St. Christopher’s Children’s Hospital sale can go forward, bankruptcy judge rules

St. Christopher's Hospital for Children (Emma Lee/WHYY)

St. Christopher's Hospital for Children (Emma Lee/WHYY)

U.S. Bankruptcy Judge Kevin Gross approved the $50 million sale of St. Christopher’s Children’s Hospital Monday to a new entity that is calling itself STC Opco. The group is a partnership between Reading-based Tower Health and Drexel University.

The hospital’s owner, Philadelphia Academic Health System, filed for Chapter 11 bankruptcy in June after it announced the closure of Hahnemann University Hospital, which it also owned. The children’s hospital was profitable, while Hahnemann was losing money. So the bankruptcy plan was always to keep St. Christopher’s open and sell it to make a dent in the debt owed to the company’s creditors.

Fifty million dollars is a significant start, said Mark Minuti, an attorney representing Philadelphia Academic Health.

“This is a terrific result,” he told the judge.

Based on the terms of the sale, Tower Health and Drexel will offer employment to the full workforce of St. Christopher’s, subject to certain conditions. Tower will operate the hospital. The new owners will recognize and assume the collective-bargaining agreement with IBEW Local 98 that was already in place and assume the responsibility for training all the medical residents and fellows at St. Christopher’s. The new owners also would be responsible for purchasing the tail insurance for all the doctors.

The outside date for closing the sale is Dec. 13.

Initially, the sale was scheduled to be conducted last week by auction — a bidding war between California-based KPC Global and the Drexel-Tower group. Though roughly 20 representatives of the Drexel-Tower team showed up for the auction, nobody from KPC did.

The days that had been scheduled for the auction were instead spent — at times contentiously, according to testimony from Philadelphia Academic Health System’s chief restructuring officer, Allen Wilen — negotiating a purchase agreement between STC Opco and PAHS. KPC requested that the auction be delayed, but according to Wilen’s testimony, he feared that STC Opco would back out of its bid if the process were delayed any longer.

Plus, Wilen testified, there was no indication that KPC Global would bid higher than STC Opco, and various interested parties, including the Philadelphia health commissioner, had laid out a preference for a local, nonprofit entity to take over the hospital. Tower and Drexel are each nonprofit organizations, and the newly formed STC Opco plans to file for tax-exempt status.

Wilen also testified that Tower and Drexel’s familiarity with the Philadelphia health care landscape would allow them to get faster regulatory approval than an outside operator.

Rough patches smoothed over

Numerous objections to the sale of St. Christopher’s were filed in bankruptcy court, but most of them were resolved without much fanfare.

The Centers for Medicare and Medicaid Services, which is appealing the sale of Hahnemann’s residency programs in U.S. District Court, expressed concern that STC Opco would not assume the successor liability that came along with the sale, but the buyers adjusted the language in the sale order to assuage those concerns.

The Pennsylvania Association of Staff Nurses and Associated Professionals, the union that represents the nurses at St. Christopher’s, was concerned that the new owners would not be required to assume the contracts that had existed between PAHS and the union. The sale order stipulates that the new owner will recognize PASNAP as the bargaining agent for the nurses at St. Chris, but not automatically assume their contracts.

One outstanding concern came from Temple University’s medical school, which shares residents with St. Christopher’s — some work there permanently, some are on rotation from other hospitals. Lawyers for Temple said they are worried because even though the purchase agreement says the new buyers will be responsible for training the residents and fellows at the hospital, they do not promise to extend the academic-affiliation agreements that St.Christopher’s currently holds with various teaching hospitals.

“Temple has of its own volition accepted the Debtors’ residents on an emergency basis in an attempt to serve the medical and community at large,” Temple wrote in its objection. “Now, its efforts are about to be rewarded by the rejection of the [academic-affiliation agreements] and potential consequences to its own accreditation.”

The judge ordered the parties to negotiate the terms of those agreements in good faith, and assuming they come to a suitable conclusion, said he would sign a revised sale order in the coming days.

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