West Reading, Pa.-based Tower Health's new-look leadership team, organizational structure and culture have helped the health system improve its financial performance by more than $160 million year over year while a debt refinancing deal has secured a longer runway to return to profitability.
Sue Perrotty spent nearly three decades in the banking industry, including leading Wells Fargo's global operations, before stepping in as CEO of Tower in February 2021. She was tasked with leading the financial turnaround of an organization that reported a loss of more than $440 million the previous year.
"I became Tower CEO at a time when it was in a crisis of care due to the pandemic, a crisis of capital and a crisis of confidence," Ms. Perrotty told Becker's. "We were bleeding money and we weren't confident in our leadership any longer."
Tower implemented a holistic turnaround strategy focused on exceptional clinical care, operational efficiency, new leadership and partnerships across lab, pharmacy and IT.
New leaders, new culture
Tower tackled each issue individually and appointed several new leaders over the last three years, including Michael Stern, president and COO; Mike Eesley, CFO; Pamela Hernandez, senior vice president of human resources and chief people officer; Suzanne Wenderoth, MD, CMO; Bernard Boulanger, MD, CEO of the provider enterprise; and Tom Bartiromo, CIO.
"We replaced several top leadership positions and restructured various parts of the health system. Now we've got leaders in place who can take this organization forward for the next decade," Ms. Perrotty said. "We continue to focus on leadership development and human capital growth."
The difference between good companies and great companies is how they manage human capital, and Tower managed to restructure its financial capital to ensure it is equipped to execute on its strategic plan, according to Ms. Perrotty.
"It's not just about the top down; we rebuilt culture from the bottom up," she said. "We educated everyone throughout the organization about how our financials actually work and how they impact them."
One initiative that had a significant effect on Tower's culture shift and financial turnaround was a program called WIGs (wildly important goals).
"It was a department level initiative in which staff could recommend changes they believe would make their jobs easier. You could implement them in 90 days. It created a new energy within the organization," Ms. Perrotty said. "Many times at the lowest level of an organization, employees think they can't change anything. We wanted our team to help us make positive changes."
Engaging employees at all levels of the health system and seeking feedback on change is crucial for decision-makers during a financial turnaround and is a key part of Tower's new culture.
"Ask your people. They will know a heck of a lot more about what your organization may not be doing well; they just may not feel like they can actually make a difference," Ms. Perrotty said. "Many leaders think you fix things from the top down, but if you don't start from the bottom up at the same time, it takes twice as long. That's how we were able to execute our turnaround. Everybody bought in across the organization and we engaged our employees in the solutions we were working on. They could touch them, feel them and understand them."
Last year, the WIGs program resulted in more than $5 million in improvements to Tower's bottom line, according to the health system.
Another top priority for Tower is communication.
"Our employees needed to know everything we were doing," Ms. Perrotty said. "Every Friday I email a summary of the week's work to everyone in the health system. It's probably our most-read document and our people look forward to it. It's about making sure everyone is informed about everything we're doing. That creates a culture shift."
That culture shift helped Tower reduce its staff turnover rate to about 10%, down from a high of around 20% during the height of the pandemic. The system has also hired more than 2,000 new people, including 600 rehires and more than 100 physicians.
Tower's refinancing deal will nearly double its cash on hand and strengthen its liquidity so it can continue to invest in the health system and its people. Once it secures the bond settlement at the end of September, Tower will have five years of no change to its cash flow out for bond and debt servicing, stabilizing it on a go-forward basis through 2029.
Partnerships are a key component of Tower's future growth.
"Our focus is to be the best healthcare provider in the markets in which we operate and partner with the best providers that bring new technologies, knowledge and skill sets to provide world-class operations and solutions," Ms. Perrotty said.
Overcoming revenue cycle challenges
One such partnership involved Tower transitioning its revenue cycle operations to Ensemble Health Partners, which took effect July 1. About 675 Tower employees moved to Ensemble, which manages more than $32 billion in annual net patient revenue.
"Hospitals' biggest challenge in the revenue cycle is that we provide services to anyone who walks through our front door. I don't know of any other industry that has a business model in which they don't know when, if or how much they will get paid, and the customer is not the person paying," Ms. Perrotty said. "It's one of the hardest business models to try to figure out, and we're subject to a whole other industry, the insurance industry, and all of the shifts a consumer might go through throughout their lifetime."
"We are never going to be the best in class at doing that because we want to invest in our clinical infrastructure," she said. "For revenue cycle, we wanted to partner with an organization where that's all they do, and Ensemble is the best in class at that."
Tower previously went through a failed transition of its revenue cycle operations, taking a significant financial hit and forcing it to bring these operations back in house. Ms. Perrotty believes Tower has a winning partner in Ensemble, which was named the best company for end-to-end revenue cycle outsourcing in 2024 by KLAS Research, a healthcare IT data and insights company.
"If you have great people skills, you can be a great partner, and Ensemble certainly has that," Ms. Perrotty said. "That's impressive to me as a fairly young company. They are aggressive with their payers, consistently investing in new technologies and scaling in areas in which it is critical to actually win more revenue for the hospitals they serve."
Many other health systems — including Roanoke, Va.-based Carilion Clinic and Lewes, Del.-based Beebe Healthcare — are outsourcing revenue cycle operations. Ms. Perrotty is a firm believer that you don't need to own something for it to work well and offered some advice for leaders at other health systems who may be struggling to improve their margins amid ongoing financial and workforce challenges.
"You don't need to own something for it to work well. Health systems need to get away from the 'we built it, we love it' or the 'this is the way we've always done it' mindsets," Ms. Perrotty said. "Push yourselves to think beyond the way you've always operated and figure out if there's a smarter way to do it. You've also got to own your market. There should never be a person that goes anywhere else but to us to get the high-quality care that they need."
Consolidation in banking versus healthcare
While partnerships are part of Tower's strategic plan, Ms. Perrotty would not share whether any potential mergers or acquisitions are on the horizon. Hospital M&A is picking up steam across the country, particularly in Pennsylvania, but — pointing to the banking sector as an example — Ms. Perrotty maintains that bigger is not always better.
"I spent 30 years in banking, an industry that went through dramatic consolidation and change. Healthcare is at a reasonably early stage of its consolidation and may need to rethink its model," she said. "I worry about small, rural hospitals and their ability to continue to serve their communities. I think healthcare will be smart and start to leverage new technology infrastructures."
Many banking executives previously believed small, community banks would not survive, but the way that they did was by sharing infrastructure, according to Ms. Perrotty.
"[Wells Fargo] shared infrastructure that allowed their banks to piggyback into bigger banks: they could have an ATM, debit cards and many other products and services, which was all done through technology," she said. "I think that will happen in healthcare. Having been through multiple mergers in the financial sector, I am not sold that bigger is always better. Big can make it really hard to differentiate. You've got to be really skilled to make the human capital piece work as well as the financial capital in large enterprises."
While the challenges between the banking and healthcare sectors are different, investing in technology and infrastructure may be the key to survival for many smaller, community facilities that continue to face financial headwinds on multiple fronts.
"Health systems should partner to gain infrastructures, become less obsessed about owning infrastructure platforms, and focus on partnering with leaders in this space. Can they roll out innovative technologies in a broader way rather than hanging their name on the product they built?" she said. "The mission of nonprofit healthcare is to provide the highest quality care to the communities we serve. And if we can't build it, we will find a way to partner with leading solutions providers and make sure the tech platform is available to our patients and employees."