A Philadelphia Common Pleas judge granted part of a preliminary injunction request sought by the city to stop Hahnemann University Hospital from closing, but the Philadelphia hospital plans to continue scaling back services this week.
Judge Nina Padilla granted the injunction, which stops Hahnemann’s owners from shutting down the hospital without a closure plan authorized by the Philadelphia health commissioner. The injunction specifically prohibits Hahnemann’s owners “from closing, ceasing operations, or in any way further reducing or disrupting services” at the hospital’s emergency room until the health commissioner signs off on the closure plan, according to KYW Newsradio.
Hahnemann is diverting high-level trauma cases, but the hospital’s ER will remain open to treat patients with minor health issues, Marcel Pratt, city solicitor of Philadelphia, told KYW Newsradio.
Although the ER will remain open, Hahnemann plans to scale back other services this week. The hospital said it will stop all nonemergency surgeries and procedures, including child deliveries, on July 12, according to CBS Philly.
Philadelphia Academic Health System, which entered Chapter 11 bankruptcy June 30, plans to close Hahnemann University Hospital by Sept. 6.
Wayne State University is fronting what could potentially total more than $16 million in payments for the School of Medicine’s faculty practice, University Physician Group, to rebuild after bankruptcy.
U.S. Bankruptcy Court in Detroit last Monday approved UPG’s reorganization plan and exit from bankruptcy after the nonprofit medical practice suddenly filed for Chapter 11 bankruptcy protection in November.
After “extensive negotiations” with UPG, Wayne State agreed to provide financial assistance under a restructuring support agreement, according to a version of the reorganization plan submitted April 9.
A 15-year term loan from Wayne State will be used to pay 80 percent of unsecured claims that are currently projected at approximately $10.7 million, but could rise as court proceedings are finalized, according to a document in U.S. Bankruptcy Court in Detroit.
The Detroit university is also providing a revolving loan of at least $2.5 million that could range up to $7.5 million for UPG’s working capital needs.
A Wayne State representative declined to provide additional comment on the restructuring plan.
The November bankruptcy filing was driven by discovery earlier in that year that financial losses of the 20-year-old faculty practice plan were double the $5.5 million expected and a new, more drastic turnaround plan was required, Crain’s reported at the time. Over the past decade, UPG’s number of physicians declined by 50 percent, which hurt clinical revenue and made its leased network of suburban offices untenable, the filing said.
The court-approved reorganization strategy created with consulting firm AlixPartners will help determine the future of UPG. It is expected to carry UPG from its 2018 loss of $8.1 million to $3 million in profit by 2022, according to the release and reorganization documents.
To carry out the reorganization, the practice plan’s leadership formed six interdisciplinary teams to “transform and modernize” financial operations, its footprint, patient access, doctor compensation, business relationships and organization culture, among other things, last week’s news release said.
As part of restructuring, UPG is shrinking the amount of clinical space it operates from 260,000 square feet to 115,000 by the end of the year, Charles Shanley, M.D., University Physician Group’s president and CEO, told Crain’s on Tuesday. The practice plan downsized sites in Southfield, Dearborn and Livonia and closed its clinical practice locations in Lake Orion and Port Huron, as well as a surgical center in Troy.
“We desperately needed to consolidate and modernize the clinical footprint,” he said.
UPG is shrinking to seven sites, Shanley added. The large majority are in Midtown Detroit, with UPG opting to focus its presence less on the suburbs and more in Detroit and at WSU’s School of Medicine.
“We are on a path to be a leading urban academic practice, in a thriving city, recognized for innovative delivery of high-value care to the most complex and vulnerable members of the community,” Shanley said in the release. “Our future lies in streamlining access for the Detroit community … to high-quality and cost-effective care in collaboration with Detroit’s primary care physicians, federally qualified health centers, the Detroit Medical Center, Barbara Ann Karmanos Cancer Institute and Henry Ford Health System.”
The practice plan employs 244 physicians, with 23 more who have been hired and are in the credentialing process. A net total of five physicians have left since the bankruptcy filing.
UPG has been looking since last summer at sites around Midtown where it could create a multidisciplinary ambulatory site, allowing patients to walk a short distance to another specialist doctor instead of needing to travel to another facility.
It’s also looking at locations in Midtown where it could shift its administrative offices from Troy. That move-out is expected to finish by the end of October, marking the end of the site consolidation process.
