St. Christopher’s future at risk again as Tower Health looks to sell hospitals

Only 16 months after Tower Health and Drexel University bought St. Christopher’s Hospital for Children out of bankruptcy, the future of the North Philadelphia safety net institution again hangs in the balance as Tower races to improve its finances or sell hospitals before it runs out of cash.

Pressure has mounted to the point that Drexel University president John Fry resigned this month from the Tower board to avoid conflicts of interest as he looks for a way to maintain St. Chris as a crucial teaching location for the Drexel College of Medicine’s third- and fourth-year students.

It’s not clear whether a resolution is near, but Temple University Health System, which also uses St. Chris as a teaching location, is also in the mix to run the hospital.

» READ MORE: Tower Health and its Philly area hospitals are for sale. Is anyone interested?

“Preserving St. Chris is important for Philadelphia, because it plays a vital role in the city’s health-care network for children. We are currently in discussions to see whether it’s possible for Temple to have a role in doing so,” Temple Health’s chief executive, Mike Young, said Monday.

About the time of the St. Chris sale, which was completed in December 2019, executives at Children’s Hospital of Philadelphia expressed a willingness to assist St. Chris’ new owners if asked. It’s not clear whether that ever happened.

“We have no new news to share, but CHOP remains committed as a resource and to ensuring that all of Philadelphia’s children have access to the health care they need,” a CHOP spokesperson said Monday

St. Christopher’s, which has 188 beds, employs 1,900. The hospital’s financial struggles have continued.

Tower, which manages St. Chris on behalf of the joint venture, last month laid off 15 people at St. Chris, including four doctors, after recording a $31 million operating loss on $137 million in revenue in the last six months of 2020.

Tower’s total operating loss during that period was $148 million. That followed a massive $439 million loss in the year ended 2020, when the health system had nearly $2 billion in revenue from seven hospitals and related businesses. The system has undergone steep credit-rating downgrades.

The Berks County nonprofit on Monday declined to provide an update on its financial condition.

The St. Chris acquisition capped a remarkable run of spending by Tower, which is anchored by Reading Hospital in West Reading, Pa.

» READ MORE: Tower Health, reeling from losses, receives a three-notch credit downgrade from Fitch

After opening a new $345 million hospital in January 2017, Tower paid Community Health Systems Inc. $428 million for five community hospitals that fall. Those hospitals are in Chestnut Hill, Coatesville, Jennersville, Phoenixville, and Pottstown.

In 2018, Tower formed a joint venture with Drexel to build a West Reading branch of Drexel’s medical school. The same year it bought an urgent care company with 19 locations for $24 million — while it was spending at least $120 million on a high-end electronic medical records system. That installation was completed in August 2019.

Then came the purchase of St. Chris out of the Philadelphia Academic Health System bankruptcy that led to the closure of Hahnemann University Hospital during the summer of 2019.

Tower and Drexel agreed to pay $50 million for St. Christopher’s at an auction that had no other qualifying bids. The final priced ended up being $58 million, split evenly between Tower and Drexel. The partners did not purchase the St. Chris real estate. It was sold separately for $65 million to Ironstone Real Estate Partners, of Philadelphia.

A Jefferson Health-led consortium — including Einstein Healthcare Network, Philadelphia College of Osteopathic Medicine, and Temple University Health System — considered bidding on St. Chris at the auction, but backed out after deciding that St. Chris was in such poor financial condition that the consortium couldn’t justify paying for it.

A group of St. Chris doctors had rooted for the Jefferson consortium because transfers from those hospitals accounted for nearly 60% of St. Chris’ inpatients. Tower’s hospitals accounted for less than 3% of referrals.

» READ MORE: St. Christopher’s goes to new owners for $50 million in bankruptcy sale (from September 2019)

Last year, Tower sent significantly more patients from Reading Hospital to St. Chris than it did in 2019, but still transferred more than twice as many patients to CHOP, which offers a wider range of services.

St. Chris struggles financially in large part because the bulk of its patients have Medicaid insurance, which pays below the cost of care, according to experts. A comparatively large portion of the patients at Children’s Hospital of Philadelphia, by contrast, have private insurance, which pays significantly more. Even under Medicaid contracts, CHOP sometimes receives significantly more money for the same services.

Temple University Hospital experiences the same Medicaid problem, but has the advantage of being owned by Temple University, a state-related university that receives funding from Harrisburg.

Temple can leverage a portion of its state appropriations to get more federal Medicaid funding than is possible for hospitals without that relationship. That might also benefit St. Chris if it came under the Temple umbrella.

St. Chris and Temple have historical ties dating to at least 1947, when St. Chris switched its academic affiliation from the University of Pennsylvania to Temple. That relationship hit a rocky stretch in the 1990s after the Allegheny Health, Education, and Research Foundation acquired St. Chris.

To compete with Allegheny, Temple went so far as to open its own children’s hospital in 1998. Temple University Children’s Medical Center closed in 2007 after it failed to gain enough market share to be profitable.

That building, at North Broad and Tioga Streets, is now called the Boyer Pavilion, which contains several ICUs, neurosurgery operating rooms, the Temple Heart & Vascular Institute, inpatient floors, outpatient clinics, and administrative offices.

During the coronavirus pandemic, the building has been used to care for COVID-19 patients away from the main hospital.