Tower Health to remain independent, expects to align with Penn Medicine

Tower Health, the Berks County hospital network that has lost hundreds of millions of dollars since expanding into Southeastern Pennsylvania four years ago, announced Friday that it has decided to remain independent, aided by an alignment with Penn Medicine, the largest health system in the Philadelphia region.

Since last fall, Tower has been exploring the potential sale of individual hospitals or of the entire enterprise, an effort that was complicated by Tower’s massive $1.5 billion debt load. Buyers were not interested in assuming that debt, which Tower could shed only through bankruptcy.

Tower chose a different route, though it provided only the broad outlines of its path forward.

Tom Work, Tower’s board chairman, termed Penn a “compatible health system that shares our patient-focused values and represents an opportunity to not only stabilize, but strengthen the care we deliver.”

“Penn Medicine is one of the premier health-care systems in the country, embodying all of the key attributes we were looking for in a strategic affiliation,” he said.

Penn is not acquiring Tower, which said in a news release that its “financial turnaround has achieved positive momentum since March.” The two nonprofits provided no details on what shape the alliance will take. That will be decided over the next six months.

» READ MORE: Tower Health started 2021 with a smaller loss after a bruising 2020

It’s not clear if Penn will provide any financial support to Tower, which in 2017 acquired five community hospitals: Brandywine, Jennersville, Phoenixville, Pottstown, and Chestnut Hill. Through March, those facilities had $426 million in operating losses since Tower bought them for $423 million.

Tower is scheduled to release financial results for the fiscal year ended June 30 in the middle of August.

Penn, which this fall is to open a $1.5 billion patient pavilion in University City, already has alliances with Grand View Health in Bucks County and Virtua Health in South Jersey, where Penn is helping pay for a $35 million proton cancer therapy center on Virtua’s campus in Voorhees. Proton therapy is designed to do less collateral damage to the human body because the beam stops when it hits the cancer.

Alliance is a loose term that can mean many different things, said Dan Grauman, chief executive of Veralon, a Philadelphia health-care consulting firm. Such an arrangement “greases the skids” for patients with the most complicated conditions to be treated at Penn in Philadelphia — a marketing plus for the sending hospitals.

From Penn’s perspective, it’s important to protect the referral flow of the most complicated patients, to keep them from from drifting off, for example, to Pittsburgh’s UPMC, which now competes with Penn in Lancaster County. “It’s central to their mission,” Grauman said. “It’s all tied into an academic medical center of their stature.”

In addition to the Hospital of the University of Pennsylvania, Penn Presbyterian Medical Center, and Pennsylvania Hospital in Philadelphia, Penn also owns Chester County Hospital, Lancaster General, and Princeton Medical Center.

Penn’s ownership of Chester County Hospital in West Chester makes the fate of Jennersville and Brandywine Hospitals of particular interest. Chester County has already taken market share from those two hospitals in recent years.

» READ MORE: Tower Health’s plans were small before expanding big-time into the Philly area

Grauman and other financial experts said Tower still faces difficult decisions, including what changes to make at money-losing hospitals.

“Trying to turn around an organization that has that level of losses is going to take some very bold moves on the part of management at Tower Health,” said Joshua Nemzoff, chief executive of StoneBridge Healthcare LLC, a Bucks County firm which, in a joint venture with Lehigh Valley Health Network, made an offer to acquire Tower that was contingent on a bankruptcy filing.

Friday’s announcement by Penn and Tower did not mention St. Christopher’s Hospital for Children in North Philadelphia, which Tower acquired out of bankruptcy in 2019 in a joint venture with Drexel University. Efforts have been underway for months to form a coalition of health systems and others to keep St. Chris in business.

Tower had no comment on the St. Chris negotiations, a spokesperson said.

Tower Health is the primary medical partner for Drexel’s College of Medicine. The partners recently opened a branch campus in West Reading, near Tower’s Reading Hospital. A Tower spokesperson said the proposed alliance with Penn, which has a highly ranked medical school, would have no impact on the new medical school campus.