When Sue Perrotty stepped into the role of CEO of Tower Health back in 2021, she entered a company in financial turmoil.
Tower had been reeling ever since it acquired five hospitals four years before, an expansion aimed at moving the health network into areas outside of its home in Berks County. But integrating the for-profit hospitals with its flagship, nonprofit Reading Hospital proved difficult.
That shouldn’t have come as much of a surprise, according to Kevin Holloran, senior director at Fitch Ratings, a leading provider of credit ratings, commentary and research for global capital markets.
“There’s not a great track record in the industry for that,” said Holloran, who is Fitch’s primary analyst for Tower.
The acquisitions left Tower spread thin, saddled by hospitals with small patient bases that simply weren’t making money. It was a tough situation, one that would get even more difficult in 2020.
That’s when the world was suddenly and dramatically struck by the COVID-19 pandemic.
The health crisis hit hospitals hard in several ways. Besides the challenges of figuring out how to treat patients infected with the deadly, infectious disease, there were labor shortages and a sharp decrease in the demand for medical services that generate revenue.
The result was a time of great uncertainty for Tower as it bled money year after year. There were whispers about bankruptcy, there were rumors about Reading Hospital closing its doors.
The year prior to Perrotty joining the fold — the fiscal year ending in 2020 — Tower lost over $400 million. That was the third straight year the hospital network experienced significant losses.
Sue Perrotty
Perrotty was hired to lead a turnaround effort at Tower, to helm a likely long, painful and complicated campaign aimed at restoring its financial stability.
Perrotty, a banking and finance veteran with decades of leadership experience, has overseen multibillion-dollar business operations, managed several mergers and advised businesses of all sizes in the Reading community, Philadelphia and beyond. She served on Tower Health’s board from 2019 until she was name interim CEO at Tower in February 2021.
Perrotty, a banking and finance veteran with decades of leadership experience, has overseen multibillion-dollar business operations, managed several mergers and advised businesses of all sizes in the Reading community, Philadelphia and beyond.
And based on the latest data, it appears to be working.
Perrotty, speaking last week, said Tower this spring had its first profitable quarter in five years. Tower is expected to release later this month or early in September preliminary results for the fiscal year ending June 30 that reflect that success.
“It’s a big deal,” Perrotty said. “People ask me all the time what’s going on with Tower, how’s Tower doing, because it matters to the community. We want to celebrate the great success we’ve had with our turnaround plan.”
The turnaround plan
When asked about Tower’s route to a financial turnaround, Perrotty aptly turned to a medical metaphor.
“When you’re bleeding to death, you have to tourniquet the bleed,” she said. “You have to do what you have to do.”
For Tower, that meant shedding the struggling hospitals that were pulling down the system like a iron anchor.
Jennersville Hospital in Chester County was sold by Tower to ChristianaCare in June 2022. And in August 2022 Tower announced the sale of Chestnut Hill Hospital in Philadelphia to an alliance composed of Temple Health, Redeemer Health and Philadelphia College of Osteopathic Medicine.
Brandywine Hospital in Chester County was closed in January of 2022, however efforts to sell the facility are ongoing.
Tower also shuttered several urgent care facilities and rid itself of partnerships that weren’t profitable, Perrotty said.
Those decisions, Perotty said, were tough but necessary.
“I think it’s the hardest thing I’ve ever had to do in my career,” she said.
The moves — which Holloran described as rightsizing the health system’s portfolio of assets — have left Tower as a three-hospital network. Tower operates Reading Hospital, Pottstown Hospital in Montgomery County and Phoenixville Hospital in Chester County.
Perroty said Tower has consolidated itself back into a Berks, northern Montgomery and Chester county network.
The second step that Tower took was to make its operations more efficient. That includes things like undertaking cost-cutting measures and finding ways to enhance revenues.
Perrotty said Tower took both a top-down and bottom-up approach to improving efficiencies, taking ideas from wherever they could find them that would allow the health system to work smarter, not harder.
“It was lots of little things and a few really big ones,” she said. “Everyone was all-in to get it done.”
Tower has done things like implementing a practice where any patient with an appointment coming up is given a call two days in advance to confirm they’ll be there. That has helped improve the network’s costly 10% no-show rate.
Another measure Tower has taken is to outsource some of its functions. That includes transferring about 700 employees to Ensemble Health Partners, which is taking over the daily billing and patient management.
One simple measure Tower has taken is to ask every doctor in the system to schedule one more appointment each day. While that doesn’t seem like much, Perrotty said, it would generate millions of dollars in revenue.
Dr. Charles Barbera, president and CEO of Reading Hospital, said including staff in coming up with ideas to add to the turnaround plan was a stroke of genius that has garnered real success.
“I’m an ER doctor by training, and I know that the person who knows how to fix their problem the best is the patient — they know their body better than I do,” he said. “And that’s the same for our workforce.”
