10 Years Later, An Eerie Echo of the Fall of AHERF

This week, as reported by Steve Twedt in the Pittsburgh Post-Gazette, accounting irregularities were found at the West Penn Allegheny Health System,

An independent review of West Penn Allegheny Health System finances has found that it overstated payments from vendors and patients by $73 million over the past two years, a move that is expected to result in substantial operating losses.

'This is significant,' said analyst Jeff Schaub of Fitch Ratings in New York, who spoke to WPAHS officials yesterday.

WPAHS President and Chief Executive Officer Dr. Christopher Olivia sent a system-wide e-mail yesterday morning assuring staff that the reductions 'have no direct implications on the System's pension plan' and that WPAHS has 'now adopted an industry 'best practice' accounting methodology to help ensure a mistake of this nature does not reoccur.'

Mr. Schaub said hospitals have to estimate revenues for patient services because payments generally don't match hospital charges, but in this case West Penn Allegheny used a flawed methodology to make those estimates.

While it's not unusual for those estimates to be off somewhat, a $73 million adjustment 'is not a trivial amount,' he said, particularly for a system that has relied on investment earnings to stay in the black.

Yesterday's announcement carries uneasy echoes of the 1998 financial meltdown of Allegheny General Hospital's former parent, Allegheny Health and Education Research Foundation, which aggressively expanded into the Philadelphia market only to end up in bankruptcy. Two years later, AGH merged with West Penn Hospital to create the West Penn Allegheny Health System.

In fact, last week, Moody's Investor Service issued a report on the 10 year anniversary of the fall of the house of AHERF (the Allegheny Health Education and Research Foundation). Per an article again by Steve Twedt in the Pittsburgh Post-Gazette, who also wrote a significant series in the same newspaper summarizing the collapse of AHERF,

From the distance of 10 years, the historic bankruptcy of Allegheny General Hospital's then-parent organization still offers valuable lessons for today's health-care industry, says a new report by Moody's Investor Service.

'AHERF left such a stain, such an indelible mark on hospital management teams, they realized that if one of the big systems can fail, no one is immune,' said Lisa Goldstein, leader of the Moody's health-care team that produced the report.

On July 21, 1998, Allegheny Health and Education Research Foundation (AHERF) defaulted, resulting in what is still the largest bankruptcy ever among the 560 Moody's-rated not-for-profit health-care entities. At the time, AHERF had $2 billion in revenue and $555 million in outstanding debt, according to the Moody's report.

Analyst Lisa Martin, who wrote the report, says industrywide forces converged with 'the organization's own management and governance failures' to cause the foundation's failure.

The external forces included Medicare reimbursement cuts -- still an issue a decade later -- and highly competitive markets in both Pittsburgh and Philadelphia.

But, she added, 'we believe its ultimate downfall was driven more by decisions of the organization itself -- weak governance, poorly executed strategies, lack of refined leadership, and absence of methodical execution.'

Although the AHERF bankruptcy appears to be the largest failure of a not-for-profit health care corporation in US history, its story has produced remarkably few echoes for doctors, other health care professionals, health care researchers, and health policy makers. I often use the fall of AHERF as major example in talks, at least the few talks I am allowed to give on such unpleasant subjects. Rarely have more than a few people in the audience heard of AHERF prior to my discussion of it. I only could locate one article in a medical or health care journal that discussed the case in detail, albeit incompletely since it was written before Abdelhak's guilty plea [Burns LR, Cacciamani J, Clement J, Aquino W. The fall of the house of AHERF: the Allegheny bankruptcy. Health Aff (Millwood) 2000; 19: 7-41.] I doubt the case is used for teaching in most medical or public health schools. The lack of discussion of such a significant case is a prime example of the anechoic effect.

