Tower Health, the financially troubled health system that owns six hospitals in the Philadelphia area, announced Monday that it had replaced its chief executive with a board member on an interim basis.
In a move that was unsurprising to health-care leaders in the Philadelphia region, the board replaced Clint Matthews, who led Tower through a dramatic expansion since 2017 in a bid to compete with Philadelphia’s academic medical centers such as Penn Medicine and Jefferson Health. Matthews’ successor is P. Sue Perrotty, 67, a retired bank executive who joined the nonprofit’s board in 2019.
After a massive operating loss of $438 million in the year ended June 30, 2020, and continued losses in the current fiscal year, Tower hired a national consulting firm to help improve its management. The system also engaged an investment bank to consider the sale of hospitals, including the five community hospitals that it bought in 2017 for $423 million.
The five hospitals — in Chestnut Hill, Phoenixville, Pottstown, Coatesville, and Jennersville — have generated more than $400 million in operating losses since Tower acquired them.
In late 2019, Tower also contributed $29 million toward the $58 million purchase of St. Christopher’s Hospital for Children in a 50-50 joint venture with Drexel University. That deal did not include the pediatric hospital’s real estate, so the partnership is also on the hook for a long-term lease of St. Chris, which a real estate firm bought for $65 million.
The departure of Matthews, 67, comes just a month after Tower’s chief financial officer left the organization, replaced on an interim basis by a team of outside consultants.
Tower’s chair, Tom Work, said last fall during a conference call with investors that the board was determined to protect Tower’s anchor, Reading Hospital, in West Reading.
The expansion into the Philadelphia market was designed to take advantage of what Work described as “the clinical excellence” developed at Reading Hospital under Matthews’s leadership since 2010.
Work, a lawyer at Stevens & Lee, which is Tower’s law firm, acknowledged to investors “some aspects of that [expansion] simply have not worked out.”
Tower is in a difficult spot because even if it can sell any of the hospitals outside of Berks County, they are unlikely to bring in enough money to put a dent in the organization’s $1.5 billion in long-term debt and leases, financial experts have said.
That’s why investors who control a majority of Tower’s bond debt have put the organization under heightened scrutiny, demanding monthly financial updates, in addition to the usually quarterly filings, among other cautionary measures.