Dive Brief:
- Community Health Systems plans to sell its three hospitals in Pennsylvania to nonprofit health system WoodBridge Healthcare for $120 million, exiting the state altogether, the system said Tuesday.
- The deal is expected to close in the fourth quarter, pending regulatory reviews.
- During CHS’ second quarter earnings call last week, CFO Kevin Hammons said the company hoped to sell upwards of $1 billion in assets this year to help pay down its debts. This transaction is part of that divestiture plan, CHS said in a statement.
Dive Insight:
While CHS’ larger for-profit peers attempt to expand their geographic reach, CHS is taking the opposite strategic approach. The health system sold eight hospitals last year and its majority interest in another.
Yet planned sales have been bumpy this year. CHS expects to close a $160 million hospital sale in the third quarter, executives said during their most recent earnings call. However, CHS’ planned three-hospital sale to Novant Health fell apart earlier this summer following a challenge from the Federal Trade Commission.
Asset sales are “integral” to CHS’ recovery story, Jefferies analysts said in a note on the company’s second quarter earnings.
CHS has a weak portfolio compared to its peers. CHS was the only major for-profit health system to post a net loss in the second quarter, despite growing patient volumes.
Along with its weaker operating portfolio, CHS has also struggled to control expense growth, according to credit ratings agency Fitch Ratings. Fitch has labeled CHS a “substantial credit risk,” noting “default is a real possibility.” CHS is more highly leveraged than its peers as well, according to Fitch — at the end of the second quarter, CHS had $11.5 billion in long-term debt.
CHS is looking to sell hospitals to help pay down that debt.
The system’s latest deal with WoodBridge includes 186-bed Regional Hospital of Scranton, 122-bed Moses Taylor Hospital in Scranton and 369-bed Wilkes-Barre General Hospital.
WoodBridge will also take over the hospitals’ ambulatory surgery centers and emergency departments, according to the release.
The three hospitals hemorrhaged money in 2023, according to a report from the Pennsylvania Health Care Cost Containment Council. Moses Taylor reported the worst figures with a -24.1% operating margin in the 2023 fiscal year.
WoodBridge’s founder, Joshua Nemzoff, also chairs the board for StoneBridge Healthcare, which buys and turns around “deeply distressed hospitals,” according to a 2020 release from the company.
StoneBridge is backed by private equity firm Oaktree Capital Management and Medical Properties Trust — the hospital landlord embroiled in the Steward Health Care bankruptcy that’s gripped the healthcare industry this summer.
Nemzoff told the Philadelphia Inquirer on Tuesday that StoneBridge and its backers wouldn’t have their hands on the Pennsylvania hospitals, saying: “This is a WoodBridge deal.”
