Jefferson University, Temple inch closer to wrapping up a deal on Fox Chase Cancer Center

Temple University has reached a definitive agreement to sell Fox Chase Cancer Center, an affiliated bone marrow transplant program, and its share of Health Partners Plans to Thomas Jefferson University, the two organizations said Wednesday.

The deal is being announced after nearly a year of exclusive negotiations. Still, Temple and Jefferson, among the largest nonprofits in Philadelphia, did not disclose the price.

Temple bought Fox Chase for $84 million in 2012. The cancer center had $488 million in revenue and $12 million in operating income in the year ended June 30.

Health Partners, a Philadelphia Medicaid insurer, had $20 million in net income on nearly $2 billion in revenue last year.

Temple officials have said previously that the main reason for selling Fox Chase and its share of Health Partners is to raise money to strengthen the university’s health system and help secure its future as a vital provider of health care to the impoverished neighborhoods of North Philadelphia that provide most of its patients.

With no information on how much money Temple will make from the sale, it’s impossible to evaluate whether the transaction will help Temple meet its goal. In the year ended June 30, Temple University Hospital received nearly $200 million in supplemental Medicaid payments.

Temple University Health System is scheduled Thursday to hold a quarterly conference call with municipal bond analysts, but they, too, will not get the information, the health system’s acting chief executive, Stuart McLean, said Wednesday.

“The approach that we’re taking now is that we will deal those details through the ratings agencies,” McLean said.

Jefferson does not hold regular publicly accessible conference calls with credit analysts, but the rating agencies are watching Jefferson’s expansion closely. Standard & Poor’s downgraded Jefferson’s credit rating by one notch in June, to A from A+, citing rapid growth that has put pressure on its operating profit margins and reduced the ratios used to measure how much cash its operations generate to pay off debt.

For Jefferson, the Temple transactions bring the string of Jefferson deals under chief executive Stephen K. Klasko to 10. Jefferson reached a definitive agreement to acquire Einstein Healthcare Network in September 2018, but that deal has not closed.

In all but two cases, Jefferson has not paid for its acquisitions. Instead, one nonprofit took control of another, with the acquired organizations getting representation on Jefferson’s board. Jefferson paid $67.7 million in June 2016 to gain a controlling stake in the Rothman Orthopedic Specialty Hospital in Bensalem. Jefferson had previously owned 15 percent.

In 2017, Jefferson and Main Line Health teamed up to buy a 51 percent interest in Physicians Care Surgical Hospital in Royersford. Neither partner disclosed what they paid for the controlling stake in the 12-bed hospital.

Jefferson said in a June bond offering statement that the price for Fox Chase, Health Partners, and other Temple University Health System operations could be “significant” and would likely require it to take on more debt, further stretching Jefferson’s balance sheet.

Moody’s Investors Services in June noted that the acquisitions from Temple, if completed, “could be transformative to the enterprise because of the scale and the potential cost.”

"Any time a nonprofit shrouds its financial transactions, it runs the risk of raising people’s eyebrows, particularly when that information is going to come out eventually, assuming the transaction really does go through," said Laura Otten, executive director of the Nonprofit Center at La Salle University, which offers education, consulting, and leadership development.

Jefferson and Temple set an ambitious goal of completing the deal for Fox Chase and the Temple Bone Marrow Transplant program next spring. Hurdles for the Fox Chase sale include Orphans’ Court, which weighs in on the transfer of charitable assets.

Temple’s bone marrow transplant program is one of 170 in the nation, and was among 12 that were identified as “over-performing” and having better-than-expected results this year, according to data released this week by the Center for International Blood & Marrow Transplant Research.

No schedule has been set for the Health Partners deal. Its owners are Temple (including the former Episcopal Hospital), Jefferson (through the former Aria), and Einstein. The nonprofit also has board members who are supposed to represent community interests, but they won’t get to vote on the sale of Temple’s shares to Jefferson.

In an interview Wednesday, Temple president Dick Englert called the definitive agreement “a terrific step forward in bringing together two premier institutions."

He said Temple and Jefferson are also exploring ways to work together in education and research.

"This is going to result in even better and more improved levels of health care to North Philadelphians and Philadelphians in general,” he said.