofit will “allow us to engage with the community through local governance, support from community-based volunteers, and the creation of partnerships with community-based organizations,” the letter said.

“It’s definitely the right direction to move in,” said Dan Grauman, chief executive of Veralon, a Philadelphia health-care consulting firm.

A conversion of a for-profit health system into a nonprofit, as contemplated by Prospect, is rare, Grauman and other industry experts said.

It’s not unusual for an existing nonprofit to buy for-profit hospitals, as happened when the nonprofit Tower Health acquired five hospitals in Southeastern Pennsylvania from publicly traded Community Health Systems Inc. in 2017. Tower then converted those hospitals into nonprofits.

But Prospect apparently intends to create a new nonprofit with a local board of directors and spin Crozer off into it.

Crozer spokesperson Lori Bookbinder did not answer an e-mailed question about whether Crozer would have to buy itself from Prospect, which until 2019 was controlled by Leonard Green & Partners, a private equity firm based in Los Angeles. Prospect itself is based in Los Angeles.

It’s unlikely that Prospect was willing to give Crozer away to ChristianaCare, a nonprofit.

Even if Prospect gave Crozer away to a new nonprofit, the new entity would still have to raise a significant amount of money to pay its bills on a day-to-day basis — funds known as working capital.

Borrowing money in the municipal bond market wouldn’t be easy, given that Prospect does not own its real estate, which could be used as collateral, experts said.

It was sold in 2019 to Medical Properties Trust, a large real estate investment trust, as part of a $1.55 billion sale-leaseback deal for property in three states. That money was used to pay off debt loaded on Prospect hospitals by Leonard Green to pay itself and investors a $457 million dividend.

Crozer now pays Medical Properties Trust about $35 million annually to rent real estate that was valued at $400 million in the sale-leaseback. As a nonprofit, Crozer could theoretically benefit from philanthropy, but that expensive lease might cause some potential donors to pause.

A new nonprofit Crozer could not take over that lease without the approval of Medical Properties Trust.

Recruiting board members for a new nonprofit also might be a challenge.

“There is a lot of competition for really good board members, and board members are looking for opportunities where they can really have an impact and make a difference, and where they are walking into a functional environment,” said Frances M. Sheehan, president of the Foundation for Delaware County, which collected $54.8 million in charitable proceeds from the 2016 sale of Crozer.

In their letter Thursday, Crozer and Prospect leaders shared some of their shorter-term plans.

Crozer will reopen its Springfield Hospital “as a comprehensive outpatient complex with an Emergency Department, medical offices, ancillary services, and ambulatory surgery center,” noting that 60% of Crozer’s revenue already comes from outpatient services.

Crozer also said it will invest in advanced services at Crozer-Chester Medical Center in Upland Township, including its behavioral health services. Last week, Crozer announced an agreement Delaware County officials to retain certain behavioral health and addiction-treatment services that it had planned to close.

No mention was made in the letter of Delaware County Memorial Hospital in Drexel Hill or Taylor Hospital in Ridley Park.