Two years ago, officials at Temple University Health System were concerned that there might not be enough cash on hand to fund operations for the number of days required by its bondholders.
Management secured a $15 million line of credit, just in case. The health system turned out not to need it, but the episode jolted its owner into a renewed search for long-term financial sustainability.
“Over many years the university has been looking at this, looking essentially at the sustainability of our health-care enterprise,” said Richard Englert, president of Temple University, which owns the health system. “We have to get ahead of the curve.”
The health system, anchored by Temple University Hospital, is in the unenviable position of being the de facto public hospital for a large section of the poorest large city in the country. Opened in 1892, it is a major economic anchor in a deeply impoverished area of the city that is home to more than 400,000. The entire health system employs 9,800.
“The other part of the bad luck is they are in the same city as Penn Medicine,” hospital finance expert Joshua Nemzoff said. Stiff competition from well-funded, fast-growing health systems such as the University of Pennsylvania Health System, Jefferson Health, and others makes it hard to draw patients to North Philadelphia, he said.
The persistent financial challenges have led Temple to consider selling the system’s most profitable arm — Fox Chase Cancer Center -- to raise money for the struggling parts of its operations. That would be a U-turn for the system’s CEO, Larry Kaiser, who bought it seven years ago as part of his strategy to expand into more profitable services.
The latest attempt at restructuring is a response to chronically weak financial health — caused by an extremely high percentage of patients covered by Medicaid, a poor payer compared with commercial insurance. It’s the tens of millions of dollars in supplemental state funding that has kept the system from going under.
So far, Temple University Health System has not been able to benefit from a consolidation wave sweeping across the industry that has hospital systems joining forces to gain economies of scale and diversify their patient mix. Temple has also not been able to participate fully in the accelerating shift of care away from hospitals to outpatient settings.
University president Englert and other Temple officials, including CEO Kaiser and Stuart McLean, the chief restructuring officer from consulting firm Alvarez & Marsal, are still trying to figure out what a financially stable Temple University Health System might look like. Exclusive talks with Thomas Jefferson University over the possible sale of the cancer center represent the biggest move so far.
Some outsiders, however, are taking an expansive view of the opportunity presented by a potential reshaping of Temple University Health System.