Allegheny collapse may boost U.

Local health systems may stand to gain from the recent bankruptcy. The recent collapse of one of the area's biggest health systems could provide a financial windfall for the highly competitive Philadelphia market's other two major players, the Penn Health System and the Jefferson Health System. The Allegheny Health, Education and Research Foundation of Pittsburgh sought U.S. Bankruptcy Court protection July 21 for its Philadelphia-area facilities, which include eight hospitals, a physician-practice group and the system's University of the Health Sciences. Allegheny incurred $1.3 billion in debt over a decade of expansion, and officials are now exploring a variety of options for getting the system back on its feet. Two for-profit hospital companies have already bid on the eight hospitals. Although most health systems -- including Penn's -- are losing money, Allegheny's collapse "is a unique thing," said Penn Health Care Systems Professor Sean Nicholson. "You don't see lots of hospitals going bankrupt, and certainly not an entire regional system," he said. David Shulkin, the Penn system's chief medical officer, added that the system is "watching and waiting." He said the University does not plan to bid on Allegheny's holdings. Allegheny's collapse will likely strengthen the other area health-care systems, Shulkin said. The Penn Health System is already "busier than ever," he said. In addition to a general increase in the system's business throughout the past year, the activity at the system's four owned hospitals has increased at an even greater rate in the last 2 1/2 months. "It's a guess that [the increase and the Allegheny collapse are] related, but it certainly correlates," he said. Two for-profit companies -- Nashville, Tenn.-based start-up Vanguard Health Systems and Tenet Healthcare Corp. of Santa Barbara, Calif. -- have already submitted separate bids for the eight hospitals. Last month, Allegheny chose Vanguard's bid of $460 million as a benchmark for future offers. Tenet then submitted a bid of $465 million. After a September 29 auction, a Bankruptcy Court judge will decide, based on the recommendation of Allegheny and its committee of creditors, who gets to buy the hospitals. The Jefferson Health System is considering a bid, though spokesperson Phyllis Fisher refused to elaborate. Temple University also may submit a bid, according to a recent Philadelphia Inquirer article. Temple officials could not be reached for comment. Allegheny's downfall came about primarily from trying to expand the system faster than they were able to manage it, Nicholson said. Their inability to successfully integrate all their acquired physicians and practices into the system was also a factor, Shulkin said. Many health systems, including Penn, have been buying physician practices to increase their sources of income, as other sources of payments decrease. "They aggressively went after physicians and probably paid more for them than they should have," Nicholson said. Allegheny spokesperson Tom Chakurda would only say that it "experienced pressures that every provider is facing" and is now attempting to solve the problems. "The whole aspect of practice acquisition was quite an expensive proposition for anyone and everyone that became involved," he said. In addition, Nicholson said, "it appears they intentionally cooked the books, or made serious accounting errors" which hid bigger problems. Last week, Allegheny officials admitted their 1997 financial statements were inaccurate. On Tuesday, Philadelphia officials went to court seeking seeking an audit of Allegheny to see if it misused funds. Nicholson added that the Allegheny collapse has caused anxiety among physicians. In addition, the possibility of a for-profit company moving in has proved controversial. Philadelphia Mayor Ed Rendell and a consumer-group coalition are calling for Allegheny's facilities to retain their non-profit status to protect its charitable assets and the quality of patient care. Nicholson said, however, that "few, if any, studies show that [for-profit companies] are less likely to care for the poor or cut services that are unprofitable." The fate of the University of the Health Sciences, made up of the MCP-Hahnemann School of Medicine and three other professional schools, remains unclear. Both Tenet and Vanguard would financially support the university to help it become an independent non-profit institution.