All of Tower Health could be acquired in new push for rescue of the troubled health system

Tower Health, the financially troubled health system that owns St. Christopher’s Hospital for Children and five other hospitals in the Philadelphia area, is now seeking a partner for the entire system, including Reading Hospital, after an effort to sell smaller hospitals stalled.

This means the whole system could be acquired, though it is too soon to know whether serious bidders will emerge. Previously, Tower was seeking buyers for all of its properties except its anchor hospital in West Reading. The change in approach came last week, as Tower replaced its chief executive with a board member, P. Sue Perrotty, on an interim basis.

“We are compelled to pursue every possible avenue available to protect and preserve the future of care at all of our hospitals and facilities,” Tower said in a statement late Friday. “As part of this process, we will examine potential partnerships for the entire Tower Health system with like-minded health systems that share our same values and passion for clinical excellence.”

Separately, Tower Health on Monday received a massive three-notch credit downgrade from Fitch Ratings, which cited average monthly losses of $14 million and warned that further multi-notch downgrades are possible if Tower is unable to change its financial trajectory.

The new rating is B+, which is deep in junk-bond territory. On Oct. 30, Fitch slashed Tower’s rating by two notches, BB+ from a solid BBB, but expected “that Tower would return to a stable operational position and gradually improve its balance sheet.”

That didn’t happen.

Instead, Tower lost $111 million in the last three months of last year and ended the year with significantly less cash on hand to run its hospitals and other operations than it had had at the end of September.

Fitch said Tower’s financial condition is weak even for its new, dramatically lower credit rating. Organizations with ratings in the B range are still meeting their financial obligations, “but capacity for continued payment is vulnerable to deterioration in the business and economic environment,” according to Fitch.

Tower had a massive operating loss of $438 million in the year ended June 30, but its financial troubles pre-date COVID-19. The nonprofit based in West Reading piled on debt to acquire six consistently unprofitable hospitals, including St. Chris in partnership with Drexel.

In 2017 Tower paid $423 million for five consistently unprofitable community hospitals in Chestnut Hill, Phoenixville, Pottstown, Coatesville, and Jennersville. It later paid $24 million for a chain of urgent-care centers, and contributed $29 million to the purchase of St. Chris in a deal that did not include the real estate.

Despite spending large amounts of money on top-notch electronic health records designed to improve efficiency at its new community hospitals, Tower has so far made little progress in turning them around financially. Experts have said it’s unlikely that the sale of those hospitals would bring in enough money to make a dent in Tower’s massive $1.5 billion load of debt and leases.

All six of Tower’s acquired hospitals lost money in the first half of fiscal 2021, Tower reported Monday. Only Reading Hospital was profitable.

When Tower announced in November that it would try to sell hospitals, the nonprofit’s chairman, Tom Work, said: “There is a very strong preference, if not an obsession, to preserve the mother ship, Reading Hospital.”

There was a Feb. 19 deadline for bids for the money-losing hospitals. The system did not say whether any bids came in, but a lack of bids may be why the Tower board decided last week to look at possibilities for the entire system.

On Tuesday, Tower officials are scheduled to update investors on a conference call. Normally, those calls are open to the public, but Tower officials have closed access for this call.