Before his dream of expanding Tower Health went bust, then-chief executive Clint Matthews was offered a compensation deal that included base pay of about $1.15 million and a bonus of $331,500 for the mergers he was about to engineer. He rejected it as “a bit light.”
The Tower board came back with a new offer. In the end, it agreed to increase his base pay by $100,000 ― and to bump the bonus by $73,500.
Tower’s revenue soared, too, once Matthews put his expansion plans into effect, before it all went south. During the three years ending June 30, his newly acquired network of five regional hospitals lost $426 million — causing Tower to bleed cash and jeopardizing the financial health of Reading Hospital, the anchor of the chain.
Documents in a Montgomery County court case decided last week explore Matthews’s ambitious acquisitions and his relentless push for high compensation ― a drive that a struggling school system in the area served by his network, Pottstown School District, claimed undercut Tower’s very claim to be a nonprofit.
The school district tried and failed to win a Common Pleas Court ruling to force Tower to pay $924,000 in yearly property taxes. But along the way, its failed lawsuit unearthed new information about Matthews’ leadership style and his generous pay packages.
The school district’s lawyers quote a Tower board member as saying that Matthews, 68, the chief executive of nonprofit Tower since 2012, was annoyed by “the suggestion that the best way to optimize his income was getting great results and maxing out bonus opportunities.” The lawyers also quote Matthews himself as saying he was unconcerned about the “optics” of his pay.
By 2018, his compensation had hit $2.3 million, up $700,000 in just two years. Tower cut it back somewhat as the system’s financial troubles grew.
Matthews could not be reached for comment. Tower did not respond to a request from The Inquirer for help contacting him.
Tower refused to say Wednesday what severance, if any, Matthews had been given. Nor would it disclose how much it is paying his successor, P. Sue Perrotty. It suggested that the public could learn that information once it filed required nonprofit disclosures with the federal government. That may not happen until 2023.
As for the judge’s decision, Tower said that it welcomed the determination that “compensation for executive leadership was consistent with the market” and that “Pottstown Hospital unequivocally serves a public charitable purpose and should be exempt from real estate taxes.”
When Matthews was gearing up for the hospital acquisitions, his simultaneous complaints about his pay did not sit well with Meg Mueller, a banker and Tower board member.
Mueller found it troubling that Matthews compared himself to executives at larger, successful systems even though Tower had yet to purchase the other hospitals, much less successfully integrated them, a court filing said.
Mueller’s reservations turned out to be prescient.
The purchase four years ago of Brandywine, Jennersville, and Phoenixville Hospitals in Chester County, Pottstown Hospital in Montgomery County, and Chestnut Hill Hospital in Philadelphia for more than $400 million began what was supposed to be a dramatic expansion into the Philadelphia region.
The plan was to compete with juggernauts Penn Medicine, Jefferson Health, and Main Line Health, drawing patients from the Philadelphia area away from the city’s academic medical centers to Reading for highly specialized care, an idea that many experts found implausible — and one that never broke through in the marketplace.
As losses mounted and Tower struggled to halt a downward financial spiral, Matthews retired abruptly in February, leaving new management, mostly outside consultants, to unravel much of what he and a compliant board had done.
The fallout now includes Tower’s announcement last month that it will close Jennersville Hospital in West Grove. It’s also preparing to sell Chestnut Hill Hospital to Trinity Health Mid-Atlantic, along with more than a dozen urgent-care centers. Another acquired hospital, Brandywine, appears on the bubble as to whether it will remain open.
Even before completing the purchase of for-profit Pottstown Hospital, Tower applied for a property tax exemption on the grounds that the hospital would be part of a nonprofit enterprise. Montgomery County officials granted the tax freedom.
Pottstown School District, among the poorest in Pennsylvania, challenged Tower’s bid, alleging that the new owner did not meet requirements for the tax exemption — including amounts of charity care — under a Pennsylvania Supreme Court precedent.
The school district also questioned whether the hospital operated “free of personal profit motive,” given what the school lawyers described as excessive pay for Mathews and a cadre of top executives.
In a ruling Friday, Judge Jeffrey S. Saltz disagreed with the school district and affirmed Tower’s tax break.
As to Matthews’ pay and bonuses, Saltz wrote that the board’s compensation committee had “acted in good faith, balancing its desire to retain a valued executive, particularly in light of the competitive marketplace, with the financial interest of Tower Health and the charitable status of Tower Health and its constituent hospitals.”
Matthews’ “ultimate departure” doesn’t undermine any of that, the judge found.
The school district is considering its next move.
“It certainly doesn’t help us that they have that status,” board member John Armato said of the judge’s decision affirming the hospital’s exemption from property taxes.