The November filing came several weeks after UPG and the Detroit Medical Center reached a five-year contract in September for clinical and medical administrative services. The deal renewed a longtime affiliation between the for-profit hospital chain owned by Tenet Healthcare Corp. of Dallas and the Wayne State group, appearing to calm what had been a disintegrating relationship.
UPG’s financial crisis — alongside mismanagement, lack of teamwork and other issues — have shown it will likely never become the large, profitable group envisioned by former Wayne State Medical School Dean John Crissman in 1999, Crain’s previously reported.
Wayne State University’s medical school also needs to look at revenue options to replace what it would have taken in through an affiliation deal with Henry Ford Health System, according to previous Crain’s reporting. Henry Ford Health System CEO Wright Lassiter III pulled the plug in March after months of negotiations.
The bankruptcy is unrelated to WSU’s negotiations with Henry Ford Health System, Shanley told Crain’s on Tuesday.
“I think there’s general enthusiasm among the leadership of the school of medicine and the university to maintain and enhance our relationship with Henry Ford and resume conversations toward a synergistic partnership,” he said. “We’re all enthusiastic and supportive of that. It’s critical to the mission of the school of medicine and it’s good for the city of Detroit. I think it’s just a matter of reinitiating those discussions.”
The troubled operator of rural hospitals is focusing now on growth-oriented markets.
The latest round of questions and accusations adds to the tumultuous past five years.
Some analysts say CHS isn’t poised for where the market is headed: outpatient services and value-based care.
Times have been tough for Community Health Systems Chairman and CEO Wayne T. Smith, who is voicing an optimistic message this year as the hospital operator continues to navigate choppy waters.
Smith and fellow CHS senior executives told investors this month that the company expects to complete its massive and long-running divestiture plan by the end of 2019, having already shed 81 hospitals from its portfolio in the three preceding years. The company, based in Franklin, Tennessee, operated 106 hospitals across 18 states as of the end of the first quarter.
While the divestitures give CHS cash to pay down its debt, they are also part of a strategic effort to align CHS operations with the geographic areas where the company sees the greatest growth potential, Smith said.
“This has allowed the company to shift more of our resources to more sustainable markets, ones with better population growth, better economic growth, and lower unemployment, which provides us an opportunity for sustainable growth,” Smith said during the first-quarter earnings call this month.
“As we complete additional divestitures, we expect our same-store metrics to further improve,” he added. “This will lead to not only additional debt reduction but also better cash flow performance and lower leverage ratios.”
Executive Vice President and Chief Financial Officer Thomas J. Aaron echoed that message at the Goldman Sachs Leveraged Finance Conference this month. While CHS was truly a rural hospital company 15 years ago, Aaron said the post-selloff organization is investing strategically in markets where it anticipates growth.
“We’d rather compete in a growing pie than have more market share in a pie that’s shrinking,” Aaron said.
“We feel like we’re well-positioned,” he said.
But the positive forecast is a bit of a tough sell, especially when you consider how bad the past five years have been:
Despite the light-at-the-end-of-the-tunnel rhetoric coming from CHS executives, there’s still real concern the company could come undone. That’s because CHS’ problems run deeper than its balance sheets, says Mark Cherry, MFA, a principal analyst at Market Access Insights for Decision Resources Group.
“Given the national trend toward provider consolidation, CHS might not remain intact even if it were financially healthy,” Cherry tells HealthLeaders in an email, adding that CHS seems to be unsuited for the industry’s ongoing shifts toward value-based payments and outpatient care delivery.
“There are only a few markets, like Scranton, Knoxville, and Northwest Arkansas, where CHS has enough presence to act as a stand-alone health system that can influence physician and patient behaviors,” Cherry says.
The structural problem is rooted in a bad strategic bet a decade ago, Cherry says.
“As markets and regions were coalescing around large integrated delivery networks focused on value-based care, CHS continued to invest in suburban facilities and demand high fee-for-service reimbursement,” Cherry says.
“Whereas operating a couple of suburban hospitals within a larger market once gave CHS access to better insured patients and leverage against payers who wanted to offer broad provider networks, the post-ACA landscape does not have as wide a uninsured discrepancy between urban and suburban areas,” he adds, “and payers are shifting to high-performance narrow networks, allowing them to cut CHS facilities out entirely if they are unwilling to compromise.”