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Pikesville, Md.

With a series of across-the-board layoffs and a total overhaul in leadership, the University of Pennsylvania Health System proved once again this year that its financial difficulties were anything but resolved.

The most dramatic news concerning the $1.9 billion Health System, which controls 20 percent of the city health care market, came in February, when University President Judith Rodin announced that long-time Chief Executive Officer William Kelley would be ousted from a position that he had held for more than 10 years.

In addition to his role as head of the Health System, Kelley had served as dean of the School of Medicine since 1989. In the mid-1990s, he spearheaded the creation of the University's Health System -- comprised of four wholly owned hospitals and 12 that are affiliated with Penn -- through a rapid expansion that some health care experts say ultimately led to his downfall.

Rodin's announcement came at a time when the Health System's financial woes were spiraling out of control. Over a period of two fiscal years, UPHS had lost nearly $300 million, despite predictions from Kelley that the conglomerate would soon be out of the red.

In order to slash its expenses and make up for the money that it was losing, the Health System laid off about 20 percent of its workforce in less than a year. Kelley had expressed a willingness to eliminate entire medical programs -- including the prestigious Disease Management division -- if necessary.

The same day that Kelley was fired, Rodin announced the appointment of Peter Traber, the former UPHS chief of medicine, as interim CEO and dean. Traber, 44, was later given permanent responsibilities for the Health System but remains interim head of the Medical School, pending a consultative search process required by University regulations.

Last summer, the Health System retained the services of the Florida-based Hunter Group, a health care consulting firm that specializes in helping financially troubled hospitals find ways to slash their expenses. The decision to hire the firm angered many inside the Health System, who worried that their positions would be eliminated as a result of the Hunter Group's budget-cutting measures.

Through it all, however, University administrators gave no indication that Kelley's job would be in jeopardy. In fact, they seemed to side with Kelley's assessment that the financial troubles were the same as those facing all large academic medical complexes.

Specifically, Kelley had long pointed to decreased Medicare payments from the federal government and delayed reimbursements from private insurers as the reasons for the financial instability.

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