That Recent Unpleasantness: The Fall of the Allegheny Health, Education, and Research Foundation

We just posted about an article that described a case illustrating how large health care organizations' interests may conflict with physicians' values [Klasko SK, Ekarius JC. Collision course: the privatization of graduate medical education at one university. Acad Med 2007; 82: 238-244 here] This article also spoke to another issue of interest to Health Care Renewal readers.

The article set the stage for the dispute between the managers of Tenet Healthcare and leaders of the Drexel University College of Medicine by explaining the history of how Drexel University acquired a medical school, thus:

Founded in 1850, the Female Medical College of Pennsylvania was the first American medical school devoted exclusively to the training of female physicians. Later renamed the Woman’s Medical College, the school operated in several hospitals in Philadelphia and moved to its final location in the East Falls section of the city in 1930. Facing financial difficulties, the school voted in 1969 to admit men and to raise the class size to accommodate their presence. As a result of this decision, the name was changed to the Medical College of Pennsylvania (MCP) Medical School and MCP Hospital (MCPH).

In 1987, MCP was acquired by the Allegheny Health, Education, and Research Foundation (Allegheny), a Pittsburgh-based hospital and physician practice organization that was pursuing an aggressive statewide growth strategy. In 1993, Allegheny acquired Philadelphia’s Hahnemann University Hospital, along with its affiliated medical school, nursing school, and school of public health. The two medical schools were merged into MCP–Hahnemann Medical School and made part of the Allegheny University of the Health Sciences in 1995.

By 1998, Allegheny had acquired 14 hospitals and over 300 Philadelphia-area primary care physician practices, along with nearly $1.3 billion in debt and losses of more than $1 million per day. Under the burden of this debt, Allegheny filed for bankruptcy. That year, Tenet Healthcare Corporation bought Allegheny’s Philadelphia assets from bankruptcy. Tenet acquired MCP and Hahnemann hospitals along with six others, all of Allegheny’s physician practices, and the Allegheny University of the Health Sciences. During the bankruptcy proceedings, civic leaders and state officials intervened to find an organization to take responsibility for the educational resources and personnel affected by the sale. Drexel University, a Philadelphia-based Carnegie Foundation–ranked research university, stepped forward to protect the educational programs and nearly 10,000 jobs of the hospitals and health sciences schools.

Admittedly, the focus of the article was on what happened when Tenet decided to close MCP Hospital in 2003.

On the other hand, simply describing what happened to the Allegheny Health, Education, and Research Foundation (AHERF) as a "bankruptcy" seems like describing the US civil war as "the recent unpleasantness," a phrase that used to be heard in polite company in the south of the US.
The long and tortuous story of the rise and fall of AHERF has never appeared in detail in one place in the public domain. I summarized some aspects here (starting on page 5). Certain points must be made:

• AHERF, one of the largest health care systems of its day, was built by the poster-boy for health care imperial CEOs, Sherif Abdelhak
• Abdelhak, who started as food services purchasing manager at Allegeheny General Hospital, was repeatedly hailed as a "visionary" (in the March, 1997, ACP Observer) a "genius," and the like. His plans to create a huge integrated health care system were part of the wave of the future. Abdelhak was even invited to give the prestigious John D Cooper lecture at the annual meeting of the American Association of Medical Colleges (AAMC), which was published in Academic Medicine [Abdelhak SS. How one academic health center is successfully facing the future. Acad Med 1996; 71: 329-336.] He proclaimed that "we will need to create new forms of organization that are more flexible, more adaptive, and more agile than ever before." And he announced that "my aim as chief executive has been to unleash the creativity and productive potential of every individual and to provide an environment that encourages teamwork"
• While Abdelhak was making these grandiose promises, he paid himself and his associates very well. For example, Abdelhak was paid $1.2 million in the mid-1990s, more than three times the average then for a hospital system CEO. He lived in a hospital supplied mansion worth almost $900,000 in 1989. Five of AHERF's top executives were in the top 10 best paid hospital executives in Philadelphia.
• Although Abdelhak talked of teamwork, he warned the combined faculty of the new Allegheny University of the Health Sciences (AUHS): "Don’t cross me or you will live to regret it."
• As AHERF was hemorrhaging money, Abdelhak continued to pay himself and his cronies lavishly.
• After the AHERF bankruptcy, which was at the time the second largest bankruptcy recorded in the US, Abdelhak was charged with numerous felonies involving receiving charitable assets. In a plea bargain, he pleaded no contest to misusing charitable funds, a misdemeanor, and was sentenced to more than 11 months in county prison.

The story of AHERF is not merely that of an unlucky bankruptcy. It shows what can go wrong when health care adopts business practices such as jumping the latest management band-wagons and genuflecting before imperial CEOs.

Parts of the story appeared in a contemporaneous multi-part series in the Pittsburgh Post-Gazette (here). Considerable detail with emphasis on the debt and the bankruptcy, appear in one article written before Abdelhak's guilty plea [Burns LR, Cacciamani J, Clement J, Aquino W. The fall of the house of AHERF: the Allegheny bankruptcy. Health Aff (Millwood) 2000; 19: 7-41.] But again, I have found no single reasonably complete narrative of the case in the public domain. The case almost never has appeared in the scholarly health care and medical literature. (The first article in such a journal that mentioned Abdelhak's jail sentence was one I wrote.) And as best as I can tell, it almost never is taught in medical or public health schools.

Although George Santayana wrote "those who ignore history are bound to repeat it," it seems to be politically incorrect to discuss the history of health care mismanagement. This phenomenon has been dubbed the "anechoic effect" here on Health Care Renewal.

Until we can put an end to the anechoic effect, and freely discuss cases like the fall of AHERF, we are all bound to continue repeating this unfortunate bit of history.

It is too bad that Klasko and Ekarius did not at least allude to what lead to the AHERF bankruptcy.