Drexel and Tower Health reach deal to buy St. Christopher’s Hospital

St. Christopher's Hospital for Children in Philadelphia (Google maps)

St. Christopher's Hospital for Children in Philadelphia (Google maps)

Updated 6:15 p.m.

Tower Health and Drexel University have reached a deal with Philadelphia Academic Health System LLC, the owner of St. Christopher’s Children’s Hospital, to buy the North Philadelphia facility for $50 million.

The sale is subject to approval by U.S. Bankruptcy Judge Kevin Gross. That could come at a hearing set for Monday in Wilmington.

“St. Christopher’s has a healthy future ahead of it,” Allen Wilen, chief restructuring officer for Philadelphia Academic Health System, said in a statement Friday. “The eventual acquisition by highly regarded local institutions delivers financial stability, operational expertise, and long-term confidence.”

The hospital was supposed to be sold at auction Thursday as part of the company’s Chapter 11 bankruptcy. But the planned auction involving two bidders, the Tower Health/Drexel group and California-based KPC Global, evolved into marathon discussions that lasted late into Thursday night and continued into Friday morning.

St. Christopher’s is a safety-net hospital that serves many patients covered by public insurance plans. The Centers for Medicare and Medicaid Services could oppose the deal, as could KPC Global.

Philadelphia Academic Health System also owns Hahnemann University Hospital, and it announced in late June that it would close that venerable Center City health complex and sell St. Christopher’s. The company filed for Chapter 11 shortly thereafter, amid public outrage and speculation that it planned to close Hahnemann to sell off the prime real estate at Broad and Vine streets on which the hospital sits.

The real estate for both hospitals is owned by a separate corporate entity and is not part of the bankruptcy filing. Philadelphia Academic Health, headed by investment banker Joel Freedman, bought Hahnemann and St. Christopher’s from Tenet Healthcare Corp. in January 2018 for $170 million.

The bankruptcy proceedings have been contentious from the start. St. Christopher’s has always been considered the largest asset of the company, and its sale price will largely determine how much PAHS creditors will receive.

The 144-year-old St. Christopher’s, located on Erie Avenue in North Philadelphia, provides primary care to more than 30,000 pediatric patients per year and sees some 70,000 patients in its emergency room. About 86% of its patients are on Medicaid, and unlike some hospitals in the area, St. Christopher’s accepts all Medicaid plans.

Reading-based Tower Health will take the lead operationally at St. Christopher’s, according to a statement issued Friday evening. Tower has several hospitals in the Philadelphia area, though the closest one is in Chestnut Hill.

Drexel’s College of Medicine has an existing partnership with St. Christopher’s. 

“St. Christopher’s and Drexel’s College of Medicine have had a long-standing and successful academic affiliation for pediatric clinical education,” said Drexel University President John Fry. “It has served as an important training site for more than 20 years for Drexel’s third- and fourth-year medical students and their hospital-based clinical rotations in pediatrics.” 

Tower Health and Drexel will assume operations at St. Christopher’s Hospital prior to the end of the year.

The two had an existing partnership. Several months ago, Drexel’s College of Medicine and Tower announced a 20-year academic relationship along with plans to open a medical campus at Tower’s Reading Hospital. That is not slated to open until 2021. Before it ceased operations earlier this month, Hahnemann was Drexel’s primary teaching hospital.

Doctors at St. Christopher’s had repeatedly called for the hospital’s new operator to be a nonprofit. Tower Health is a nonprofit.

The sale process that began Thursday lasted so long, in part, because the price was reached through negotiations and not a bidding process, as originally planned.

St. Christopher’s other suitor, KPC Global, had earlier expressed interest in buying all the assets of Philadelphia Academic Health and reopening Hahnemann. Judge Gross evaluated that group’s proposal to reopen the hospital and deemed it too reliant on a number of contingencies to take it seriously.

Notably absent from Thursday’s auction for St. Christopher’s was a group of four Philadelphia health systems, led by Jefferson Health, that had expressed interest in bidding on the children’s hospital months ago. The bid by Jefferson and its affiliated hospitals made sense because many of them operate safety-net hospitals in the area that refer patients to St. Christopher’s for specialty care.

“After a thorough process including comprehensive due diligence, the consortium of Einstein Healthcare Network, Jefferson Health, Philadelphia College of Osteopathic Medicine (PCOM) and Temple Health determined that we would not be submitting a bid,” Jefferson said in a statement Wednesday. The consortium said it looked forward to working with whoever submitted the winning bid.

Jefferson is at the head of another consortium, also including Temple and Einstein, that bid $55 million for Hahnemann Hospital’s medical residency program. That sale is tied up in U.S. District Court in Delaware because the Centers for Medicare and Medicaid Services, which funds the doctors-in-training program, appealed Judge Gross’s decision to allow the sale.

Lawyers for CMS argue that the provider number the agency issues to a hospital, allowing it to receive funding for residency slots, cannot be transferred on its own.

Before the scheduled Thursday auction, CMS also had filed an objection to the sale of St. Christopher’s. Its lawyers contended that the order did not offer enough information to know whether the sale would constitute a proper change of ownership, and whether the government would be able to recoup certain overpayments it is owed after the transfer.

“Because no form of asset purchase agreement or sale order has been filed with the Court, the United States is unable to fully analyze any potential sale of St. Christopher’s assets,” lawyers for the Justice Department wrote in filings with U.S. Bankruptcy Court in Wilmington. 

They added that the court should deny the sale if the winning bidder did not meet CMS regulations.

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