Tower Health CEO provides upbeat outlook for the nonprofit health system ahead of bond deal

Four years ago, it was widely expected that Tower Health, crushed financially by the pandemic and buckling under losses from a 2017 acquisition of five hospitals, would have to file for bankruptcy to escape its heavy debt load.

Instead, the nonprofit anchored by Reading Hospital in Berks County had its first profitable quarter in five years in the spring and expects to refinance $1.2 billion in bond debt next month, giving itself five more years to nurse itself back to financial health.

All the experts urging Tower to file for bankruptcy protection were betting against the wrong people, Tower CEO Sue Perrotty said in an interview Friday.

“I know the tenacity of the region where I live, and I knew that if I could get their hearts connected to ‘we’ve got to do this,’ we would do it,” she said. Bankruptcy “would have destroyed the very core of who Tower is and how we operate in our communities. So while it took three years, we have a soft landing,” she said.

Tower is scheduled to release preliminary results for the year ended June 30 in late August or early September.

The refinancing, announced in June, is expected to give $142.5 million in additional cash for daily operations and eliminate a series of bond redemptions through 2029. Without the refinancing, the first repayment of $64.6 million had been due in February. That would have been difficult.

Standard & Poor’s downgraded Tower’s credit rating to `CCC’ in response to the refinancing, describing the refinancing as “distressed.” Fitch, by contrast, said the refinancing did not meet its two-part test for a distressed refinancing because it was not undertaken to avoid bankruptcy.

Perrotty said that even though there are higher interest rates in the refinancing, the amount of money Tower has to pay each year in debt service will remain stable at about $55 million for five years. That’s because some of the accruing interest will add to the debt.

There are provisions in the agreement with bondholders, Perrotty said, that will allow Tower to build liquidity, which has been deteriorating for years. The amount of cash Tower had to pay its day-to-day expenses equated to 32 days at the end of June, the same as at the end of March.

That’s far below where it was before Tower acquired five Southeastern Pennsylvania hospitals from Community Health Systems Inc. in 2017.

In July, Tower transferred 650 employees to Ensemble Health, which took over what health systems call revenue cycle. That involves everything from helping patients make appointments to collecting bills from insurers and customers.

It’s too soon to say if Ensemble is improving Tower’s revenue collection, but Perrotty said interaction with the public has already improved. For example, Ensemble has better systems for reaching out to patients to move up their appointment if there’s a cancellation, she said.

Previously, Tower had outsourced certain laboratory testing, outpatient pharmacy, and information technology services. Tower also has major partnerships with Drexel University involving a medical school branch campus in West Reading and the joint ownership of St. Christopher’s Hospital for Children in Philadelphia.

“Our future and some of the bigger investments and the bigger opportunities will be through partnerships,” Perrotty said.

Asked if there’s a point where Tower puts too much into other companies’ hands, Perrotty said Tower doesn’t have to be the best finance organization, or have the best revenue cycle operation. Others specialize in that, she said.

“We own how we deliver clinically. We own how we interface with our patients. That’s what we do,” she said.

Tower is close to a deal on the sale of Brandywine Hospital, Perrotty said. She was unable to disclose information about the potential deal.

Last year, Tower had a preliminary agreement to sell the property to the University of Pennsylvania Health System, but Penn decided not to go through with the deal because it was not suitable for Penn’s construction plans.

Tower’s goal when it closed Brandywine and Jennersville Hospitals was to sell that to someone who would offer health-care services. That is the case at Jennersville, which ChristianaCare is turning into a micro-hospital.

“I don’t believe we’re going to be able to do that with Brandywine,” Perrotty, said. “We have tried to really limit it, but the kind of people who are interested in it now are developers for a much broader use.”