Judge approves $55M sale of Hahnemann residency programs


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Bankruptcy judge approves sale of Hahnemann residency slots
This week a Federal judge ruled that the owner of Hahnemann University Hospital could move forward with the sale of the system’s more than 550 residency slots as part of a plan to pay off creditors. The training slots will be sold to a consortium of health systems led by Thomas Jefferson University Hospitals for $55M. Hahnemann had previously agreed to sell the positions to Reading, PA-based Tower Health before they were outbid by the Jefferson consortium, who will keep the majority of the positions—and new physician labor—in the Philadelphia area.

The judge noted the difficulty of the decision, saying it was the kind of case that would “cause a judge to lie awake at night”. The ruling is huge win for debtors, and a blow to the Federal government, which strongly opposed the sale and has seven days to appeal.

Should it stand, the case could set the precedent that residents and the positions they hold are an asset that can be negotiated for and sold. Interns and residents provide low-cost labor that is essential for 24/7 coverage in many large hospitals, and the complex system of allocating and funding of residency training slots is a funds transfer from the Federal government to health systems.

Allowing hospitals to sell those slots to the highest bidder could undermine the stability of urban hospitals, particularly those who are investor-owned, as owners look to maximize short-term profits.




Many fear Hahnemann’s story will send a message: Buying a failing hospital pays

Many fear Hahnemann’s story will send a message: Buying a failing hospital pays

Hahnemann University Hospital. (Emma Lee/WHYY)

Philadelphia Academic Health System, the company that owns Hahnemann University Hospital, is in bankruptcy proceedings, but the hospital’s real estate is not included in the filing. That has sparked outrage from the nurses union, City Council, and even presidential hopeful Bernie Sanders. They say it shows the owner had a plan all along: let the hospital fail, and sell it for its  valuable Center City location.

Indeed, California investment banker Joel Freedman, CEO of Philadelphia Academic Health System, separated out the land beneath the hospital and its adjacent, related buildings from the operating business itself, as is common in private equity purchases.

In fact, that’s how private equity is supposed to work: Big firms buy struggling companies with the promise of financial support, and to improve their operations and business strategy. When things go right, the business succeeds, and the private equity firm sells it in a public offering or to another bidder for more than it paid.

In other cases though, the process is not so successful. Private equity firms often load companies up with debt, take dividends out for themselves, sell off valuable real estate, and charge monitoring fees and interest on their loans, leaving a company in a much weaker position than it would have been otherwise, and often on the verge of bankruptcy.

“The house never loses,” said Eileen Applebaum, co-director at the Center for Economic and Policy Research. “The private equity firm makes money whether the company succeeds or it doesn’t.”

Freedman formed Philadelphia Academic Health System to run the hospital. His California private equity firm is called Paladin Healthcare, and he has previously bought and managed hospitals in California and Washington, D.C. At the end of June, Freedman announced that Hahnemann, the 496-bed hospital at the corner of Broad and Vine streets, would close. In early July, Philadelphia Academic Health filed a Chapter 11 bankruptcy petition.

Applebaum, who has taught economics at Temple University and is a native Philadelphian, said that if Paladin Healthcare had really wanted to save the hospital, there are a few things it should have tried.

The most obvious, she said, would have been to diversify its payer mix. One of the reasons Hahnemann failed financially is because two-thirds of its patients were on Medicaid or Medicare — publicly funded insurance plans that reimburse hospitals for care at lower rates than private insurance does. Applebaum said it’s common for hospitals in areas with high rates of patients on public insurance to buy up smaller hospitals in the suburbs, or in other areas that attract more patients on private insurance.

“You see Thomas Jefferson University outpatient-care centers everywhere, you see smaller suburban hospitals that are part of the Thomas Jefferson system,” she said. “Yes, you want to serve the less well-off communities, but you have to balance that with other communities. Everybody knows this, this is not a mystery.”

Because this strategy is common, the fact that Freedman didn’t try it makes Applebaum dubious that he really wanted to save Hahnemann.

“It does not really appear that they made a good-faith effort to turn this hospital around,” she said.

Freedman declined to comment for this story, but he has said in previous statements that he tried to sell the hospital to a nonprofit, and that he asked the city and state for money to keep it open.

The imbalanced payer mix is not as much of an issue at St. Christopher’s, the 188-bed children’s hospital in North Philadelphia that is also run by Philadelphia Academic Health System. It reported a $58 million pretax profit last year and is not closing.

