When the nonprofit Tower Health bought three Chester County hospitals that had been for-profit since the early 2000s, Maureen Tomoschuk was delighted.
Tomoschuk runs Community Volunteers in Medicine, which arranges free care for uninsured Chester County residents. She had a hard time getting help from Community Health Systems Inc., the for-profit that sold Brandywine, Jennersville, and Phoenixville Hospitals to Tower.
“We were very hopeful and optimistic when Tower took over” about securing more charity care, especially at Brandywine, said Tomoschuk.
Now that optimism has turned to fear that Brandywine might close.
That’s because Tower, just three years after paying $423 million for the three Chester County facilities plus Pottstown and Chestnut Hill Hospitals, is considering selling them in a bid to recover from an unsustainable debt load and massive losses that started even before the coronavirus pandemic slammed the health-care industry.
The Berks County nonprofit told municipal bond investors last month that it hasn’t ruled out closing hospitals it can’t sell.
The fate of Tower’s community hospitals is the latest stage of turmoil in the Philadelphia region’s hospital industry, following the closure of Hahnemann University Hospital in 2019, the downsizing of Mercy Philadelphia this year, and the continuing uncertainty over Thomas Jefferson University’s acquisition of Einstein Healthcare Network, which has been opposed by the Federal Trade Commission on antitrust grounds.
A big move
Advised by the gold-plated consulting firm McKinsey & Co., Tower bought the five hospitals from Community Health Systems on Oct. 1, 2017, to expand its clinical footprint from Berks County, where it owns the large and highly profitable Reading Hospital. Tower also wanted to establish a larger base for the insurance joint venture it had formed with UPMC Health Plan, owned by the University of Pittsburgh Medical Center, according to an investor document.
“We saw an opportunity to do good throughout the region,” Tower’s chief executive Clint Matthews said in an interview last week.
Looking south, the Tower board also saw particularly attractive markets around Brandywine and Jennersville, with growing populations and high and relatively fast-growing incomes. Mixed in are pockets of lower-income people in places like Coatesville and Oxford.
The hope was that Tower would attract patients from the new markets to its flagship hospital in West Reading for more advanced care than is available in community hospitals. That was a strategy that many health-care experts considered a tough sell, given the pull of Philadelphia’s academic medical centers.
Instead of quickly becoming lucrative feeders for Reading, the five hospitals have generated more than $400 million in operating losses since Tower acquired them, and now the mystery in Philadelphia health-care circles is who would want to buy them — a particularly fraught question in the cases of Brandywine and Jennersville because these small, semirural hospitals have struggled financially for decades.
If a buyer emerges, it’s likely to be a for-profit, observers say, which would not have the same obligation to offer charity care as a nonprofit. Speculation has centered on Prime Healthcare Services Inc. and Prospect Medical Holdings Inc., two large for-profits with hospitals in the Philadelphia region. Both firms declined to discuss the matter.
A Tower official told investors last month that potential transactions would be presented to the nonprofit’s board for consideration by the end of this month, but Matthews said last week that won’t happen. “We have been looking at different options, but at this time we’re focusing on positioning Tower Health for the future,” he said.
A consulting firm hired to find ways to improve Tower’s operations and its financial position — Tower lost $438 million on operations in fiscal 2020 and has $1.3 billion in long-term debt — is expected to present its findings to the board in late January, Matthews said. A second firm is handling the effort to sell hospitals.
Chester County business and community leaders worry that the sales effort might not succeed, resulting in hospital closures.
“There’s an anxiety or concern about who could potentially step in to keep the three viable because in a county like ours with a growing population and a growing economy the last thing we need are less beds or medical experts,” said Guy Ciarrocchi, president and chief executive of the Chester Chamber of Business & Industry.
The loss of Brandywine or Jennersville Hospitals would be a significant blow for poor people, said Tomoschuk, of Community Volunteers in Medicine. “The distance, access to transportation are the big very challenges,” she said, especially for people who live in the far corner of Chester County served by Jennersville, but also for those who live near Brandywine.
Tower has already closed the open heart surgery program at Brandywine, which has 171 licensed beds, consolidating that service in Phoenixville, and is in the process of closing Brandywine’s cardiac catheterization lab, leaving a void for such services in western Chester County.
For an employer like Herr’s Foods Inc., in Nottingham, it is a blessing to have the Jennersville emergency department 20 minutes away on Route 1, executives there said. If Jennersville were to close, the nearest alternatives would be Christiana Hospital in Newark, Delaware; Chester County Hospital in West Chester; or Lancaster General, all much farther away.
“It does scare me to think about that being an hour away,” said Bob Landis, the snack company’s senior vice president of human resources.
A long decline
Jennersville, which has 63 beds, and Brandywine have faced increasingly stiff competition from Paoli Hospital and Chester County Hospital, which the University of Pennsylvania Health System acquired in 2013 and is undergoing a $300 million expansion.
Brandywine’s share of inpatients from its core market, which it defines as a triangular area from Elverson to Gap, in Lancaster County, and then east to West Chester, fell from 25% in 2005 to 20% in 2018, an Inquirer analysis of state data found. Jennersville defines its core market as stretching from Unionville to West Nottingham and north to Cochranville. Its share of inpatients from that area fell to 29% in 2018 from 47% in 2005.
At Freedom Village, a retirement community next to Brandywine Hospital, views of the hospital are mixed, said Robin May, 73, who has lived there since 2009. “There are some people who wouldn’t ever go there if they had a choice, but others, like me, have had reasonably good experiences,” she said.
Brandywine, which was founded in 1902, employs 670. It moved in 1980 from Coatesville to rural Caln Township and has had financial difficulties that date at least to the 1990s.
In the mid-1990s, Brandywine talked with Chester County Hospital about merging, but the deal never happened because they couldn’t agree on how to divvy up services, said David Moser, a local businessman who spent 26 years on Brandywine’s board starting in 1993.
In 1997 Brandywine joined Lancaster Health Alliance, formed by Lancaster General Hospital, but that union lasted only a few years, leading to the 2001 sale to Community Health Systems for $40 million.
The financial strains at Brandywine never went away, however, and as its Tennessee-based owner grew nationally, attention to Brandywine fell away, Moser said. “Our capital budgets were getting thinner and thinner. The situation just kind of went down hill. Then Tower came along.”
Community Health Systems also bought Jennersville in 2001, paying $22.5 million. Jennersville, which traces its roots to a West Grove clinic founded during the 1918 Spanish influenza outbreak, moved to its current location in 1959, according to the Daily Local News.
The new owner promised to at least double the size of the hospital to 118 beds from 59 at the time. It didn’t happen.
State Rep. John Lawrence, a Republican whose district includes Jennersville, said Tower has improved the facility, where his childhood doctor was located.
“It was apparent to anyone who went into the facility that it had suffered from a lack of investment over the years and that has changed since Tower purchased the facility,” he said. Tower said it has spent $8.9 million at Jennersville on physical improvements, not counting information technology upgrades.
Lawrence declined to speculate on the community impact if Jennersville, which employs 348, were to close.
“This is a growing community, and we have a significant senior population,” he said. “It seems to me that the need for proximate medical care is only going to increase in coming years in this area.”