Therefore, let me summarize some of important points not found above (see also this narrative, starting on page 5):

• AHERF, one of the largest health care systems of its day, was built by the poster-boy for health care imperial CEOs, Sherif Abdelhak.
• Abdelhak, who started as food services purchasing manager at Allegeheny General Hospital, was repeatedly hailed as a "visionary" (in the March, 1997, ACP Observer) a "genius," and the like. His plans to create a huge integrated health care system were part of the wave of the future. Abdelhak was even invited to give the prestigious John D Cooper lecture at the annual meeting of the American Association of Medical Colleges (AAMC), which was published in Academic Medicine [Abdelhak SS. How one academic health center is successfully facing the future. Acad Med 1996; 71: 329-336.] He proclaimed that "we will need to create new forms of organization that are more flexible, more adaptive, and more agile than ever before." And he announced that "my aim as chief executive has been to unleash the creativity and productive potential of every individual and to provide an environment that encourages teamwork"
• While Abdelhak was making these grandiose promises, he paid himself and his associates very well. For example, he received $1.2 million in the mid-1990s, more than three times the average then for a hospital system CEO. He lived in a hospital supplied mansion worth almost $900,000 in 1989. Five of AHERF's top executives were in the top 10 best paid hospital executives in Philadelphia.
• Although Abdelhak talked of teamwork, he warned the combined faculty of the new Allegheny University of the Health Sciences (AUHS): "Don’t cross me or you will live to regret it."
• As AHERF was hemorrhaging money, Abdelhak continued to pay himself and his cronies lavishly.
• After the AHERF bankruptcy, which was at the time the second largest bankruptcy recorded in the US, Abdelhak was charged with numerous felonies involving receiving charitable assets. In a plea bargain, he pleaded no contest to misusing charitable funds, a misdemeanor, and was sentenced to more than 11 months in county prison.
  

The story of AHERF is not merely that of an unlucky bankruptcy. It shows what can go wrong when health care adopts business practices such as jumping the latest management band-wagons and genuflecting before imperial CEOs.

Yet since the fall of AHERF, we are still hearing breathless stories about the latest wonderful plans to save health care (think about, for example, electronic medical records, pay for performance schemes, etc), and the brilliant CEOs (think about, for example, William McGuire, the former CEO of UnitedHealth) who will be our saviors.

We health care professionals need to stop falling for this hype and spin. Saving health care will take clear thinking and hard work by a lot of people. The "visionaries," if we let them, are likely to depart with a huge cache of money, leaving us and health care worse off. If it is just "not done" to talk about cases such as that of AHERF, and other examples of "recent unpleasantness," how will be learn not to fall for the propaganda?

Of course, it is those who benefit from the propaganda who do not want us catching on to their game.

If physicians, health professionals, health care researchers, and health policy makers do not learn the lessons of the fall of AHERF, they will be doomed to see its repetitions. What just happened to West Penn Allegheny Health Systems is only a small example of all the things that can go wrong.

Post Title → 10 Years Later, An Eerie Echo of the Fall of AHERF

"Bling Bling," Poltical Correctness, and the Anechoic Effect

In today's post-modern academic world, everyone is afraid of saying anything that might be the least bit offensive. (See the web-site of the Foundation for Individual Rights in Education, or FIRE, for some amazing examples.)

It seems that that even the most skeptical and iconoclastic health care bloggers may also be fearful of being too politically incorrect.

In this post on the Carlat Psychiatry Blog, David Carlat nick-named Dr Charles Nemeroff "Bling Bling" for the extent of his relationships with the pharmaceutical industry. Carlat soon had to retreat, after being taken to task by one of the editors of his own Carlat Psychiatry Report for being "too personal," apologizing, "I was trying to be humorous, but I'll admit these [writings] come across as mean."

Today, this post on the Clinical Psychology and Psychiatry Blog showed that "Bling Bling" was not an exaggeration. (Nemeroff has also come in for criticism on Health Care Renewal, here, here and here.) But even then, the anonymous Clinical Psychology and Psychiatry blogger worried, "how is a blogger to be entertaining, stick to the facts, and bring important information to readers without crossing the line into being offensive? I don't know."

Yet, in health care, in my humble opinion, the problem is not too many bullying bloggers calling people offensive names. The problem, instead, is a general fear of saying something even the least bit negative about the powers that be, even when the powers that be have done awful things.

Carlat's quick retraction of what amounted to mild sarcasm, and the Clinical Psychology and Psychiatry bloggers fear of being "offensive" are the latest demonstrations that the "anechoic effect" is alive and well in health care.