Dr. Charles Barbera
Barbera said he has been impressed by some of the solutions generated by staff.
Like the radiology team realizing that with a few small tweaks they could see four people per hour instead of three, a move that has increased the hospital’s capacity to do mammograms by 30%.
Or lab couriers who realized their routes weren’t as efficient as they could be. When they adjusted them, it saved Tower about $500,000 a year.
And then there’s an employee who asked Barbera why the hospital doesn’t use two-sided printing for discharge instructions. Making that switch will save a significant amount in paper costs.
“Those are the kinds of ideas that the staff bring to us,” Barbera said. “They tell us their ideas, and they’re brilliant.”
Holloran said the moves appear to be having their desired effect, even if they’re not making an impact as quickly as Tower would have liked. He lauded the creativity and willingness to change that Tower’s leadership team has embraced.
“They left no stone unturned,” he said.
A third, major step in Tower’s turnaround is slipping out from beneath the oppressive weight of the system’s debt.
Tower is on the cusp of refinancing about $1.2 billion in bond debt, a move that will free up $142.5 million for daily operations.
Holloran said the refinancing was a necessary step for Tower, since without it the health system was in danger of running out of cash. Tower now has some immediate debt relief, he said, while continuing to have significant long-term debt.
“Their near-term cash crunch is over, their chances of bankruptcy or closing are far more diminished than a couple of years ago,” he said. “But it will take years to get their cash-to-debt ratio where it needs to be.”
The debt concerns will likely keep Tower’s financial rating below where health system officials would like it to be.
Both Fitch and Standard & Poor’s have downgraded the company to a “CCC” credit rating. Standard & Poor’s deemed Tower’s refinancing as “distressed,” while Fitch did not because it did not believe it was done to avoid bankruptcy or default.
Holloran said he doesn’t believe the poor credit rating will change anytime soon, despite his overall positive feelings about Tower’s direction.
“It’s ultimately turning into a favorable position, but not from a ratings standpoint,” he said. “That said, I’m much more optimistic about their future than I have been for many, many years.”
Continued quality care
While Perrotty expressed great pride in Tower’s financial turnaround, it was another aspect of the health service that made her really glow — the quality of care it has continued to offer.
“An important message is, I think people can confuse financial problems with clinical quality,” she said. “People ask, ‘Will it be the same great hospital?’ Well, on the clinical side, through it all, they never took their eyes off of their responsibilities.”
Perrotty was quick to point out that despite Tower’s financial distress, Reading Hospital continued to be ranked as one of the top 50 hospitals in the country
Barbera confirmed that Tower’s financial issues never really seeped their way into the clinical side of the health system.
“There was a distinct difference between the financial situation at Tower and the vibe in the hospital,” he said.
The pandemic played a part in that. Barbera said hospital staff were focused on fighting through COVID and continuing to provide care for patients.
“Finances be whatever, we have a job to do and we’re going to do it,” he said. “None of the financial pressure hit our patient care.”
Barbera said the feeling inside the hospital was never one of fear, that there were never any real beliefs that Reading Hospital was at risk of closing or being sold.
“We always saw the light at the end of the tunnel,” he said. “There have been blips before. We knew Reading Hospital is strong, our staff is strong, our mission to the community is strong.
“This may have been a bigger blip, but we knew we were going to overcome whatever we were facing.”
Part of that confidence stemmed from having Perrotty at the helm. Barbera lauded her magnetism and ability to lead people, saying her financial knowledge and skill was exactly what Tower needed to regain its financial footing.
And with that now taking place, he said, the health system can start looking toward the future.
“I think the positive energy is there and there’s momentum,” he said. “We all know this is not the time to take our foot off the pedal.”
Perrotty agreed, saying now that the immediate financial situation is stabilizing it’s time to focus on what comes next at Tower and Reading Hospital.
“Reading Hospital has been around for 150 years,” she said. “We’re just a brief moment in history, these financial problems are just a brief moment in history. The hospital will continue to evolve as health care evolves.”
Part of that evolution, Perrotty said, will likely involve finding new and innovative ways to work with other health and service providers.
“I believe partnerships will be the way of the future,” she said. “They have been a salvation for us, and I think that will continue.”
Perrotty said technology will also have a major impact on the future of health care. But, even more influential, will be people.
“You maintain quality through your people,” she said. “You stay focused on the quality of your people, you make sure they understand our mission is to provide the best quality health care to patients.”
Part of that effort, she said, is Tower’s ongoing effort to educate the next generation of health care workers. She stressed the importance of things like the Reading Hospital School of Health Sciences and Tower’s focus on residency programs.
Those are the types of efforts that will ensure that Tower Health and Reading Hospital continue their long legacy of serving the greater Berks community, she said.
“We’re returning to those roots,” she said. “We’re returning to the Reading Hospital you grew up with.”
