ALLEGHENY: Chapter 11 Filing To Be Followed By Sale
"[R]eeling with losses from a failed expansion," Pennsylvania's Allegheny Health, Education and Research Foundation yesterday announced it is filing for protection in bankruptcy court and "has agreed, in principle" to sell nine of its 14 facilities to for-profit Vanguard Health systems for $502 million, the Wall Street Journal reports. The announcement culminates weeks of intense negotiations with various potential bidders, state and federal officials. "Allegheny's departure would bring for the first time a for-profit hospital chain into a region dominated by nonprofits," the Philadelphia Inquirer reports. Vanguard "now has seven days to scrutinize the hospitals' books and change its offer to reflect the state of the hospitals," but once a final deal is approved by bankruptcy court, the for-profit is set to take over the hospitals "within 60 days." Vanguard CEO Charles Martin said that he expects to invest between $50 million and $100 million in the nine hospitals over the next five years. He also said while there will be "no immediate layoffs for Allegheny's 14,931 hospital employees," administrative and management staff are likely to take the first cuts in coming months (Stark, 7/21).
Allegheny's debt to various creditors -- including major bondholder MBIA, smaller bondholders, pharmaceutical and hospital equipment and service firms -- totals $1.3 billion, more than twice the $502 million offered in Vanguard's letter of intent to purchase the nine Philadelphia hospitals. Over the protests of some Allegheny board members, the system decided to shield its Pittsburgh flagship, Allegheny General Hospital, from bankruptcy, as well as its hospital in Rancocas,NJ, and four community hospitals in western Pennsylvania. Legal experts predict that "[f]rustrated creditors" will therefore likely try to squeeze money out of the Pittsburgh-area hospitals, the Inquirer reports.
What Of The Med School?
Although one of the deal's "big unanswered questions" is what will become of the system's medical and professional schools, Vanguard's Martin "said the bankruptcy will not affect students immediately." The academic year will begin as usual, and the university will retain its not-for-profit status and "will have to support itself," although Vanguard management will "work to make it break even."
Gov. Tom Ridge (R) directed the Pennsylvania Department of Health to monitor closely the quality of patient care at Allegheny facilities in coming months. State Health Secretary Donald Hoffmann said teams of department inspectors would be available to respond to any concerns and to make "unannounced inspections if there are any indicators that such steps are necessary." Hoffmann said, "Our primary concern is the safety and well-being of hospital patients." He said Allegheny CEO Sanzo has "promised complete cooperation" (PA Department of Health release, 7/20).