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Suburban hospital sales expected to hurt school districts financially

Expected property tax loss from for-profit hospital sales to the nonprofit Reading Health System worries school-district officials in Chester and Montgomery Counties.

Pottstown Memorial Medical Center is the biggest property tax payer in Pottstown. Its sale to Reading Health System, a nonprofit eligible for property-tax exemption, could be a hard financial hit to hit the Pottstown School District.
Pottstown Memorial Medical Center is the biggest property tax payer in Pottstown. Its sale to Reading Health System, a nonprofit eligible for property-tax exemption, could be a hard financial hit to hit the Pottstown School District.Read moreHarold Brubaker

The pending sale of Pottstown Memorial Medical Center presents a troubling prospect to school district officials in the Montgomery County borough.

The hospital, now owned by the for-profit Community Health Systems Inc., is the school district's largest real estate taxpayer, by far. The assessment of the main hospital is $20.26 million, about twice the value of the next-biggest property, a shopping mall.

Pottstown Memorial's property tax bill for the school district, including two smaller properties, was $923,998, public records show. That amounts to 3.2 percent of the $28.65 million the school district budgeted from real estate taxes for the 2016-17 school years.

The buyer of Pottstown Memorial — and four other community hospitals in Southeastern Pennsylvania — is Reading Health System, a not-for-profit organization likely eligible for local property tax exemption.

"We are certainly concerned with the potential loss of the revenue," said John Armato, director of community relations for the Pottstown district. The revenue equals the cost of about a dozen teachers, he said. "I'm not being an alarmist. I'm just saying that we need to hear more about what their plan is moving forward."

Reading Health has provided virtually no details on the transaction, which also includes Brandywine, Chestnut Hill, Jennersville, and Phoenixville.

A key component of the deal, announced May 30, is Reading Health's joint venture with Pittsburgh-based UPMC to sell health insurance in Reading's service area. UPMC's commercial health insurance operations are housed in for-profit entities.

Like Pottstown Memorial, Phoenixville Hospital, assessed at $32.26 million, is the largest taxpayer in its school district, Phoenixville Area School District.

Brandywine, assessed at $21.25 million for the Coatesville Area School District, and Jennersville, assessed at $19 million for the Avon Grove School District, are the second- or third-biggest taxpayers in their school districts, which are home to continuing-care retirement communities that take the top spots.

In Philadelphia, Chestnut Hill Hospital's $35 million assessment does not rank in the top 10.

Reading Health officials declined to discuss the conversion of the hospitals, which Community Health acquired between 2001 and 2005, back to not-for-profit status. Such hospital conversions are unusual. Community Health had a deal to sell Memorial Hospital of Salem County to the nonprofit Prime Healthcare Foundation for $15 million, but Prime walked away last month. It commonly goes the other way, as was the case when the for-profit Prime Healthcare Services bought Lower Bucks Hospital in Bristol Township.

The benefit to the school district is not always immediately evident, as is the case in Delaware County, where Prospect Medical Holdings is challenging the assessments of properties previously owned by Crozer-Keystone Health System, according to a March bond offering statement from the Chester-Upland School District. For-profit Prospect bought Crozer last summer in a deal valued at $300 million.

About the best thing school-district officials affected by the Reading deal could say about the expected change from taxable to tax-exempt status for the hospitals was that it will not happen immediately.

"Thankfully, it's not happening in the budget year that we are building now. We'll have some time to react to it," said Daniel Carsley, business manager for Avon Grove. The lost revenue for Avon Grove is expected to top $500,000 if the deal goes through and Reading receives the tax exemption for Jennersville, Carsley said.

Alan Fegley, superintendent of the Phoenixville Area School District, took heart in Reading Health's reputation for being community minded. "We're hopeful that we'll be able to build a strong working relationship with them," said Fegley, suggesting that Reading Health could provide some services to the school district as he heard it does in Berks County.

The Phoenixville school district could lose $940,702 for the main hospital property, or 1.6 percent of total revenue from property taxes, according to public records.

The Reading Eagle reported in September that the Wyomissing School District, where Reading Hospital is located, agreed to renew a four-year services agreement from 2012 that called for the health system to provide $408,500 in health services annually to the school district.

Asked for details, a Reading Health spokeswoman said: "We are not in a position to disclose the agreement."

The Wyomissing school district did not respond to a request for more information.