Even as Tower Health works to emerge from its financial difficulties, there is skepticism about the organization’s prospects.
Tower Health’s credit rating was downgraded by Fitch Ratings citing continued financial losses. Tower Health says the company is on the path to profitability.
Fitch Ratings downgraded Tower Health’s credit rating this week, citing concerns about the Pennsylvania hospital system’s ongoing financial losses.
Fitch lowered Tower’s rating from ‘CCC+’ to ‘CCC’, indicating significant credit risk. Fitch noted that the organization does not typically provide forecasts for companies in this category.
Tower Health, in turn, says it is making progress toward profitability.
Fitch noted that Tower is making some progress, but says there is still a difficult road ahead.
“Tower’s path to demonstrated financial stability still remains challenging and additional operational improvements are required to overcome the current trend of liquidity losses,” Fitch says.
Fitch said Tower continues to suffer from an “extremely weak” cash-to-total debt ratio of 13.4% and estimates that the system has 39 days of cash on hand. To illustrate, Fitch said in a July report that the average cash balance for nonprofit hospitals was 216 days.
Fitch also noted Tower’s “notable operating losses” in fiscal 2023. Fitch noted that most of these losses were reported in the first three quarters, with some improvement in the fourth quarter.
Tower Health reported fiscal 2023 revenue of $1.9 billion. Tower reported an operating loss of $142 million in 2023, down from $212 million in 2022.
Recovery from faulty expansion
Tower is located just outside of Reading, Pennsylvania, about an hour from Philadelphia. The tower includes the flagship Reading Hospital as well as Phoenixville Hospital and Pottstown Hospital. Tower operates St. Christopher’s Hospital for Children in partnership with Drexel University. Several Philadelphia health systems donated more than $50 million in 2022 to help sustain St. Christopher’s.
Tower is working to recover from an ill-fated expansion plan several years ago. In 2017, Reading Health System, anchored by Reading Hospital, acquired five hospitals in the Philadelphia area and formed the Tower Health organization. Tower paid $423 million for the hospitals, but the move proved financially disastrous.
Since then, Tower has taken steps to shrink the system and stabilize the ship. Tower sold Chestnut Hill Hospital to Temple University Health System.
Tower Health also closed two hospitals at the end of 2021, Brandywine Hospital and Jennersville Hospital. Delaware-based ChristianaCare bought the closed Jennersville Hospital last year. In July 2023, Tower Health signed a letter of intent to sell Brandywine Hospital to Penn Medicine.
Penn Medicine, the Philadelphia-based system, and Tower Health had been exploring a strategic alliance between the two systems, but announced in February that those plans had been abandoned.
Kevin Holloran, senior director at Fitch Ratings, said Chief Healthcare Executive® in an interview in December 2022 that the expansion had caused lasting damage.
“It was the expansion that didn’t work,” Holloran said, adding, “They expanded at exactly the wrong time.”
“We are optimistic”
In a statement sent to Chief Healthcare Executive® Tower says the company is on track to become profitable this year.
Tower noted that it ended the fiscal year with its best four-month period in years and positive cash flow in the fourth quarter.
“As noted in the Fitch report, Tower Health ended fiscal 2023 with its strongest performance in years, stabilizing our operations and delivering positive cash results in the final quarter,” Tower Health said in the statement.
“This turnaround is a testament to the unwavering commitment and hard work of our entire team. We are optimistic about maintaining this upward momentum, particularly as our performance improvement initiatives gain momentum.”
Tower notes that the system has been right-sized, focusing on a core service area in Berks County as well as parts of Chester and Montgomery counties in the Philadelphia suburbs, as well as St. Christopher’s Hospital for Children.
“Importantly, our clinical care and support teams have remained true to our mission of providing high-quality care to the communities we serve,” Tower said in a statement. “Reading Hospital, Phoenixville Hospital and Pottstown Hospital each received awards for clinical quality and safety.”