Bankrupt Allegheny sells area hospitals

The Associated Press With debt that reached a whopping $1.3 billion, Allegheny hospital system presented a dim and murky future for its doctors, students and patients. The financially strapped system, one of the state's largest, agreed Monday to sell its nine Philadelphia-area hospitals for $502 million to the for-profit Vanguard Health Systems. The purchase price is far from covering Allegheny's debt, so the Allegheny Health, Education and Research Foundation plans to file for protection from creditors under bankruptcy law within two days. Nashville, Tenn.-based Vanguard expects to be running the facilities within two months if the deal receives regulatory approval, said Anthony Sanzo, president and chief executive officer of AHERF. Bankruptcy Court will decide how proceeds would be divided between the $605 million in bond debt and nearly $500 million in unsecured credit debt, Sanzo said. An additional $150 million in debt will be tacked on to allow the hospitals to continue operating until the sale is finalized and the system will not try to collect $200 million in debt owed to Allegheny's western operation. That money had been transferred to the eastern hospitals to keep them afloat. The sale is likely to make the region's health care market even more competitive. Allegheny's departure would bring for the first time a for-profit hospital chain into a region dominated by nonprofits. Governor Tom Ridge said he has ordered the state Department of Health to closely monitor patient care at hospitals operated by AHERF. Secretary Daniel Hoffman said his department is prepared to make unannounced inspections at any of the hospitals if necessary. The AHERF board met for six hours Monday to deal with the system's financial woes. Allegheny averaged losses of $27 million a month during the fiscal year that ended June 30. Allegheny and Vanguard officials urged employees and students not to panic. ''We're strongly committed to Allegheny's three main missions: research, education and patient care,'' said Vanguard Chairperson Charles Martin. The company plans no immediate layoffs but Martin said he expects some eventually. ''Most will be in the administrative job structure, not jobs in the hospitals,'' Martin said. The system employs nearly 15,000 people in Philadelphia. Martin also promised Vanguard would spend $50 million to $100 million on the hospitals over the next three to five years. The sale does not include Allegheny University of the Health Sciences, which runs the university's medical school. It will remain an independent, nonprofit organization. Medical students and those in Allegheny's three other professional schools will start the year as usual and will be unaffected by the bankruptcy, officials said. Vanguard is expected to seek to renegotiate and buy the contracts of some of the 310 physicians in Allegheny's network. Doctors who sold their practices to Allegheny may find their salaries reduced as the bankruptcy proceeds, Sanzo said. Last month, Vanguard backed out of a reported $300 million deal to buy six Philadelphia-area hospitals from Allegheny's health system. The companies could not figure out how to operate the hospitals under a dual system, Martin said. That problem was solved with the sale of all nine hospitals, he said. Consumer activists and unionized health care workers said Monday night that they were surprised and dismayed by the bankruptcy filing and the sale to a for-profit company. Lauren Townsend of the Coalition for Patients Not Profits said the sale would harm the quality of the system's medical treatment. She also questioned whether Allegheny and Vanguard were trying to avoid scrutiny by state officials with the bankruptcy action. ''We insist on a proper evaluation? by the state, and we also insist on public hearings,'' Townsend said. ''Such a conversion will only aggravate the precarious condition of quality health care and thousands of jobs for people in Philadelphia.'' City and state leaders supported the sale. ''My message is that this is good news,'' said Philadelphia Mayor Edward Rendell. Ridge called Vanguard's proposal ''a very real, tangible, serious offer.'' He noted that other offers could top Vanguard's when the matter reaches Bankruptcy Court. Henry Nicholas, president of District 1199C of the National Union of Hospital and Health Care Employees, said he wasn't sure how the sale would affect the 2,500 Allegheny employees he represents. ''The events of the day give rise to a lot of questions that are not answered,'' he said. ''Since no one at Allegheny seems to know what they are doing, it's hard to say whether [jobs] are in jeopardy.'' Briefings were set for this morning for health care union workers. The nine hospitals to be sold include Philadelphia's Allegheny Hahnemann, Allegheny MCP, St. Christopher's Hospital for Children, Allegheny Graduate, Allegheny City Avenue and Allegheny Parkview and its hospitals in Warminster, Elkins Park and Willingboro, N.J. Under the current plan, Allegheny University Hospital/Rancocas in New Jersey would not go under bankruptcy filing. Officials said Rancocas is worth more than its $41 million debt. The bankruptcy strategy could become contentious. Frustrated creditors are likely to try to get money out of the Pittsburgh-area hospitals. Allegheny officials said their system owes $497 million to firms that provide pharmaceuticals, hospital equipment, food, supplies and other services. Add to that $605 million in bond debt. About $371 million of the bond debt is guaranteed by MBIA, the nation's largest bond insurer, and those bondholders will be paid. But $200 million of the bond debt is not insured, and whatever return the bondholders receive will be determined by Bankruptcy Court. Holders of the uninsured bonds will be forced to compete with vendors and others for their share of the money generated by the sale.