You owe us, Delco charity tells hospital chain's buyer

What’s happening inside the Delaware County Courthouse in Media is not exactly their fight, but nurses who work at Crozer-Chester Medical Center in Chester and at Delaware County Memorial Hospital in Drexel Hill plan to be outside on the front steps protesting Wednesday morning.

“We want to highlight workplace-violence issues,” said Randa Ruge, a union organizer with the Pennsylvania Association of Staff Nurses and Allied Professionals, which represents about 1,100 nurses and other professional and technical workers at the two hospitals.

Inside the courthouse, the battle is between the for-profit buyers and the nonprofit sellers of the Crozer-Keystone chain of hospitals.

The sellers, appearing before Orphans’ Court President Judge Chad Kenney, say that the buyers, Prospect Medical Holdings Inc. and Prospect Crozer LLC, are reneging on a deal they made, and that they still owe about $21 million, including interest, on the amount they agreed to pay to buy the hospitals last year. Hearings begin Wednesday and are expected to last for a few days.

The buyers disagree, saying the sellers willingly reduced the price and should not expect to receive any more money.

Under Pennsylvania law, when a nonprofit hospital or hospital system is sold to a for-profit company, the proceeds from the sale go to a community charitable foundation charged with some of the same charitable aims carried out by the hospitals — to uphold the health of the community.

On Jan. 8, 2016, the Crozer-Keystone Health System, a nonprofit, agreed to sell its assets, including its four Delaware County hospitals (the other two are in Ridley Park and Springfield) to Prospect Medical Holdings, backed by the private-equity firm Leonard Green & Partners L.P.

Prospect specializes in buying financially troubled hospitals.

The total price would be $300 million, with most of the money covering debt and liabilities, and the balance, $52,996,000, due the charitable organization, named the Crozer-Keystone Community Foundation. Prospect also promised to invest an additional $200 million in Crozer facilities in the first five years after it took over.

When the sale closed last July 1, Prospect paid $20 million and later paid $12.9 million more. But it still owes the balance of the almost $53 million, plus interest, to the hospital system, which would turn the money over to the foundation, said Rocco P. Imperatrice 3rd, a Newtown Square lawyer representing the health system.

“These funds are incredibly important for the programs,” Imperatrice said. The foundation focuses on improving maternal health, helping seniors age at home, working with teenagers, and supporting cancer care and research.

Imperatrice said the hospital system could have insisted on the entire $53 million at closing, but agreed to a delayed payment schedule to accommodate the new owners’ cash-flow situation as they waited to receive reimbursement from health-insurance companies for patient care.

In legal documents, Prospect said the hospital system and foundation had agreed to adjust the final price “due to anticipated payment delays,” and therefore had “no right to additional monies.”

Dan Grauman, chief executive of Veralon Partners Inc., a Philadelphia-based hospital management consulting firm, said he had never heard of this kind of dispute in decades of monitoring acquisitions. “It’s fair to say it’s rare,” he said, “because the central point of any contract is the purchase price, the funding and the timing of it.”

By the time the two sides begin their arguments Wednesday, the nurses outside the courthouse will have finished their rally. They say Prospect has also reneged on its promise to invest in the hospitals.

“They have come in what used to be a pretty good community hospital, and they have refused to invest in the hospital the way they said they would,” Ruge, the union organizer, said of Delaware County Memorial Hospital.

For example, she said, 308 nurses were employed at Delaware County Memorial when the sale closed a year ago. Now, there are 240, leaving the remaining nurses stretched thin in handling patients. She also said the staff hasn’t been properly trained to handle the changing mix of patients at the hospital, including more patients with drug-related and mental illnesses. One such patient, she said, attacked a nurse, causing a concussion.

The sale of the tax-exempt Crozer to Prospect Medical Holdings would be the Philadelphia region’s biggest transfer of a tax-exempt health system to a for-profit since the 1998 sale of eight Allegheny Health Education and Research Foundation hospitals to Tenet Healthcare for $345 million.