The term, first coined by Dr Russell Maulitz, describes how even the most vivid cases of mismanagement, conflicts of interest, and even corruption in health care seem to produce no echoes. Two important historical examples that have come up on Health Care Renewal include:

• Cooper Hospital - University Medical Center. In the 1990s, this case featuring briefcases filled with cash, a hospital trustee convicted of murder, and the embezzlement of over $21 million. Yet despite these lurid details, it seemed to get no notice outside of local newspapers. See post here, and details here (starting on page 3).
• Allegheny Health Education and Research Foundation (AHERF) - The CEO of this, one of the first large vertically integrated health care systems, including the US' largest health care university at the time, was called a "visionary," and gave the prestigious John D Cooper lecture at the 1996 AAMC meeting. Meanwhile, he paid himself and his top managers huge salaries (for the time), and threatened his faculty, "don't cross me or you will live to regret it." The health care system eventually went bankrupt, the then second largest bankruptcy in US history, and the CEO went to jail. Yet, excepting what I have written, this case generated only one article in the health care and medical literature. See post here with citations and links.

And there have been numerous recent cases, e.g.,

• HRDI - An organization set up by 30+ CEOs of some of the US leading hospitals, which charged a stiff fee for prospective vendors to get access to them. It was shut down in a legal settlement, which prompted the Connecticut Attorney General to call the organization, "an anticompetitive, secret society." Yet the story never appeared in most of the hospitals' home towns, much less any medical journals. (See post here.)
• Guidant - A device manufacturer which recently was accused of suppressing data about failures of its implantable cardiac defibrillators, and previously pleaded guilty to suppressing data about failures of a vascular graft product. Yet a featured interview of its CEO in a leading health policy journal avoided discussing any of this recent unpleasantness. (See post here.)
• University of Medicine and Dentistry of New Jersey (UMDNJ) - Now the largest US health care university, the university now is operating under a federal deferred prosecution agreement under the supervision of a federal monitor (see most recent posts here, here, here, here and here.) We had previously discussed allegations that UMDNJ had offered no-bid contracts, at times requiring no work, to the politically connected; had paid for lobbyists and made political contributions, even though UMDNJ is a state institution; and seemed to be run by political bosses rather than health care professionals. (See posts here, and here, with links to previous posts.) A recent development (see post here with links to previous posts) was that UMDNJ apparently gave paid part-time faculty positions to some community cardiologists in exchange for their referrals to the University's cardiac surgery program, but not in exchange for any major academic responsibilities. Another was some amazingly wasteful decisions by UMDNJ managers leading to spending millions of dollars for real-estate that now stands vacant (see post here). Another was the indictment of a powerful NJ politician for getting a no-work job in the system, and the indictment of the former dean of the university's osteopathic medicine school for giving him the job (see post here). Yet none of this has appeared in the medical or health care literature.

Try a Google search for the "anechoic effect" and "hcrenewal" to see some other examples.

Yet, local media do not hesitate to report individual physicians disciplined by their state medical boards. Such discipline is on the public record (e.g., here, for my state of RI). Physicians are frequently sued for malpractice. The media run scary stories about medical errors and overpaid physicians.

But when the CEO of one of the country's biggest hospital systems goes to jail, or the biggest health care university in the country agrees to a deferred prosecution agreement, physicians don't talk or write about it.

Carlat's apology for awarding the "Bling Bling" nickname, and Clinical Psychology and Psychiatry's fear of being "offensive" suggests how fearful we are of saying anything even mildly negative about the powers that be in health care.

As Aubrey Blumsohn put it, "the desire to maintain decorum and status in medicine seems also to overwhelm all standards of decency. Our profession is inclined to fixate on the irrelevant while ignoring some very bad things. Does civility matter? In the words of David Kern: When you're in an argument with a thug, there are things much more important than civility. I do not like incivility. Yet, I like thugs even less."

If we can't even talk about mismanagement, conflicts of interest, and corruption in health care, how are we ever going to fix these problems?

Post Title → "Bling Bling," Poltical Correctness, and the Anechoic Effect

That Recent Unpleasantness: The Fall of the Allegheny Health, Education, and Research Foundation

We just posted about an article that described a case illustrating how large health care organizations' interests may conflict with physicians' values [Klasko SK, Ekarius JC. Collision course: the privatization of graduate medical education at one university. Acad Med 2007; 82: 238-244 here] This article also spoke to another issue of interest to Health Care Renewal readers.