That’s because almost all kids in the United States have insurance through Medicaid or CHIP, a federal program. Even though those reimbursement rates are also lower than private insurance would pay, children’s hospitals are more accustomed to that, and they adjust their operations accordingly.

“Pediatric hospitals, particularly those who serve a low-income population like St. Christopher’s, have learned how to operate on a Medicaid budget, so to speak, and have found ways to be more efficient and work within that coverage in a way that a lot of hospitals that primarily serve adult patients maybe haven’t had to,” said Lisa Bielamowicz, co-founder of Gist Healthcare, a D.C.-based health care consulting firm.

Last week, a judge in U.S.  Bankruptcy Court in Wilmington gave the green light for hospital systems to bid on St. Christopher’s. A consortium of four health care systems has already expressed interest.

“There’s also an element of wanting to preserve the competitive dynamic and capacity for that care in the market by preserving St. Christopher’s, so that Philadelphia doesn’t become a one-horse town for specialty children’s care,” said Bielamowicz.

Losing St. Chris would leave only Children’s Hospital of Philadelphia for inpatient pediatric care. In 2018, two-thirds of the revenue at St. Christopher’s was from Medicaid. It was half that amount at CHOP.

Bielamowicz added that it would be in the best interest of the local systems to take on St. Chris, so vulnerable children didn’t end up in those hospitals’ regular emergency rooms, many of which are at capacity, without the proper resources to care for them.

St. Christopher’s will be auctioned off to the highest bidder, and the bankruptcy judge is expected to approve the sale in September. The hospital’s Erie Avenue site also was not included in the bankruptcy filing.

Hahnemann Hospital’s property — owned by Broad Street Healthcare, the holding company set up by Freedman — totals about 1 million square feet and, according to city records, has a market value of $58 million.

Brad Molotsky, a partner with the law firm Duane Morris who formerly worked as general counsel for Brandywine Realty Trust, said the downtown neighborhood shows promise for developers, but only ones with deep pockets.

“If you rebuilt a million square feet at 500 bucks a square foot, that’s a big ticket,” he said.

Applebaum, of the Center for Economic and Policy Research, said she is worried that a separate sale of the Hahnemann property to a developer will lay a road map for private equity firms around the country: Buy older hospital in areas that are gentrifying, separate the hospital from its real estate, let the hospitals go downhill, and then sell the real estate to the developers.

“It won’t matter that they lose money in the bankruptcy on the hospital, because they’re going to make so much money on the real estate,” she said.

Another Democratic presidential candidate, U.S. Sen. Elizabeth Warren, has released a plan that would force private equity firms and funds to share the responsibility for the debt the companies they buy take on in the financial restructuring process. As it stands now, neither Paladin Healthcare, the parent company, or MidCap Financial, which loaned purchase and operating funds to Philadelphia Academic Health System, are on the hook for any of its debt.

“It’s like you bought your neighbor’s house, you got a big mortgage when you bought your neighbor’s house, but it’s your neighbor who has to pay back the mortgage,” said Applebaum.

“So that’s a sweet deal if you can get it.”




4 health systems team up to save Philadelphia hospital


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Four healthcare organizations based in Philadelphia have created a consortium to collectively negotiate with American Academic Health System for the potential purchase of St. Christopher’s Hospital for Children in Philadelphia.

St. Christopher’s, along with Philadelphia-based Hahnemann University Hospital, was included in a June 30 Chapter 11 bankruptcy case filed by Philadelphia Academic Health System, a subsidiary of AAHS.

The four consortium institutions — Einstein Healthcare Network, Jefferson Health, Philadelphia College of Osteopathic Medicine and Temple Health — said July 17 they plan to submit a letter of intent to AAHS for the purpose of keeping St. Christopher’s open.

“In a time of difficult transition for healthcare in Philadelphia, four healthcare organizations stepping up to do what’s right by St. Christopher’s patients is truly emblematic of neighbors helping neighbors,” said Achintya Moulick, MD, CMO at St. Christopher’s as well as its chairman of cardiothoracic surgery. “This will ensure continuity of care and service to the children of the community it serves, especially the underserved population.”

The four healthcare organizations formed the consortium as AAHS continues to wind down services at Hahnemann University Hospital. Under a closure timeline released July 16, Hahnemann will shut down Sept. 6.


Wayne State tab for physician group bankruptcy may top $16 million


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.

Wayne State is, in essence, acting as a bank, providing exit financing to UPG for general unsecured creditor claims (it’s excluding claims by Wayne State and an affiliated nonprofit Fund for Medical Research and Education).

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.

Closing clinics

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.

Henry Ford, DMC ties

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.”