Penn will not sell Health System

After years of financial struggles and months of speculation and rumors, Penn has opted not to sell the $1.9 billion Health System. Instead of a break-up or an outright sale, the Health System -- which includes the flagship Hospital of the University of Pennsylvania, Presbyterian Medical Center, Pennsylvania Hospital and Phoenixville Hospital -- will be spun off into a new non-profit entity with its own CEO. "We are committed as a University to an integrated Health System," University President Judith Rodin said after a meeting with the Board of Trustees on Friday. "Therefore, we do not plan to sell any of the hospitals of the Health System." Citing the need to respond effectively to a rapidly changing market environment, Rodin stressed the need to have a permanently separate CEO leading the Health System. "We are going to begin the necessary work to create a separate [non-profit entity] which [will] be wholly owned by the University and [will] have the kind of flexibility in the marketplace that the current Health System does not have," Rodin said. Prior to the departure of Peter Traber last summer, the CEO of the Health System also served as the dean of the School of Medicine. Currently, Robert Martin is interim CEO of the Health System and Arthur Asbury is interim dean of the School of Medicine. Martin was supportive of Rodin's decision, emphasizing that since Traber's departure, the separation of the two head positions has been successful. "For the last nine months or so, we've had a pretty good trial period," Martin said. "We've been able to make choices and decisions in a spirit of collaboration over the past year." Last Wednesday, the special committee of medical faculty and Trustees appointed by Rodin in December held its final meeting, where the recommendation not to sell was finalized. On Friday, the committee's recommendation was delivered to the full Board of Trustees, where it was approved without a vote. "The Trustees did not vote today," Rodin said on Friday. "What they did was endorse a direction. That direction will be pursued and a vote taken at a later time." Rodin estimated that it will take between nine months and a year to complete the necessary steps to enact the committee's recommendations. "There's significant regulatory approval to do this," Rodin said, noting that the Internal Revenue Service would have to sign off on the new entity. "The vote [by the Trustees] would come when there was a separate [entity] to vote on." The Health System, which owes close to $800 million to bondholders, was at one point rumored to be on the wish-lists of such high-profile health systems as Pennsylvania-based Tenet and Nashville, Tenn.-based Vanguard. Rodin maintained that while the debt was a large concern for the University -- Moody's Investor Service lowered the University's bond rating in 1999 because of the Health System's poor performance -- she believes that the Health System is in the process of pulling itself out of debt. "Over time, as the new entity begins to earn even better margins, they'll be able to restructure their debt," Rodin said. "At that point, there will be the opportunity for the University to be freed from its obligations." While the new Health System will remain separate from the University, a "bridge" will be maintained between the School of Medicine and the new entity. The new dean of the School of Medicine will also be an executive vice president of the University and will work with the CEO in much the same way Martin and Asbury work together now. "[Because of] the way in which the academic missions are intertwined with the clinical services missions, they need to be connected," Asbury said. "We can't have a health services component that is separate from the academic missions." With regard to the nearly 70 private practices currently owned by the Health System as part of its Clinical Care Associates, Rodin said each practice will be reviewed on a case by case basis. "Those [practices] whose interests are not aligned with the University of Pennsylvania Health System have really gone by the wayside," Rodin said.