The article set the stage for the dispute between the managers of Tenet Healthcare and leaders of the Drexel University College of Medicine by explaining the history of how Drexel University acquired a medical school, thus:

Founded in 1850, the Female Medical College of Pennsylvania was the first American medical school devoted exclusively to the training of female physicians. Later renamed the Woman’s Medical College, the school operated in several hospitals in Philadelphia and moved to its final location in the East Falls section of the city in 1930. Facing financial difficulties, the school voted in 1969 to admit men and to raise the class size to accommodate their presence. As a result of this decision, the name was changed to the Medical College of Pennsylvania (MCP) Medical School and MCP Hospital (MCPH).

In 1987, MCP was acquired by the Allegheny Health, Education, and Research Foundation (Allegheny), a Pittsburgh-based hospital and physician practice organization that was pursuing an aggressive statewide growth strategy. In 1993, Allegheny acquired Philadelphia’s Hahnemann University Hospital, along with its affiliated medical school, nursing school, and school of public health. The two medical schools were merged into MCP–Hahnemann Medical School and made part of the Allegheny University of the Health Sciences in 1995.

By 1998, Allegheny had acquired 14 hospitals and over 300 Philadelphia-area primary care physician practices, along with nearly $1.3 billion in debt and losses of more than $1 million per day. Under the burden of this debt, Allegheny filed for bankruptcy. That year, Tenet Healthcare Corporation bought Allegheny’s Philadelphia assets from bankruptcy. Tenet acquired MCP and Hahnemann hospitals along with six others, all of Allegheny’s physician practices, and the Allegheny University of the Health Sciences. During the bankruptcy proceedings, civic leaders and state officials intervened to find an organization to take responsibility for the educational resources and personnel affected by the sale. Drexel University, a Philadelphia-based Carnegie Foundation–ranked research university, stepped forward to protect the educational programs and nearly 10,000 jobs of the hospitals and health sciences schools.

Admittedly, the focus of the article was on what happened when Tenet decided to close MCP Hospital in 2003.

On the other hand, simply describing what happened to the Allegheny Health, Education, and Research Foundation (AHERF) as a "bankruptcy" seems like describing the US civil war as "the recent unpleasantness," a phrase that used to be heard in polite company in the south of the US.
The long and tortuous story of the rise and fall of AHERF has never appeared in detail in one place in the public domain. I summarized some aspects here (starting on page 5). Certain points must be made:

• AHERF, one of the largest health care systems of its day, was built by the poster-boy for health care imperial CEOs, Sherif Abdelhak
• Abdelhak, who started as food services purchasing manager at Allegeheny General Hospital, was repeatedly hailed as a "visionary" (in the March, 1997, ACP Observer) a "genius," and the like. His plans to create a huge integrated health care system were part of the wave of the future. Abdelhak was even invited to give the prestigious John D Cooper lecture at the annual meeting of the American Association of Medical Colleges (AAMC), which was published in Academic Medicine [Abdelhak SS. How one academic health center is successfully facing the future. Acad Med 1996; 71: 329-336.] He proclaimed that "we will need to create new forms of organization that are more flexible, more adaptive, and more agile than ever before." And he announced that "my aim as chief executive has been to unleash the creativity and productive potential of every individual and to provide an environment that encourages teamwork"
• While Abdelhak was making these grandiose promises, he paid himself and his associates very well. For example, Abdelhak was paid $1.2 million in the mid-1990s, more than three times the average then for a hospital system CEO. He lived in a hospital supplied mansion worth almost $900,000 in 1989. Five of AHERF's top executives were in the top 10 best paid hospital executives in Philadelphia.
• Although Abdelhak talked of teamwork, he warned the combined faculty of the new Allegheny University of the Health Sciences (AUHS): "Don’t cross me or you will live to regret it."
• As AHERF was hemorrhaging money, Abdelhak continued to pay himself and his cronies lavishly.
• After the AHERF bankruptcy, which was at the time the second largest bankruptcy recorded in the US, Abdelhak was charged with numerous felonies involving receiving charitable assets. In a plea bargain, he pleaded no contest to misusing charitable funds, a misdemeanor, and was sentenced to more than 11 months in county prison.

The story of AHERF is not merely that of an unlucky bankruptcy. It shows what can go wrong when health care adopts business practices such as jumping the latest management band-wagons and genuflecting before imperial CEOs.

