ALLEGHENY: Tenet Steps In To Buy Philly Hospitals
"In a predawn display of brinkmanship," Tenet Healthcare Corp. yesterday offered a $345 million bid for eight bankrupt Allegheny hospitals in the Philadelphia area, beating out an offer from a rival bidder. A group of Allegheny officials and creditors "urged" U.S. Bankruptcy Judge Bruce McCullough to accept the offer after Vanguard Corp. withdrew its $460 million bid Monday. The Philadelphia Inquirer reports that under the terms of the deal:
- The "money-losing" Allegheny University of the Health Sciences will be preserved "with a quick $60 million cash infusion," and the school will be managed by Drexel University.
- Tenet will "invest more than $50 million a year for several years to refurbish the hospitals."
- Tenet will "continue to provide as much uncompensated health care" -- including AIDS and HIV programs, emergency room services, maternity care, outreach to the homeless and mammograms -- "as Allegheny had performed last year."
Philadelphia Mayor Ed Rendell (D) said, "My guess is that two or three of these institutions would have closed within 30 days. From that perspective ... [w]e should all be pleased that Tenet stepped forward and put in a substantial bid." According to the Inquirer, the acquisition by for-profit Tenet will "shake up the Philadelphia health care landscape," creating the first for-profit hospitals in the region and offering "formidable competition to other systems."
The Inquirer reports that "[o]ne big potential loser is MBIA Insurance Corp. ... which insures $256 million of Allegheny's bonds" (Gerlin/Stark, 9/30). The Pittsburgh Post-Gazette reports that the "sharply reduced sale price was a huge disappointment to creditors and an ominous sign for" the remaining Allegheny Health Education and Research Foundation hospitals in Western Pennsylvania. Neal Colton, an attorney for Health America, "one of AHERF's largest creditors and the first to file a separate lawsuit against Allegheny General" Hospital in Pittsburgh challenging the Philadelphia bankruptcies, said that the remaining Allegheny facilities will be "vulnerable." Non-Allegheny hospitals in Philadelphia may also be in for a rough ride: "Within hours after the bankruptcy court proceedings, Moody's Investors Service" downgraded the bonds of three nonprofits from stable to negative, citing a projected increase in competition with the arrival of Tenet, "the nation's second-largest for-profit hospital chain" (Gaynor, 9/30).
Not Rolling Out The Red Carpet
Philadelphia community activists, 30 of whom were vocal audience members at yesterday's bankruptcy hearing, remain unconvinced that Tenet's purchase will be good for city residents. Patricia McNamara, executive director of the Consumers Education and Protective Association in Philadelphia, said, "It's a bunch of men from Pittsburgh who came into Philadelphia, bought our hospitals and mucked things up. Now, again, it's men from Pittsburgh making decisions and we don't have standing" (Snowbeck, Pittsburgh Post-Gazette, 9/30). While the coalition of activists known as Patients Not Profits have long protested that the hospitals should be sold to a nonprofit entity to maintain the community's charitable investment, Tenet spokesperson Harry Anderson argued that for-profit competition is long overdue in Philadelphia. He said, "The market incentive is to be the best at what you do, to get the most customers. Our mission is and always has been to provide the best patient care. ... Hospitals have to be more cost-effective than ever. The Allegheny system is an example of a system that can't survive because it wasn't efficient." Philadelphia health care consultant Robert Brand accused Tenet of a pattern of fraudulent behavior, despite a corporate shakeup in 1994 following numerous fraud and civil complaints. He said, "The notion that they have somehow shed the former identity and are a brand-new company is simply not true. This was systematic. That's why they pled guilty. That's why they paid half a billion in fines" (Heidorn, Philadelphia Inquirer, 9/30).
Enough Is Enough
A Philadelphia Inquirer editorial argues that in addition to "80,000 creditors" who are now "looking at just pennies on the dollar" in the wake of Tenet's discounted bid, an additional "big loser" in the deal is the Philadelphia "community that helped build these nonprofit hospitals through hefty tax exemptions, donations and volunteer work. When nonprofit hospitals valued just two years ago at $2.1 billion sell for one-sixth of that, the community's stake in those charitable assets risks being wiped out." However, the paper concludes, "For now, there's no choice but to welcome Tenet as a needed change from Allegheny's disastrous stewardship -- the best hope for repairing a legacy of reckless ambition without oversight ... and arrogant greed" (9/30).