Drexel decision complicates Allegheny deal

A for-profit chain seeks an academic partner for Allegheny's Med School. When the giant Tenet Healthcare Corp. stepped in at the last minute with a bid for all eight Philadelphia-area hospitals owned by the bankrupt Allegheny Health System, it also announced an arrangement designed to ensure that the Allegheny University of the Health Sciences would remain open. Under the 2-week-old proposal, Drexel University would operate the 3,000-student university through a third-party corporation created expressly for that purpose while Tenet assumed the Center City university's debt and financial responsibilities. It seemed too good to be true -- and it was. Despite the opportunity to add graduate programs in areas that would have complemented its existing undergraduate programs, Drexel's Board of Trustees declined to vote on the proposal Tuesday, effectively killing the arrangement. The decision also left Tenet, the nation's second-largest for-profit hospital chain, without the academic partner it needs to complete its $345 million purchase of the eight Allegheny hospitals. And so, Santa Barbara, Calif.-based Tenet's search for a partner with the capital, know-how and desire to take over the troubled university resumes without many obvious candidates. Among the names definitely not on the list: the University of Pennsylvania Health System. "We've never been interested in [Allegheny University] and we're still not interested," said Penn Health System spokesperson Lori Doyle. Allegheny University operates four schools: the MCP-Hahnemann School of Medicine, School of Health Professions, School of Nursing and School of Public Health. The school lost $25 million last fiscal year. Tenet officials insist that they will find a partner to operate the university. The company is talking with "more than two" area institutions, Tenet spokesperson Lance Ignon said. He declined to identify the interested parties, citing the sensitive nature of the negotiations. But the three largest area health systems -- Penn, Jefferson Health System and Temple University Hospital -- all operate medical schools, making it unlikely that any of them would be interested in the university. Experts say medical schools, while generally unprofitable, add prestige and attract top-notch researchers and clinicians to their parent institutions. Jefferson has not been reported to be interested in Allegheny University. Officials at the system were not available for comment yesterday. Officials at Temple, which reportedly has been interested, also did not return a call for comment. One possible candidate has emerged: Graduate Health System, a foundation with $108 million in assets but no current hospital holdings. "We were interested in the past," said Graduate Chairperson Bernard Korman in an interview with The Philadelphia Inquirer published on Wednesday. "My sense is my board would still be interested if there's a role for us to play." Graduate officials did not return a call for comment. In initially announcing the proposed buy-out, Tenet officials said they would close the deal by October 21. But a person familiar with the negotiations said Tenet is "very likely" to push back that deadline, particularly if negotiations are progressing. "No permission is needed" from the bankruptcy court to extend the closing date, the source added. If Tenet is unable to find a new partner to manage the university, bidding for Allegheny's eight hospitals could be thrown open again. Such a development would raise the possibility that one or more of the hospitals could remain unsold -- and possibly close. Tenet is the only corporation to have bid for all eight hospitals at the initial hearing. Vanguard Health Systems Inc., a rival for-profit chain, entered a bid of $225 million for six of the hospitals. Temple University also expressed interest in one of the facilities. Several institutions have disavowed interest, including St. Joseph's University and the University of the Sciences in Philadelphia, formerly Philadelphia College of Pharmacy and Science. Tenet, with 125 hospitals in 18 states, is second in size only to Columbia/HCA Healthcare Corp. The company posted revenue of $9.9 billion and earnings of $261 million in its fiscal year 1998, which ended in June.