Parts of the story appeared in a contemporaneous multi-part series in the Pittsburgh Post-Gazette (here). Considerable detail with emphasis on the debt and the bankruptcy, appear in one article written before Abdelhak's guilty plea [Burns LR, Cacciamani J, Clement J, Aquino W. The fall of the house of AHERF: the Allegheny bankruptcy. Health Aff (Millwood) 2000; 19: 7-41.] But again, I have found no single reasonably complete narrative of the case in the public domain. The case almost never has appeared in the scholarly health care and medical literature. (The first article in such a journal that mentioned Abdelhak's jail sentence was one I wrote.) And as best as I can tell, it almost never is taught in medical or public health schools.

Although George Santayana wrote "those who ignore history are bound to repeat it," it seems to be politically incorrect to discuss the history of health care mismanagement. This phenomenon has been dubbed the "anechoic effect" here on Health Care Renewal.

Until we can put an end to the anechoic effect, and freely discuss cases like the fall of AHERF, we are all bound to continue repeating this unfortunate bit of history.

It is too bad that Klasko and Ekarius did not at least allude to what lead to the AHERF bankruptcy.

Post Title → That Recent Unpleasantness: The Fall of the Allegheny Health, Education, and Research Foundation

The Cloud Spreads from UMDNJ

The cloud from ongoing problems at the University of Medicine and Dentistry of New Jersey (UMDNJ) is starting to spread over other institutions.

We have posted extensively at the troubles at UMDNJ, which now is operating under a federal deferred prosecution agreement with the supervision of a federal monitor (see most recent post here.) We had previously discussed allegations that UMDNJ had offered no-bid contracts, at times requiring no work, to the politically connected; had paid for lobbyists and made political contributions, even though UMDNJ is a state institution; and seemed to be run by political bosses rather than health care professionals. (See post here, with links to previous posts.)

The Philadelphia Inquirer just reported that New Jersey Governor Corzine is proposing substantial ($169 million) cuts in state higher education funding affecting all state colleges and universities, not just UMDNJ, because he believes that the problems at UMDNJ reflect systemic problems with the management of all New Jersey higher education. He said, "frankly, the UMDNJ issue tells me there may be management weaknesses. UMDNJ tells me the institutions are not as disciplined as we would like...." Furthermore, if the colleges and universities try to make up the cuts with tuition increases, not management cuts, Corzine is threatening to re-organize the entire state higher education effort.

Meanwhile, the Inquirer also reported that questions are being raised about former UMDNJ managers who wound up at Drexel University College of Medicine in Philadelphia. We had previously posted about two fomer managers who wound up at Drexel after receiving golden parachutes from UMDNJ. James Archibald, former senior vice president for administration and finance at UMDNJ, is now Senior Vice President for Health Sciences at Drexel. John Ekanius, former vice president for government and public affairs at UMDNJ, is now Associate Dean for External Relationships and Strategic Development. The Inquirer reported that Archibald had arranged one of the famous "no-bid contracts" at UMDNJ, with the late, politically connected Ronald A. White, former fund raiser for New Jersey's former Governor Jim McGeevey. Drexel also hired David L Printy as chief operating and business development officer at the medical school. He left a year later after a "problem" he had with the US Securities and Exchange Commission (SEC) in 1996 was revealed, which had lead to a 10 year ban from working in the securities field.

Drexel was the successor institution to the former Allegheny University of Health Sciences (AUHS), part of the Allegheny Health Education and Research Foundation (AHERF). As the Inquirer pointed out, "Allegheny leaders spent tens of millions of dollars in restricted medical endowments to keep the money-losing system afloat. That resulted in a 2002 plea and a 11 1/2 - month sentence for Allegheny's head, Sherif Abdelhak. (For a somewhat more detailed history of the AHERF debacle, see the article I wrote for the RI chapter newsletter for the Amercian College of Physicians.) The Inquirer quoted a former assistant US attorney re Drexel's relationship to AHERF, "when you are the successor to a company that has gone through the tumultuous times with law enforcement like Allegheny, there should be lessons learned and a desire to reestablish credibility, not only with regulators, but with the public at large."

