COLUMN: The saga of William Kelley

From Edward Sherwin's, "The Lower Frequencies," Fall '00 From Edward Sherwin's, "The Lower Frequencies," Fall '00William Kelley came to the University of Pennsylvania in 1989 with a mission to reform a medical center that had lost $28 million over the previous two years. His hopes were high, his visions were grand. And in the end, his failures -- whatever their cause -- were spectacular. Last week, Judith Rodin ousted Kelley as chief executive of the Penn Health System after three straight years of losses totaling about $300 million. And Kelley, mum on his plans for the future, leaves his successor with far greater difficulties than he inherited 10 1/2 years ago. The seeds of Kelley's demise lay in his greatest accomplishment -- the creation, from a single hospital, of the sprawling University of Pennsylvania Health System. The initial goal of the expansion, which began in 1993, was to save the Hospital of the University of Pennsylvania from obsolescence under President Clinton's proposed health care plan. To succeed in a managed care environment, the theory held, Penn would need to buy up hundreds of primary-care practices across the region. These practices would then feed patients to specialists at HUP, keeping Penn in business. The Clinton health care plan failed, but Penn's underlying insecurity as a health care provider in an increasingly competitive market persisted. Ultimately, Penn gobbled up three area hospitals and -- under the aegis of its Clinical Care Associates network -- hundreds of private practices. The problem, many say, is that Kelley simply overpaid in his pursuit of a full-fledged regional health system. "With the benefit of hindsight," Health Care Systems Professor Mark Pauly says, "it didn't help to acquire the hospitals or the practices." Pauly blames much of the run-up in prices on one of Penn's principal competitors at the time, the Allegheny University Health System. In a precursor to the difficulties Penn has faced, Allegheny ran up massive deficits and began laying off workers. And in 1998, under the strain of its mounting losses, Allegheny folded, selling its nine area hospitals. Allegheny's collapse not only increased scrutiny of Penn's finances -- prompting a series of downgrades in the system's bond ratings -- but marked a larger movement in the health care industry. Academic medical centers, like Allegheny and Penn, are peculiar institutions, beholden not just to their educational directives but to the bottom line. And in the face of declining Medicare payments, the "bigger is better" approach pursued by many academic medical centers ultimately led to their implosion. Penn has not been alone in these difficulties. The University of California at San Francisco and Stanford University's medical centers divorced late last year -- just two years after their much-heralded merger -- and Georgetown last week sold its hospitals after, like Penn, running deficits in the hundreds of millions of dollars. The failure of Kelley's expansion strategy could not have been easily predicted seven years ago, and it's far too easy to second-guess decisions affecting thousands of patients' lives and workers' livelihoods. Despite his unremitting hubris, it seems, the fault for Kelley -- never one known for warmth or pleasantires -- was as much in the stars as in himself. And like a Shakespearean tragic hero, he met his ultimate demise in the final act. We now sit in the denouement of the saga that was William Kelley's tenure at the University of Pennsylvania. He leaves his protZgZ, Peter Traber, with a substantial burden to bear in the accumulated deficits of the past several years. But, Pauly notes, the Health System seems to be inching up the road to recovery, and further "dramatic" cutbacks may not be necessary. History may one day vindicate Kelley's strategy of rapid expansion. The counterfactual, the question that remains unanswered, is where Penn would be right now if it had not built itself up at such a tremendous cost. "You don't know," Pauly says. "It could have been worse if we'd stayed put." Words to ponder, for sure -- but for Kelley, words that right now provide little comfort.