Tower Health's new hospitals had a $17M operating loss in fiscal '17

Reading Hospital Aerial view-03102017-0002
Reading Hospital, in West Reading, is the anchor facility for Tower Health, which recently purchased five hospitals from Community Health Systems Inc.

The five hospitals that Tower Health bought last week from Community Health Systems Inc. had a $17 million operating loss on $653 million in total revenue in the fiscal year ended June 30, 2017, according to a preliminary bond-offering statement published late Monday.

Revenue was about the same the year before, when the five hospitals — Brandywine Hospital, Chestnut Hill Hospital, Jennersville Regional Hospital, Phoenixville Hospital, and Pottstown Memorial Medical Center — had an operating loss of $1.7 million.

The bond-offering statement, which said the nonprofit tentatively wants to raise $575 million, also provided some details on Tower’s purchase of the five facilities, though it did not give the price.

Tower, based in West Reading and formerly known as Reading Health System, used a portion of a $491 million bridge loan to pay Community Health Systems. Additional money was used to repay $44.7 million in debt from a previous bond offering.

That leaves $446 million from the bridge loan. It is not clear whether Tower also used additional cash to pay Community. A spokeswoman for Tower said its agreement with Community prevented it from discussing the price.

The acquisition of the five hospitals increased Tower’s net patient revenue by 69 percent to $1.56 billion, based on combined 2017 figures. The deal is expected to double Tower’s debt to $1.16 billion, though the amount of cash it generates annually to make debt payments is expected to increase, as well.

Standard & Poor’s downgraded Tower’s credit rating by one notch Tuesday, to “A” from “A+,” citing Tower’s “weakened financial profile” following the acquisition.

One of the keys to the deal is a 50-50 joint venture with UPMC Health Plan to sell health insurance in Bucks, Chester, Montgomery, and six other Pennsylvania counties. That joint venture insures 30,000 people, Clint Matthews, Tower’s president and chief executive, said Monday.

The joint venture has set Tower on a collision course with Independence Blue Cross, which is the largest health insurer in the region and is wary of aiding a rival health plan.

Tower and Independence failed to reach a new contract before Tower completed the acquisition Friday, which means the five new hospitals will be out-of-network under Independence plans after a 30-day grace period, unless the two parties come to an agreement.

It’s a big deal for Tower because Independence accounted for $123 million in the year ended June 30, 2016 — 24 percent of Tower’s total net revenue, and significantly more than the $90 million in revenue from all other commercial insurers combined, according Tower’s bond-offering statement.