Tower Health started 2021 with a smaller loss after a bruising 2020

Financially beleaguered Tower Health, which owns six hospitals in the Philadelphia area, reported progress in its turnaround during the first three months of this year.

The nonprofit system, based in Berks County, reduced its operating loss in the quarter to $80 million, down from the $111 million loss in the last three months of 2020, according to its latest statement for bondholders.

Tower’s interim chief executive Sue Perrotty, who took that job after Clint Matthews abruptly retired in February, told employees in a video message last month that the system’s positive momentum has continued as more patients keep returning to its hospitals and doctors offices.

“Our near-term efforts to stabilize Tower Health are not yet complete, and there is still hard work ahead, but I believe we can begin to shift our focus to a new and brighter horizon,” she said. She assured employees in an email last week that Tower “is not preparing for bankruptcy.”

April was Tower’s first profitable month since October 2019, executives said. They did not provide recent details on its cash reserves, which have been dwindling and are a concern to municipal bond investors.

Tower’s troubles started long before the coronavirus pandemic pushed many health care businesses into the red as patients stayed away except for the most urgent needs. But even healthier systems are only slowly recovering from COVID-19 impacts.

Doylestown Health, Einstein Health Network, Jefferson Health, and Main Line Health would still have had operating losses through nine months of fiscal 2021 were it not for the federal CARES Act grants meant to help hospitals through the crisis.

Children’s Hospital of Philadelphia, University of Pennsylvania Health System, and Temple University Health System, by contrast, would have been profitable even without the grants.

Comparable financial information for New Jersey systems was not available.

Kaufman Hall, a national consulting firm in Chicago, pointed to a choppy recovery for hospitals, with April results worse than those in March, based on results from over 900 hospitals.

“Overall margins remain low and fluctuations month-over-month convey continued uncertainties for hospitals, as they work to recover from a profoundly challenging pandemic,” said Erik Swanson, a senior vice president of data and analytics at Kaufman Hall.

Long profitable and dominant in Berks County, where it owns Reading Hospital, in West Reading, Tower embarked on a dramatic expansion five years ago. That effort included the $423 million purchase in 2017 of five community hospitals: Brandywine, Jennersville, Phoenixville, Pottstown and Chestnut Hill. Through March, the group’s operating losses have totaled $426 million since Tower acquired them, including $114 million so far in the current fiscal year.

Those and other losses have put pressure on the amount of cash Tower has available to pay for daily expenses. In health care, cash is measured by the absolute amount, and also by how many days an organization can continue making payroll and paying vendors without new money.

Tower said that figure was 112 days of cash on March 31, down from 147 days on June 30.

But that’s not the whole story. Some of that money must be repaid. Tower told bondholders that it counted about 25 days of Medicare cash advances -- about $166 million -- that it had to start repaying in April. Excluding that money, the number of days would be about 87.

The number of days would be even lower if other money with strings attached, such as payroll tax deferrals, were excluded. Tower said last summer that it had deferred $25 million in payroll taxes though June 30, but it did not update those deferrals in its most recent report.

Temple University Health System told investors last month that it must repay $28 million in payroll tax deferrals. Employers were allowed to do this to preserve cash during the pandemic. Excluding Temple’s Medicare advances would reduce its days of cash to 118 from 148, the system said.

Besides accepting federal help, as most hospitals did, Tower has also used private means to boost liquidity. It raised about $200 million from a sale-leaseback of 23 medical offices and other buildings last June. Without that money, its cash hoard of about $556 million -- according to Fitch Ratings analyst Kevin Holloran who excluded the Medicare advances -- would be much lower.

That money was a huge help to Tower, but the deal effectively added to the system’s already large $1.3 billion debt.

Tower’s troubled expansion binge coupled with COVID-19 forced the system last fall to start considering the sale of some or all of its properties. A few deadlines in the process have passed with no action. Tower’s board recently delayed a decision on whether to continue down that path until mid-July.

Other major health-care transactions are on track. Fitch said Jefferson expects to complete its acquisition of Einstein around Oct. 1. Temple is acquiring the Philadelphia assets of Cancer Treatment Centers of America in a deal expected to close this month.

Finally, Jefferson is expected to buy Temple’s half of the nonprofit Medicaid insurer Health Partners Plans in December, Temple told investors last month. A price has not been disclosed.