Financially ailing Tower Health, which owns six hospitals in the Philadelphia area, reported progress on its turnaround in the first three months of this year.
The Berks County-based nonprofit system reduced its operating loss for the quarter to $ 80 million, compared to a loss of $ 111 million in the last three months of 2020, according to its latest statement to bondholders.
Tower’s interim managing director Sue Perrotty, who took the position after Clint Matthews abruptly retired in February, posted a video message to staff last month that the system’s positive momentum continues as more patients enter its Return to hospitals and doctor’s offices.
“Our short-term efforts to stabilize Tower Health are ongoing and there is still hard work ahead of us, but I believe we can start shifting our focus to new and brighter horizons,” she said. She assured employees in an email last week that Tower was “not preparing for bankruptcy.”
April was Tower’s first profitable month since October 2019, executives said. They did not reveal any up-to-date details on their cash reserves, which are dwindling and worrying municipal bond investors.
Tower’s problems began long before the coronavirus pandemic drove many healthcare companies into the red as patients stayed away except for the most urgent needs. But healthier systems are also slow to recover from the effects of COVID-19.
Doylestown Health, Einstein Health Network, Jefferson Health and Main Line Health would have suffered operating losses in the nine months of fiscal 2021 had it not been for federal CARES Act grants to help hospitals through the crisis.
In contrast, the Children’s Hospital of Philadelphia, the University of Pennsylvania Health System, and the Temple University Health System would have been profitable even without the grants.
Comparable financial information for systems in New Jersey was not available.
Kaufmann Hall, a national consulting firm in Chicago, pointed to a troubled recovery in hospitals, with results in April being worse than March, based on results from over 900 hospitals.
“Overall margins remain low and month-to-month fluctuations mean continued uncertainty for hospitals as they work to recover from a deeply challenging pandemic,” said Erik Swanson, senior vice president of data and analytics at Kaufman Hall.
Long profitable and dominant in Berks County, where it owns Reading Hospital, Tower began a dramatic expansion in West Reading five years ago. That effort included the purchase of $ 423 million in 2017 from five community hospitals: Brandywine, Jennersville, Phoenixville, Pottstown, and Chestnut Hill. As of March, the group’s operating losses since it was acquired by Tower were $ 426 million, including $ 114 million in the current fiscal year.
These and other losses have put pressure on the amount of cash Tower has available to meet day-to-day expenses. In healthcare, cash is measured in absolute terms and also by how many days a company can continue to process payrolls and payments to suppliers with no new money.
Tower said the number was 112 days in cash on March 31, up from 147 days on June 30.
But that’s not the whole story. Part of this money has to be paid back. Tower told bondholders that it has counted about 25 days of Medicare cash advances – about $ 166 million – due to begin repaying in April. Without this money, the number of days would be around 87.
The number of days would be even less if other funds with conditions such as wage tax deferrals were excluded. Tower said last summer that it had deferred $ 25 million in payroll taxes through June 30, but hadn’t updated in its most recent report.
Temple University’s health care system told investors last month it had to pay back $ 28 million in wage tax deferrals. Employers were allowed to do this to save cash during the pandemic. Banning Temple’s Medicare advances would reduce his cash days from 148 to 118, the system said.
In addition to accepting federal aid, as most hospitals did, Tower has also used private funding to increase liquidity. It raised around $ 200 million from a sale-lease-back of 23 doctor’s offices and other buildings last June. Without that money, the cash value of about $ 556 million would be much less – according to Fitch Ratings analyst Kevin Holloran, who ruled out Medicare advances.
That money was of great help to Tower, but the deal effectively added to the system’s already heavy debt of $ 1.3 billion.
Tower’s problematic expansion frenzy coupled with COVID-19 forced the system to consider selling some or all of its properties last fall. Some deadlines in the process have passed without further action. Tower’s board of directors recently postponed a decision to continue on this path until mid-July.
Other large healthcare transactions are on track. Fitch said Jefferson expects to complete the Einstein acquisition around October 1. Temple is acquiring the Philadelphia assets of Cancer Treatment Centers of America in a deal that is expected to close this month.
Eventually, Jefferson is expected to purchase Temple’s half of Medicaid’s nonprofit insurer Health Partners Plans in December, Temple told investors last month. No price was disclosed.