Yet, in addition to Printy's "issue," there were other issues raised about Archibald after he became the leader to which Drexel's medical school reported. Archibald's only experience with health care had come during his management career at UMDNJ. Before then he was the Chief Financial Officer (CFO) for SEPTA, the Philadelphia municipal transit system. The Inquirer stated, "Archibald's style and lack of medical credentials angered many on the Drexel faculty." "In March, 2004, nearly all of the 23 [Drexel] department chairs signed a letter to [Drexel President] Papadakis, seeking Archibald's demotion.... 'The dean must be empowered to be the unquestioned leader' they wrote.... The letter stated that the atmosphere of the school had 'become one of both dysfunction and distrust.'" 18 months later, the new dean of the medical no longer had to report directly to Archibald. The Inquirer article was silent about whether the Drexel medical school faculty still feel the institution's atmosphere is characterized as dysfunction and distrust.

The new Governor of New Jersey has realized the existence of widespread mismanagement in our formerly trusted and revered health care and educational institutions, and the consequences such mismanagement may have. I hope the President of Drexel, which only acquired a medical school due as a consequence of mismanagement, and worse, at Allegheny, now realizes that not everyone who fell into health care management in the last 20 boom years necessarily should continue in these roles.

Addendum: Some quick Google searching revealed that Ms. Susan Mettlen, formerly vice president for information services and technology at UMDNJ, who became Chief Information and Technology Officer for Drexel medical school, was forced to resign her position of vice chancellor for information infrastructure at the University of Tennessee in 1998 after questions were raised about her relationship with a company that sold software to the school. Maybe the people who oversee the managers of health care organizations should learn how to use Google.

Addendum (4/7/2006): The Philadelphia Inquirer published a letter from Joseph Jacovini, chair of the Drexel University Board of Trustees, in response to the article cited above:

The reputation of a university is its most important asset. Your Page One headline ("N.J. probe may touch Drexel's reputation," March 24) unfairly imputes a Drexel association with this matter. Simply stated, the facts of the article do not support the headline and your newspaper has improperly impugned Drexel's reputation.

The situation at the University of Medicine and Dentistry of New Jersey is not a Drexel story. It is not related to any actions at Drexel by James Archibald, senior vice president for health sciences, or any of the former UMDNJ employees hired. I should not have to make this clear, except that your article was misleading. The financial management of Drexel University is beyond reproach.

Drexel began operating the College of Medicine in 1998 with the support of Gov. Ridge and Mayor Rendell after the catastrophic Allegheny bankruptcy, saving 13,000 jobs and an irreplaceable medical resource. The college today is strong both financially and academically, earning the highest possible evaluation from its accrediting body and attracting a high caliber of applicants.

As long as your readers know the facts, they will understand that Drexel's reputation as one of the most successful and respected universities in the nation is unassailable. We are owed an apology and a retraction.

Note that Jacovini did not dispute the facts about Archibald, or any other administrators from UMDNJ who were hired by Drexel, that appeared in the original Philadelphia Inquirer story. The concerns I raised above were not about the financial management of Drexel, but about Archibald's alleged involvement with a no-bid contract at UMDNJ, and the protests against him by Drexel Department chairs based on his lack of any direct health care experience or credentials, which they apparently felt were not appropriate for a Vice President for Health Sciences, to whom the Dean of the Medical School and all faculty reported.

Note further that Jacovini, the Chairman of the Dillworth Paxson law firm, is also on the board of directors of Corcell, a health care corporation that provides cord blood stem cell banking services.

Post Title → The Cloud Spreads from UMDNJ

Still More Fall-Out from the Bankruptcy of Allegheny: Womens' Medical Center to Close

The fallout from the bankruptcy of Allegheny Health Education and Research Foundation (AHERF) continues even now. The Philadelphia Inquirer reported that Women's Medical Center, formerly part of AHERF, formerly Medical College of Pennsylvania Hospital, is closing. Although some would argue that the hospital was already in trouble when Allegheny acquired it in 1988, there is at least an argument that mismanagement by AHERF, and then the catastropic bankruptcy of AHERF in 1998, the second largest bankruptcy of any kind in the country at that time, were also partially responsible for the end of the hospital. The hospital was originally part of Female Medical College, the first medical school for women in the US, founded in 1850.

Post Title → Still More Fall-Out from the Bankruptcy of Allegheny: Womens' Medical Center to Close