Tower Health cuts management pay amid COVID-19 losses
The pay cuts come as Towers seeks to recover from steep financial losses caused in part by its expansion and the impact of the coronavirus pandemic.
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Tower Health on Monday announced temporary salary cuts of 10% or 15% for 400 executives and managers. The move, effective in Feb. 19 paychecks, is expected to save the nonprofit system $11.6 million through June.
The cost-cutting move comes as Tower, anchored by Reading Hospital in West Reading, attempts to recover from a massive, $439 million operating loss in the year ended June 30, 2020.
“We have not taken this action lightly. Our board and leadership are focused on a thoughtful and deliberate process to chart the right path forward for Tower Health,” chief executive Clint Matthews wrote in an email to staff.
COVID-19 hit Tower harder than some of its competitors because it incurred costs and lost revenue from the pandemic, and did not have large numbers of coronavirus patients at many of its seven hospitals. Even before the pandemic, Tower was not on stable financial footing as it wrestled with the integration of the five community hospitals it bought from Community Health Systems Inc. in 2017 for $423 million.
Tower bought Brandywine, Chestnut Hill, Jennersville, Phoenixville, and Pottstown Hospitals.
In addition, Tower in 2018 paid $24 million for a chain of urgent-care centers, and in 2019 contributed $29 million toward the $58 million purchase of St. Christopher’s Hospital for Children in a 50-50 joint venture with Drexel University.
Tower’s predicament is evident from the size of its debt. It had $1.9 billion in revenue in 2020 and is saddled with $1.3 billion in long-term debt.
In November, Tower Health officials, citing its massive debt load and huge losses over the last two years, said they would consider selling all six Philadelphia-area hospitals that the Berks County nonprofit has acquired since 2017.
“We as a board will consider any and all strategic options,” with “a very strong preference, if not an obsession, to preserve the mother ship, Reading Hospital,” Tower’s chairman, Tom Work, told municipal bond investors on a conference call.
This week, Tower executives, from vice presidents on up, learned they will temporarily lose 15% of their base pay. Directors, senior directors, and associate vice presidents will see 10% cuts. Both reductions will be in place at least through June.
None of the executives and managers will receive bonuses this year.
Tower, which employs more than 12,000, cut 1,000 jobs in June, a move that was expected to save $76 million annually.