Thomas Jefferson University is in exclusive talks with Temple University to buy Fox Chase Cancer Center, the two nonprofit Philadelphia institutions said Thursday.
The deal would add to a string of acquisitions under Jefferson chief executive Stephen K. Klasko that have shuffled the region’s health-care landscape and expanded the scope of the Center City institution from three hospitals to 18, including the pending deal for Einstein Healthcare Network. Jefferson also acquired Philadelphia University.
For Temple, a sale of the 100-bed Fox Chase system with 2,036 employees could help bolster its weak financial position and improve its ability to provide crucial health-care services in a high-poverty area of the city.
It’s too soon to say what an acquisition of Fox Chase, which is in the Burholme section of Northeast Philadelphia and is in an elite group of 41 comprehensive cancer centers, as designated by the National Cancer Institute, would mean for cancer patients in the region, but one expert said the purchase could make sense for Jefferson.
“It could raise Jefferson’s position in cancer treatment to another level," said Dan Grauman, CEO of Veralon, a Philadelphia health-care consulting firm. Jefferson has the Sidney Kimmel Cancer Center, but it sits one notch below Fox Chase in the government’s cancer-treatment hierarchy.
The deal is far from done. Jefferson and Temple have entered into a 90-day negotiating period. They will also negotiate the possible sale of Temple’s interest in Health Partners Plan, a Philadelphia nonprofit that manages Medicaid and Medicare benefits in Southeastern Pennsylvania.
The arrangement with Jefferson came six months after Temple University announced that it would hire a restructuring officer and consider selling Fox Chase and Jeanes Hospital as part of a plan to shore up Temple University Health System’s operations in North Philadelphia, where Temple University Hospital serves as the de facto safety-net hospital.
“This agreement represents the next step in finding a partner that can enhance Fox Chase’s future growth, while also strengthening the health system’s ability to serve its core mission of providing outstanding clinical care to its North Philadelphia community and beyond, and maintaining its unique research and educational mission,” Temple officials said in a statement.
Daniel J. Hilferty, chief executive of Independence Health Group, which owns the largest health insurer in the Philadelphia region, said the sale of Fox Chase would strengthen Temple’s health system. “It gives them capital to focus on delivering quality services to the Medical Assistance population, the Medicare population, and the communities that they serve so well. That’s a positive for the consumer," he said.
As to Fox Chase, “they are terrific clinicians. They do a wonderful job, but we have great relationships with Penn Medicine, value-based relationships for cancer treatment," Hilferty said. “It remains to be seen what [the sale] will mean for Fox Chase and the future of Fox Chase, but from our perspective, that’s the beauty of this region, that there are so many high-quality cancer-treatment entities.”
Jefferson officials declined to comment beyond a statement in which Klasko said that partnering with Fox Chase “could improve lives for patients throughout Philadelphia and far beyond.”
Fox Chase has 100 beds in its American Oncologic Hospital and employed 2,036 last year.
Temple bought Fox Chase in 2012 for $84 million as part of an effort under chief executive Larry Kaiser to make the system more financially sustainable by expanding to more complex services. Kaiser had significant successes in returning Fox Chase to profitability and developing a leading organ-transplant program, but the financial drag of its North Philadelphia location was too much to overcome.
Supplemental funding from the state to compensate for Medicaid shortfalls increased to $155.8 million in fiscal 2018 from $138.3 million in fiscal 2016, according to a November report from the bond-ratings agency Fitch Ratings.
Kaiser said on a Dec. 12 conference call with bond investors that the purpose of the sale from Temple University’s perspective was to raise money for the health system, which had more than $500 million in long-term debt at the end of June and struggles to make a profit because so many of its patients have government-sponsored insurance that doesn’t cover all expenses.
Nearly 47 percent of Temple University Hospital’s business in the quarter ended June 30 came from Medicaid. By contrast, less than 10 percent of Fox Chase’s business was from Medicaid. The impact showed up in financial results. Temple University Hospital lost $11.5 million in the quarter, while Fox Chase had a $2.2 million profit.
Kaiser also said on the call that Fox Chase leadership wanted a new patient tower. “We were unable to come up with capital to build it,” he said.
Stuart H. Fine, a professor of health services administration and policy at Temple’s College of Public Health, said the possibility that Jefferson could take control of Health Partners, a manager of Medicaid and Medicare benefits in the region, was more intriguing than the potential Fox Chase deal. Health Partners' other owners are Aria, already part of Jefferson, and Einstein, which agreed last March to become part of Jefferson.
“There are tremendous opportunities for Jefferson to creatively gain market position in the region’s health insurance space,” Fine said, "lessening Jefferson’s dependence upon Independence Blue Cross while also better positioning Jefferson to compete with the health insurance products of UPMC, Geisinger, and others who are nibbling at the fringes of the Philadelphia market. "
“In the long term, this could prove to be a much more important transaction than Jefferson’s acquisition of Fox Chase,” he said.
Hilferty, of Independence, said it doesn’t matter to his company who owns Health Partners. “We will continue to be a lead competitor in the marketplace.”