Tenet will leave Philly, selling Hahnemann, St. Christopher's to Paladin

Nearly 20 years after coming to Philadelphia to save eight bankrupt hospitals, Tenet Healthcare Corp. said Friday it was selling its last two facilities here, agreeing to unload Hahnemann University Hospital and St. Christopher's Hospital for Children to a private equity-backed California firm for $170 million.

The buyer, Paladin Healthcare of El Segundo, is purchasing the facilities through a new affiliate called American Academic Health System LLC. Paladin owns four hospitals in low-income areas of Los Angeles County with 497 beds. The company also manages the 280-bed Howard University Hospital in Washington.

Center City's Hahnemann alone has 496 beds; St. Christopher's, in the Juniata Park/Feltonville section, has 189. Both operate as affiliates of Drexel University College of Medicine under a contract that expires in 2022. The sale is expected to close early next year, pending regulatory approvals.

"We will continue the legacy of Hahnemann and St. Christopher's. We're just very, very excited about what lies in front of us," said Paladin president Barry Wolfman, who ran Tenet's Philadelphia-area operations in the early 2000s.

Of Hahnemann, which he described as struggling in recent years, Wolfman said Paladin would work "to return it to its rightful place in the landscape of health care. It has a place. It has long been successful, and we will figure it out."

The region's hospitals are undergoing dramatic consolidation. Just this week, Cooper University Health System said it was acquiring rival Lourdes Health System. Jefferson Health is merging with Kennedy Health System in South Jersey and exploring a deal with Magee Rehab, after joining with Aria Health and Abington Memorial Hospital. Reading Health is buying five hospitals from Community Health Systems. And Penn Medicine is adding hospitals in Princeton and Lancaster to extend its reach.

For  Tenet, a for-profit firm based in Dallas, the sale of Hahnemann and St. Christopher's will end an era of painful losses in the Philadelphia region, which it entered in 1998 when it bought the eight hospitals from the bankrupt Allegheny Health System for $345 million.

The other six  hospitals were Graduate, Medical College of Pennsylvania, City Avenue, Parkview, Elkins Park, and Warminster. It later added Roxborough Memorial. All but St. Christopher's and Hahnemann were sold or closed by 2007.

Despite the long-running losses, Tenet held onto Hahnemann and St. Christopher's, though the latter performed better financially because most children can get health insurance in Pennsylvania.

In the year ended June 30, St. Christopher's, Hahnemann, and related operations had $790 million of operating revenue and an adjusted operating loss of $15 million, Tenet said. In connection with the sale, Tenet will record a $230 million pre-tax impairment charge in the quarter ending Sept. 30. The company also expects to report a taxable loss of $200 million on the sale.

In addition to the charges, Tenet announced on Thursday that CEO Trevor Fetter would resign by March or when a new CEO is found.

St. Christopher's, where Tenet completed a $115 million critical-care tower last year, voluntarily stopped performing nonemergency heart procedures in January 2016 pending an internal review after safety questions were raised. Hospital officials said in June that the facility would resume heart surgery this summer.

Hahnemann, a pioneer in organ transplants, closed its heart transplant program in May. Drexel closed its department of radiation oncology at the end of June.

Asked how Paladin will compete in a highly competitive market with hospitals that have large numbers of low-income Medicaid patients, Wolfman responded that every market is tough.

"There's always opportunity to collaborate with physicians. You look at opportunities. You collaborate with other hospitals. You work on your clinical excellence," Wolfman said.

The idea, much discussed in health-care circles, that a buyer would close Hahnemann and turn the site into condos is "not on the radar."

Still, that scenario is a backstop, said Stuart H. Fine, director of the health policy and management graduate program for Temple University's College of Public Health: "If the acquisition does not go as hoped, they still do have a remarkably valuable piece of real estate."

Paladin's financial partner in the deal, which includes Tenet-owned physician practices, is Harrison Street Real Estate Capital LLC, a Chicago company that oversees $12.2 billion in assets, its website indicates.

The Tenet facilities that Paladin is buying employ 2,700. "We will be hiring all qualified employees and physicians. I think people should not worry," Wolfman said. Hahnemann CEO Michael Halter and St. Christopher's CEO James Burke will remain.

Bill Cruice, executive director of the union that represents nurses and others at both hospitals, said he was wary of Paladin's private-equity connections. "The jury will be out to see if Paladin has the same commitment to the patients and to these communities that the nurses have," he said. "We hope that they will."