The Delaware-based system announced its intent to buy Crozer last month. While ChristianaCare enjoys a strong reputation, the deal carries some risks.
Delaware’s largest health system is planning to expand into southeastern Pennsylvania, and it’s a move with promise and potential risks, analysts say.
ChristianaCare has signed a letter of intent to acquire Crozer Health and its four Philadelphia-area hospitals from Prospect Medical Holdings. ChristianaCare announced the plans last month and is now reviewing Crozer’s financial information.
Crozer Health operates its flagship Crozer-Chester Medical Center in Upland, with 499 beds. The other three hospitals include Delaware County Memorial Hospital in Drexel Hill, Springfield Hospital in Springfield, and Taylor Hospital in Ridley Park. Crozer has 4,000 employees and runs a host of outpatient facilities and physician practices.
Prospect, a for-profit system, purchased Crozer Health in 2016. If the deal comes together, ChristianaCare said it will transition Crozer Health into nonprofit status. Assuming the financial picture makes sense and regulators give their approval, ChristianaCare has said the deal could be closed in the second half of 2022.
ChristianaCare, which operates three hospitals in Delaware and Maryland, enjoys a strong reputation. ChristianaCare was recently named one of America’s 50 best hospitals by Healthgrades and regularly gets top marks in other hospital rankings.
Daniel Grauman, managing director and CEO of Veralon, a healthcare consulting company, said ChristianaCare offers “a lot of resources and a lot of capabilities” if the deal to acquire Crozer Health comes together.
“An organization like Christiana is a wonderful health system and has done great things in the state of Delaware and recently beyond that into Maryland,” Grauman told Chief Healthcare Executive.
“It’s promising that Christiana has raised their hand,” he said. “They have a lot to bring to the table.”
At the same time, Grauman said it won’t be easy. ChristianaCare is based in Wilmington, Del., only about 20 miles from Crozer Health’s hospitals and facilities in Delaware County, Pennsylvania. But Crozer Health operates in a very different market, Grauman and others noted.
ChristianaCare will be competing with several providers in the Philadelphia region. Delaware County borders the city.
Crozer also serves a large patient population relying on Medicare and Medicaid.
“Those challenges don’t go away,” said Grauman. “Christiana, if they consummate the transaction, will have to figure out what they can do better or differently.”
'It's not easy'
Crozer Health has struggled financially. Prospect recently laid off dozens of Crozer employees, including some top leaders, and has cut back on some services, according to reporting by The Philadelphia Inquirer.
Crozer Health closed the maternity ward at Delaware County Memorial and suspended inpatient services at Springfield, the Inquirer reported. Prospect installed a new CEO, Kevin M. Spiegel, at Crozer in early February, less than two weeks before the planned sale was announced.
ChristianaCare will face some tough decisions if the deal comes together, including consolidating or closing some services.
“It’s not easy,” Grauman said. “There’s a reason why Prospect came in, bought it and wants to sell it. It’s not a home run.”
Delaware County is densely populated and there is unquestionably a need for healthcare services provided by Crozer Health. “There’s demand there,” he said. “It’s just about making it work.”
Still, Grauman added, “There’s no way there’s a lot of extra profit potential.”
A recent ill-fated expansion in eastern Pennsylvania underscores the potential problems and risks for healthcare organizations in mergers and acquisitions.
In 2017, the Reading Health System acquired five hospitals in the Philadelphia region and became known as Tower Health, but the move did not pay off. Tower Health racked up heavy debt and losses. This winter, Tower Health closed two of those hospitals after saying a plan to sell to a prospective buyer, Canyon Atlantic Partners, had dissolved. Canyon says it still wants to buy the hospitals and is engaged in a legal battle with Tower Health.
ChristianaCare enjoys strong finances and can avoid a similar scenario as long as the system doesn’t need to take on too much debt to finance such a deal, Grauman said. He said the way the deal is financed will be critical. “Those details matter a great deal in any Christiana-Crozer deal,” he said.
When asked about a repeat of Tower Health’s challenges, Grauman said, “There’s some chance and risk that could happen, but it has so much to do with the strength of the leadership and whether they’re able to realistically assess and do what it takes to make it work.”
'Skilled strategic team'
Wayne Smith, president and CEO of the Delaware Healthcare Association, said he is optimistic ChristianaCare can pull off the acquisition successfully.
“ChristianaCare has a stellar reputation as a high-quality provider with a variety of service lines,” Smith said.
He said Christiana has “a highly skilled strategic team” and viewed the move as a natural progression for ChristianaCare.
“ChristianaCare is very progressive in looking at how to deliver healthcare,” Smith said.
ChristianaCare touts the strong trauma and graduate medical education programs in both organizations. Crozer has a strong primary care physician network with good locations, Grauman said. Crozer also operates a regional burn treatment unit that serves patients from across the Delaware Valley.
Janice E. Nevin, president and CEO of ChristianaCare, said in a statement last month, “We welcome this opportunity to explore a closer relationship with an organization that shares our commitment to value and service to the community.”
ChristianaCare is expected to take months examining the underlying financials and assessing that the acquisition of Crozer makes sense. There’s a chance that ultimately, ChristianaCare decides the deal isn’t feasible.
Grauman said there’s “definitely a chance it could not happen.”
“The real work is done during the highly intensive due diligence period when you look under the hood and understand everything, the finances, the operations,” Grauman said. “Often enough, the parties part ways.”
ChristianaCare doesn’t have a lengthy track record of acquiring other hospitals and merging with other providers is a complex proposition, he said. Even with the challenges ahead, Grauman said ChristianaCare can pull off the deal and make it a success.
“I think there's a good shot they can make it work,” Grauman said.
For his part, Smith thinks ChristianaCare will eventually complete the acquisition of Crozer.
“I can’t imagine Christiana would have announced plans to proceed if they didn’t have confidence it would work out,” Smith said. “Anything could happen but Christiana is a real serious, very focused organization.”
Patients will ultimately be the winners if the deal works, analysts said. “People who have looked to Crozer are going to be very pleased ChristianaCare is the new entity,” Smith said.
At the very least, ChristianaCare's plans to buy Crozer Health offers some evidence of a greater appetite for mergers in the hospital industry. Hospital mergers dropped to a 10-year low in 2021, according to a Kaufman Hall report, but analysts exepct more hospital mergers and activities this year.
Some hospitals may look for partners with expertise in areas such as telehealth or outpatient services, while some smaller, struggling hospitals and systems may need to find larger partners, analysts say.
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