Hunting for a Healthcare Partner
Fox Chase Cancer Center
Situation: A Cancer Center Takes a Turn for the Worse
Based in Philadelphia, Pa., the Fox Chase Cancer Center (FCCC) enjoys an excellent reputation for both research and care. FCCC is a National Cancer Institute designated Comprehensive Cancer Center, one of only 41 such institutions in the United States recognized as “leaders in the development of more effective approaches to prevention, diagnosis and treatment of cancer.”
Thanks greatly to its reputation, the 100-bed FCCC had a 100 percent patient self-referral rate, significant philanthropic support and fiscal year 2007 revenues of approximately $300 million, with more than $75 million coming from government grants and outside philanthropy. However, when the recession hit in 2008, FCCC faced considerable financial challenges. Charitable contributions fell, and the National Cancer Institute warned it might need to reduce its grant funding. The prospect of that loss of support led many key surgeons to leave FCCC, while cash on hand dropped so low the organization defaulted on its credit agreements. Without a waiver of those defaults, FCCC could not obtain going concern audits, which would have hampered its ability to attract the charitable support upon which it depended.
With so uncertain a financial picture, FCCC’s creditors demanded a financial and operational restructuring. FTI Consulting was engaged to improve performance in all areas of FCCC’s operations.
FTI Consulting’s Role: Improving Margins, Exceeding Expectations
Beginning in May 2009 and working alongside FCCC CEO and President Dr. Michael Seiden and his executive team, FTI assessed, designed, and implemented a Management Action Plan and began to execute an operational improvement turnaround. FTI Consulting filled in key management roles, including chief strategic implementation officer (CSIO), to ensure that the improvements were installed according to plan.
Although FCCC’s Board expressed a strong desire for the healthcare provider to remain independent, it agreed to have the FTI Consulting CSIO assist with restructuring the organization and help FCCC’s Board assess its strategic options for long-term viability — including affiliating with other healthcare organizations.
“The professionals at FTI Consulting brought a fresh perspective, rigor and discipline to improving our operations and financial health. They were focused and professional and brought a wealth of talent in both operational improvement and strategic positioning with key external stakeholders.”
Michael Seiden, M.D., PH.D., CEO and President, Fox Chase Cancer Center
In its CSIO role, FTI Consulting improved FCCC’s cash position and negotiated with its lenders to give FCCC time to propose a comprehensive solution. FTI Consulting led negotiations with a variety of possible partners, affiliates and acquirers while advising the Board on the potential benefits and risks of proposed strategic alternatives, including remaining independent.
Outcome: Teaming Up with Temple for Joint Success
The engagement surpassed expectations. Initially, FTI Consulting had projected $20 million in EBITDA improvements over 18 months. In fact, FTI Consulting’s implementation teams enabled FCCC to achieve $30 million in sustainable EBITDA improvements within just 14 months.
Despite this impressive turnaround, FCCC’s creditors still doubted the organization’s ability to repay its financial obligations. Ultimately, the Board decided to merge with Temple University Health System (TUHS). FTI Consulting, managing the due diligence process and working with FCCC counsel, finalized the merger and negotiated a settlement with FCCC’s creditors. The TUHS merger was completed in mid-2012, with TUHS agreeing to buy FCCC for $83.8 million, invest $30.9 million into expanding the cancer center and pay off $126.5 million of FCCC’s long-term debt.
Today, FCCC has a bright future as an integral part of the Temple University Health System. In 2014, U.S. News & World Report ranked FCCC as one of the top 20 hospitals in the country. In January 2015, Philadelphia Business Journal reported that efficiencies resulting from the merger have helped FCCC achieve profitability, with the health provider expected to turn a profit of $5.4 million for the fiscal year. With its financial house in order and the resources of TUHS behind it, FCCC is helping more patients and continuing to advance the boundaries of cancer research to help people live longer, healthier lives.