Tower Health writes off $370 million in losses but finances improving

Oct. 28—Tower Health posted a $370 million loss in the value of the hospitals, urgent cares and other assets that it bought in scaling up from a single hospital in Berks County into a health system in the competitive suburban Philadelphia market, according to audited financial statements for fiscal 2021 that were released Wednesday.

That means Tower and its auditors found that the assets no longer had the value it had said in previous statements. When the fair value of an asset declines below its carrying amount, the difference is written off.

The recalculation that resulted in the write off was triggered by Tower's attempts to sell all or parts of its system, the auditors said.

Not including the write off, Tower posted a $243.5 million loss for fiscal 2021, which ended June 30.

That's not as bad for the financially struggling health system as fiscal 2020, when Tower lost $415.3 million.

Analysts say that is good news for the future of Tower but there is still a ways to go. They are waiting to see Tower's results for the quarter that ended Sept. 30 and consummation of deals it announced then.

"They clearly have more work to do, and will need to stop losses further (or completely), so we left them at the current rating, but the outlook is stable now," said Kevin Holloran, a financial analyst with Fitch Ratings Ltd. "We believe they hit the inflection point and are pivoting back upwards."

Tower wrote off $292.9 million for the value of the suburban Philadelphia hospitals it acquired from Community Health Systems in 2017 for $423 million.

Those hospitals include Pottstown Hospital, Phoenixville Hospital, Brandywine Hospital, Chestnut Hill Hospital and Jennersville Hospital.

Tower announced in September it would close Jennersville and sell Chestnut Hill and urgent cares to Trinity Health Mid-Atlantic.

Tower has said the following urgent cares will be included in the transition of ownership to Trinity: Conshohocken, Plymouth Meeting, Villanova, Exton, Frazer (Malvern), Hockessin, Kennett Square, North Wales, Parkesburg (Gap), Thorndale, Doylestown, Hellertown, Lansdale, Levittown (Langhorne), Levittown (Vermillion), Newtown, Somerton (Philadelphia)/Roosevelt Boulevard, Warminster and Wynnefield (Philadelphia).

Tower also wrote off $26.7 million for Tower Health Enterprises, a limited liability company that holds joint ventures, and its urgent cares and ambulance and home care services.

A write off of $51 million was attributed to St. Christopher's Hospital for Children, which Tower bought in a joint venture with Drexel University in 2019 for $58 million.

The hospital system downplayed the write-downs and said the audited financials highlight the success of its turnaround efforts.

"Tower Health's 2021 results show our strategic turnaround plan is working and producing strong results as we achieved a $313 million operating improvement compared to the year prior," Tower said in an email statement. "Importantly, the one-time balance sheet adjustment is a non-cash event that does not impact cash on hand or our ability to meet any financial obligations. We expect to continue to see further positive impacts from our strategic actions in future quarters, as performance improvement initiatives continue to realize planned results."

Fitch recently revised its outlook for Tower to stable from negative. The bonds still retain a junk status. Holloran is sector leader for not-for-profit health care.

Tower also recently got out of the UPMC Health Plan business, Holloran noted.

It's partnership with UPMC was dissolved last year and the plan ends this year.

According to the 2021 audited statement, Tower lost $11 million on the health plan. UPMC Health Plan provided third-party and flexible spending account administration for Tower employees.

"We just revised the outlook to stable from negative based on that movement, and also to their announcements with Penn Medicine and to sell/exit certain facilities," Holloran said in an email.

Holloran said that once Tower's cost-saving moves are 100% complete, "there will still be some 'true up' of cash/debt and impact of operations, but we viewed the announcements positively as it is a step towards pruning under-performing assets."

The write-downs were not unexpected by analysts.

S&P Global Ratings noted as much when the sale of Chestnut Hill and Jennersville were announced.

"We believe management is focused on maintaining the system's core region near Reading Hospital, in Berks County, Pa.," S&P wrote in September. "In addition, it appears management is re-aligning the medical group and we expect that employees associated with Chestnut Hill and Jennersville will be part of this transaction.

"S&P Global Ratings estimates that these two hospitals continue to generate operating losses and are not viewed as long-term growth entities for the system. We estimate that they account for about 8% of the system's total revenue, excluding the medical enterprise.

"According to management, there would likely be a sizable impairment charge recorded in fiscal 2021 as part of this transaction..."

Tower Health told the Pennsylvania Department of Health in its notice to close Jennersville that the hospital in southern Chester County is losing $600,000 a month.

The notice of closure was filed Sept. 28, the same day Tower announced the sale and closure of Chestnut Hill. Details of the sale have not been disclosed.

Tower contended in the Jennersville closure letter that it had made "substantial investments in both the physical space and human resources" to the 52-bed hospital in West Grove viable but just could not make it work.

Tower's general counsel, Joanne Judge of Stevens and Lee, wrote that despite the continued efforts, Jennersville Hospital continues to sustain substantial losses and experience substantial competition in the service area. Tower has been unable to recruit new medical staff in key specialties.

Patient volumes continue to trend down and staff turnover and vacancies are excessive, according to the closure letter.

Jennersville has 52 staffed beds and 379 employees and Chestnut Hill has 148 staffed beds and 879 employees.

Tower submitted a general plan to close the facility by Jan. 1, 2022. Here are key dates:

— By Dec. 15 it will cease scheduled surgeries. Tower said hospital personnel and physicians offices will contact patients scheduled for surgery after Dec. 15 to notify them that Jennersville is closing and that they need to schedule services at another facility. Jennersville will continue to provide other ancillary services for both outpatients and inpatients until Dec. 31.

— At noon Dec. 30, Jennersville will close its emergency department. In the event that someone comes to the facility after that time the hospital has contracted to have local EMS to have an ambulance and paramedic team stationed outside of the former emergency department to assist and transfer patients through Dec. 31.

— Jennersville will cease providing inpatient services as of noon Dec. 31.

— Jennersville will accept emergency admissions through 11:50 p.m. Dec. 31. At that time EMS personnel will be directed to transport patients to other area emergency rooms. The emergency room will remain open to walk-in patients through the closing date.

— Jennersville will continue to wind down its operations after the closure. Patients will be able to obtain their medical records through Tower Health.

— Jan. 1, 2022, Jennersville will no longer accept direct or elective admission.

Closure Notice Jennersville Hospital_Redacted

Tower Health's 2021 audited financial statement

Fitch's Rating change for Tower Health released Oct. 21

Links to continuing coverage of Tower Health's financial crisis:

Pottstown Hospital to remain off tax rolls

Tower Health loses bid to have three Chester County hospitals deemed tax exempt

Tower Health to unload Jennersville and Chestnut Hill hospitals

Tower Health's transplant program to go under Penn Medicine banner

Tower Health pursuing 'strategic alliance' with Penn Medicine

Drexel University College of Medicine at Tower Health in Wyomissing ready for students

Tower Health continues to seek buyer as it reports $80M quarterly loss

Tower Health announces departure of Reading Hospital President and CEO

Why is Tower Health adding urgent care centers amid financial struggles?

Tower Health consolidating physician practices, impacting nearly 200 doctors and staff

A decade of change at Tower Health anchor, Reading Hospital

Tower Health bonds downgraded by S&P

Tower CEO to step down

Tower Health executives to take pay cuts

Tower Health might sell off hospitals in 2021; except for the 'mothership' of Reading Hospital

Rating agency says Reading Hospital is the only profitable part of Tower Health system

Agencies downgrade Tower Health to junk bond status

Tower Health fights to weather the pandemic storm