Crozer Health will be sold to CHA Partners, converted back into nonprofit

Crozer Health could get a new owner under a preliminary agreement announced Wednesday by Prospect Medical Holdings Inc, the California for-profit firm that has controlled the financially beleaguered Delaware County health system for eight years.

The tentative buyer is CHA Partners LLC, a New Jersey real estate company that specializes in buying hospital properties and redeveloping them into mixed-use medical facilities. The price was not disclosed.

“We believe this is a positive step for our physicians, employees, and the communities we serve, and will help secure Crozer Health’s future as a critical health-care provider in Delaware County,” Crozer CEO Tony Esposito said in an announcement.

» READ MORE: What CHA Partners' ownership of Salem County hospital says about the firm.

Esposito said it will take several months to reach a final agreement and complete the sale, which requires regulatory approvals.

The plan calls for CHA to work with Healthcare Preferred Partners, an affiliated company, on the management of Crozer and its conversion back into a nonprofit. That’s what CHA did with the former Memorial Hospital of Salem County in New Jersey. It sold that property to Inspira Health after about four years, while the hospital continued losing money.

Wednesday’s agreement came about eight months after the Pennsylvania Office of Attorney General laid out a timeline for Prospect to seek a nonprofit buyer for Crozer, which provides vital services to residents of Chester and surrounding communities.

» READ MORE: Crozer Health since Prospect acquired it in 2016: A timeline

After years of financial struggles and a long period seeking a buyer, the nonprofit Crozer Keystone Health System sold its four hospitals to Prospect in a deal valued at $300 million. Los Angeles private-equity firm Leonard Green & Partners was Prospect’s majority owner at the time.

During the early years of Prospect ownership, admissions to Crozer-Chester Medical Center grew to 20,038 in 2018 from 18,598 in 2016.

By 2022, however, admissions at Crozer-Chester had slid to 13,684, according to state data. This includes patients at Springfield and Taylor Hospitals, which are covered under the same license. COVID-19 contributed to the sharp decline, but Crozer’s numbers fell more than those at other local hospitals.

A series of financial maneuvers added to the financial pressure on Crozer.

Prospect borrowed $1.12 billion in 2018 to pay off debt and issue a $457 million dividend to its owners, Leonard Green & Partners, as well as to individual owners, Prospect executives Sam Lee and David Topper.

Lee and Topper put Prospect into an even deeper financial hole the next year when they sold most of the company’s real estate to an Alabama real estate investment firm, Medical Properties Trust Inc. (MPT), for $1.4 billion.

At around the same time, Lee and Topper bought Leonard Green’s 60% stake in Prospect for $12 million. Green had already taken most of the value out of Prospect through the 2018 dividend.

The terms of the MPT real estate sale, described as a sale-lease-back, required Prospect to pay rent on buildings it used to own.

Crozer’s properties were valued at $420 million and required the health system to pay $35 million in annual rent, which it couldn’t afford after the pandemic hammered health systems’ finances by reducing demand for profitable services, such as non-emergency services, and raised costs.

MPT now values the Crozer properties at $155 million — about a third of what it paid.

In early 2022, it seemed a solution had been found for Crozer. ChristianaCare, Delaware’s largest health system, had a preliminary agreement to acquire Crozer, returning the health system to nonprofit status.

Those talks ended that August, likely because ChristianaCare didn’t see how to make the deal work financially. Instead, Crozer would convert itself into a nonprofit.

A month later, Crozer announced a plan to close Delaware County Memorial Hospital in Drexel Hill as an acute care facility and instead use it for inpatient drug treatment and psychiatric care.

The Foundation for Delaware County sued, representing the interests of the former nonprofit owner of the Crozer-Keystone Health System. The foundation said Prospect’s purchase agreement required it to get the foundation’s consent before closing any of the hospitals it acquired. That provision is in effect until July 1, 2026.

The state attorney general supported the lawsuit, but acute care services and the emergency department at Delaware County Memorial still closed in November 2022 under orders from the state health department because the facility did maintain enough staff to operate safely.

The attorney general’s involvement in that litigation led to the January agreement on a sale timeline. One of the provisions was that Prospect was only allowed to accept offers from nonprofits.

Now that Crozer has a preliminary agreement with CHA, work on forming a nonprofit corporation that would own the system will get under way, Esposito said.