North Philadelphia Health System, which has been on financial life support from the state for more than 20 years, will close St. Joseph's Hospital in March, putting as many as 675 out of work.
"For us, it really was about taking a look about what was the best way to build a stable and sustainable approach" to North Philadelphia's health-care landscape, Ted Dallas, secretary of the Pennsylvania Department of Human Services, said Wednesday.
The state's special subsidy for North Philadelphia Health System ballooned to $16 million in the year ended June 30, from an average of less than $10 million in the five years ended in fiscal 2012.
Even with that help, NPHS - created in a 1990 bankruptcy deal out of St. Joseph's, at 16th Street and Girard Avenue, and Girard Medical Center, at Eighth and Girard - has kept losing money, records show.
The system had an operating loss of $1.3 million on revenue of $104 million in fiscal 2014.
NPHS will continue operating Girard Medical Center, where 400 work, as a facility for behavioral health services and drug and alcohol treatment. Those services could expand, Dallas said.
The closure of the 146-bed St. Joseph's, which had the highest percentage of revenue from Medicaid in the state in fiscal year 2014, was unrelated to the current budget impasse, Dallas said.
"These are issues that have been going on for a long time. For us, it really is about what is a good sustainable solution there," he said.
In a statement, NPHS said: "This is a very difficult decision for all involved, but we recognize that as part of the state's plan for this community, it makes more sense to consolidate onto one campus that can more effectively provide health-care services to the community."
George J. Walmsley 3d, the system's chief executive, who was paid $583,931 in 2013, declined an interview request.
NPHS is unusual in that it also pays its board chairman, Dominic Sabatini, who received $217,093.
At the end of fiscal 2014, NPHS had a heavy long-term debt load of $28.5 million, including a federally insured mortgage that was part of a 1997 bailout.
The net amount remaining on that FHA mortgage is $11 million. The system is expected to sell the St. Joseph's property, valued at $13.5 million by city officials, to pay that debt.