Allegheny saved by corporate buy-out

Tenet Healthcare Corp. bought the ailing health system for $345 million. The Associated Press PITTSBURGH -- Eight money-losing Philadelphia hospitals that landed in U.S. Bankruptcy Court will stay open, now that a California company agreed yesterday to spend $345 million to buy them and provide a financial base for their medical school. Tenet Healthcare Corp. will provide additional short-term funding to Allegheny University of the Health Sciences, and Drexel University will manage the school. The for-profit company also agreed to maintain the hospitals' community outreach programs and their recent levels of free and discounted medical care for people with little or no insurance. ''Every Tenet hospital provides a level of community benefit not unlike that of its non-profit colleagues,'' Tenet spokesperson Harry Anderson said. U.S. Bankruptcy Court Judge M. Bruce McCullough accepted the bid for the hospitals, now owned by the Pittsburgh-based Allegheny Health, Education and Research Foundation, and set the closing date as October 21. The accord by the foundation, its creditors and Tenet addressed two of the stickiest points surrounding the hospitals' sale. Those difficulties were the bidder's lack of a partner to operate the medical school and the community's fear that a for-profit buyer would end all the hospitals' community involvement, like midwives, AIDS clinics and children's shelters. ''We have restored some stability to the future management and the viability of the institutions,'' said Lee Powar, the foundation's lawyer. Two physicians' groups said they are pleased with Tenet's proposals, and a community activist said she will wait and see if the company keeps its promises. In June, the foundation ousted its president, and a month later it filed for protection from creditors under Chapter 11 of the bankruptcy code while it reorganized the medical school and sought a buyer for the eight hospitals. Its seven Pittsburgh-area facilities are not included in the filing. In July, Vanguard Health Systems Inc. of Nashville, Tenn., offered $460 million for the hospitals and appeared to be the frontrunner to buy them until Monday, when it rescinded the bid because the hospitals had lost value. In court yesterday, Tenet lawyer Michael Rosenthal said Tenet made a $1 million deposit on the purchase and that the California company has a $1 billion line of credit with Morgan Guaranty Trust of New York. Tenet will provide the university a $60 million endowment as part of the $345 million purchase price for the school and the hospitals. In addition, Tenet will provide a $30 million lump sum to the university as capital when the sale is closed October 21 and $33 million a year for at least three years. About 20 community activists from Philadelphia interrupted to plead with the judge to postpone the auction so they could find a way to keep the hospitals as non-profits. The hospitals operated as non-profits with the help of charitable donations, and a for-profit corporation will now benefit from those gifts. Patricia McNamara, executive director of the Consumers Education & Protective Association, said the activists are creditors, too, because they invested millions of dollars worth of ''sweat equity'' to support the hospitals. ''We did the bake sales to make sure these hospitals stayed afloat,'' she said. ''Bang down the gavel and say, 'Sold to America.' You have that power.'' The judge said the law did not provide for such a ruling and that the sale had to be made immediately. The foundation has been continually calculating how much longer it can afford to keep the hospitals operating. Court business halted for several minutes while Powar; Frank Mayer III, a lawyer for the city of Philadelphia; Mark Pacella, senior deputy attorney general; and Michael Rosenthal, a lawyer for Tenet, gave the activists details about Tenet's plans for community involvement. Evonne Tisdale, assistant director of the Philadelphia Unemployment Project, indicated later that the information was somewhat reassuring. ''We will be following up with the attorney general's office to make sure he does stay on top of these issues,'' Tisdale said. Several senior physicians at St. Christopher's Hospital for Children had said they intended to leave if Tenet was the buyer. By yesterday afternoon, however, Tenet had calmed their anxiety by pledging the resources they need, said Brett Schlossberg, their lawyer. Doctors at AUH Hahnemann, most of them Allegheny University faculty members as well, also are content with Tenet despite its for-profit status. About two dozen physicians have left Hahnemann and more had been poised to leave. ''I'm confident that my hospital will be restored to its previous stature and beyond,'' said Joseph Brezin, president of the Hahnemann medical staff. Anderson of Tenet said the company will decide by October 21 which of the 17,000 employees, including doctors, will be retained. ''We need time to sit down and talk to each one of them,'' Anderson said. ''We believe in a partnership with doctors.'' Asked how Tenet will make a profit, Anderson said, ''A simple answer: good management.'' Asked how it will bring patients back to the hospitals, he said the company will demonstrate the quality of its care and the solidity of its presence. ''It's going to be a long road, we know, to rebuild trust,'' Anderson said.