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Temple Health sees growth at Chestnut Hill Hospital, but industry headwinds result in $54 million systemwide loss

Like all health systems, Temple is struggling with a growing gap between its costs for labor and drugs and what insurers pay.

Temple University Health System and partners acquired Chestnut Hill Hospital from Tower Health on Jan 1. Temple owns 60%. Philadelphia College of Osteopathic Medicine and Redeemer Health each own 20%.
Temple University Health System and partners acquired Chestnut Hill Hospital from Tower Health on Jan 1. Temple owns 60%. Philadelphia College of Osteopathic Medicine and Redeemer Health each own 20%.Read moreHAROLD BRUBAKER / Staff

Outpatient surgeries at Chestnut Hill Hospital jumped in the first three months of this year compared to last year, according the financial results posted this week by Temple University Health System, which acquired Chestnut Hill on Jan 1.

The upswing in surgeries at Chestnut Hill comes as Temple’s overall health system faces a general decline in patient visits at a time of rising expenses and staffing shortages. Temple, which is anchored by Temple University Health System in North Philadelphia, reported an operating loss of $54 million in the nine months that ended March 31, compared to a profit of $92 million in the same period a year ago, as it fights industry headwinds.

Temple officials said it’s too soon to say much about the financial performance of Chestnut Hill. It’s in line with expectations, they said.

“We have been focusing on growth,” Nick Barcellona, Temple University Health System’s chief financial officer, told municipal bond analysts on a conference call Wednesday discussing Temple’s latest financial results.

Planned areas of expansion at Chestnut Hill include urology, behavioral health, cancer services, and gastrointestinal services.

Temple led a group that acquired the 148-bed Chestnut Hill from Tower Health for $28 million — plus up to an additional $4 million for services during a yearlong transition. Temple’s partners are Redeemer Health and the Philadelphia College of Osteopathic Medicine.

Health care’s financial headwinds

Overall, like many health systems, Temple is having trouble making ends meet financially.

Temple officials cited a 2.5% decline in emergency department visits, an 8% decline in inpatient discharges, the persistent need for high-cost contract staff to fill vacancies, higher wages overall, and jumps in drug prices as big factors in the $54 million operating loss for the nine-month period.

The staffing trend is going in the right direction, Temple Health’s chief executive Michael Young said. The number of agency staff peaked at 300 and is now down to 70, mostly in narrow specialties, Young said. The quarterly cost of agency staff peaked at nearly $17 million last spring. Temple spent $7.3 million on agency staff in the three months that ended March 31, records show.

Even so, Young said in a later interview with The Inquirer, labor costs rose $100 million in the first nine months of fiscal 2023 compared to the same period the year before. Drug costs were up $50 million, he said.

Temple reported $1.94 billion in revenue in the first nine months of fiscal 2023, about the same as a year ago.

Because of the losses this year, Young and Barcellona reduced the health system’s capital budget for buildings and equipment by $23.5 million, adjusting the budget to $46.5 million from $70 million, Barcellona said.

Barcellona is leaving Temple at the end of June to become chief financial officer at the larger West Virginia University Health System.

Progress at Chestnut Hill

Doctors performed 807 outpatient surgeries at Chestnut Hill Hospital in the first three months of this year. The most recent data available from Tower Health, from last spring and summer, show the hospital was performing then around 525 surgeries per quarter.

Young said Temple didn’t lose any doctors who either work for Chestnut Hill or practice there. “The private surgeons are still there doing the same cases they were doing before,” he said.

Temple’s flagship hospital in North Philadelphia is also benefiting from the acquisition, picking up an average of two-and-a-half patient transfers a day from Chestnut Hill. On Tuesday, three patients were transferred for advanced care.

“Prior to the merger, we would have gotten one of those,” Young told The Inquirer.