Auction for St. Chris children’s hospital morphs into a battle for Philly health-care market

Sep. 16--St. Christopher's Hospital for Children, a vital health-care outpost for North Philadelphia's poor, is turning into a battleground as the region's health-care titans prepare to fight each other for the ownership of one of Philadelphia's two children's hospitals.

On the one side is Jefferson Health, which has expanded dramatically through acquisitions since 2015. In July, Jefferson said it was interested in buying the 188-bed St. Christopher's out of bankruptcy in a consortium with Einstein Healthcare Network, Philadelphia College of Osteopathic Medicine, and Temple University Health System.

Jefferson is expected to be challenged by Tower Health from West Reading, which expanded into Southeastern Pennsylvania in 2017 with the purchase of Chestnut Hill Hospital and four suburban facilities. Tower is expected to make a joint bid with Drexel University, as the Berks County nonprofit looks to raise its profile in Philadelphia.

In a move that sharply increases the stakes in the fight for market share, the Philadelphia area's largest health-care network by revenue, and the region's largest health-insurance provider have entered the fray, sources said last week. The University of Pennsylvania Health System and Independence Health Group are said to be backing Tower Health's anticipated bid. Earlier, Penn joined Tower in its losing bid for Hahnemann University Hospital's doctor-training programs.

The auction, triggered by the Hahnemann bankruptcy, is set for Wednesday. And the potential clash of the region's health-care giants troubles physicians at St. Christopher's.

"We're going to get caught in a big business crush between major health systems," said Grier Arthur, a pediatric surgeon who is part of a group of doctors and others advocating for the preservation of the St. Christopher's as a provider of advanced treatments.

Neither Independence nor Penn would comment.

The circling around St. Christopher's is happening as the business of health care slowly moves toward a system in which insurers pay health-care systems flat fees to provide care for a defined population, putting providers at financial risk if they don't do a good job. The idea for consumers is they would ultimately be healthier and save money.

For Jefferson, owning a children's hospital could be a key building block in such a world, enabling it to offer a full spectrum of services to families, especially if it can expand outpatient services to the suburbs. It's not clear whether St. Christopher's is a profitable operation, but it has long been considered more financially sound than Hahnemann.

Penn already works closely with Children's Hospital of Philadelphia, and a Tower win would help preserve the status quo, which has CHOP firmly at the top in pediatrics, industry observers said.

While working on a bid for St. Christopher's, Jefferson is also nearing a deal with Temple University Health System to buy Fox Chase Cancer Center and Temple's interest in Health Partners Plan. Health Partners is a Philadelphia nonprofit insurer that manages Medicaid benefits for almost 250,000 people in Southeastern Pennsylvania.

If Jefferson completes its pending acquisition of Einstein Healthcare Network, it would have complete ownership of Health Partners, further blurring the lines between health-care providers and insurers and putting Jefferson in a position to compete directly with Independence, at the least, in the Medicaid and Medicare managed-care markets that Independence now leads.

Penn, for its part, appeared for a time to not see Jefferson's expansion as a threat. That may have changed.

"The stakes are getting higher and higher here for Penn and Jefferson," said Dan Grauman, CEO of Veralon, a Philadelphia health-care consulting firm.

If Tower prevails in Wednesday's auction, it is unlikely that much would change in the marketplace, benefiting Penn and CHOP, Grauman said. Tower's closest hospital to St. Christopher's is Chestnut Hill, and it doesn't have maternity services.

On the other hand, if Jefferson and its partners win, St. Christopher's could benefit from being part of a network of hospitals where many thousands of babies are born annually, some of them needing advanced care available only at a children's hospital, said Achintya Moulick, St. Christopher's chief medical officer and chair of cardiac surgery.

Moulick and other St. Christopher's physicians said last week that the Jefferson deal makes sense for other reasons, as well. The hospitals in the consortium, for example, account for nearly 60 percent of St. Christopher's inpatient transfers. Health Partners, which has 10,580 children from Southeastern Pennsylvania enrolled in its Children's Health Insurance Plan this month, accounts for more than 50 percent of St. Christopher's outpatient visits.

St. Christopher's doctors acknowledge that it's unlikely that any potential winner of Wednesday's auction would close the facility at 160 E. Erie Ave. outright. "The fear is that someone could take it over and turn it into a glorified outpatient center," said surgeon-in-chief David Zwillenberg.

Philadelphia's health centers depend heavily on the North Philadelphia hospital, said Victor Igbokidi, medical director for pediatrics at the city clinics, which send most children who need advanced, or tertiary, care, to St. Christopher's under a contract that has been in place for 30 years.

"If you have the interest of Philadelphia's children at heart you must support that St. Christopher's remains a tertiary care center," Igbokidi said.

CHOP, which does not have a contract with Health Partners, takes some children from the clinics, Igbokidi said, but it's a more complicated process.

That auction that will decide St. Christopher's future is scheduled to start Wednesday at 10 a.m in Saul Ewing's offices in Center City. Initials bids must be submitted by 4 p.m. Monday to qualify for the auction.

"We are cautiously optimistic that we will receive more than one qualified bid on Monday," said J. Scott Victor, the investment banker who will run the auction. He declined to comment on anticipated bidders.

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