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Tale of the Hahnemann Bankruptcy
SUMMER OF 2019 TESTED OUR PATIENCE, ENDURANCE
By Sharon Griswold, MD, MPH
Previously Printed in Philadelphia County Medical Society’s Philadelphia Medicine, Fall 2021
The summer of 2019 seemed like the orchestra scene of James Cameron’s “Titanic.” I felt like the violinist trying my best to preserve calm and dignity as we endured the inevitable.
As many in the region know, Hahnemann University Hospital (Hahnemann) had been a clinical patient care hub affiliated with different academic centers in Philadelphia since 1848. Hahnemann’s heritage was significant. Over time, it evolved into a safety net institution for the underserved.
One in 72 physicians currently practicing in the United States graduated from or trained within Drexel University or its legacy schools: Hahnemann University Hospital and the (Women’s) Medical College of Pennsylvania. Hahnemann had influence on health care in the area for generations. It will now be remembered as the epicenter of the largest graduate medical educationa disaster to date.
The two-year anniversary of Hahnemann University Hospital’s cataclysmic closure is upon us. Within weeks of the hospital bankruptcy announcement, thousands of patients were left to scavenge for care elsewhere. Hundreds of physicians in training were “orphaned” or forcibly displaced from their training programs at Hahnemann University Hospital. Hahnemann’s demise has been featured in The New Yorker. 1 Several articles were published in Academic Medicine 2-7 and I wrote an article for Health Affairs. 8
Background
On June 30, 2019, the private equity company, Philadelphia Academic Health System LLC (PAHS), and its wholly-owned subsidiaries filed for Chapter 11 bankruptcy protection in the United States Bankruptcy Court for the District of Delaware. At the time of original purchase, the assets of Hahnemann were split into different corporate entities in a deliberate and calculated process. The entities had many different names, including Center City Healthcare LLC, American Academic Health System, the Debtors as referenced in bankruptcy filings, and others.
Asset splitting is a common practice in private equity acquisitions, in part, to shield liability. Hahnemann and multiple other subsidies with placeholder names filed for bankruptcy with billions of unpaid debts and the owner retaining the Center City property footprint for future sale.
Thankfully, the Philadelphia County Medical Society (PCMS), Pennsylvania Medical Society (PAMED), American Medical Association (AMA) and the Educational Commission for Foreign Medical Graduates (ECFMG) stepped up to advocate for the physicians in training (though most weren’t even members of these organizations). The trainees’ careers were jeopardized by Hahnemann’s owners either because of a negligent due diligence process, at best, or a cost-saving ploy at worst.
As Dr. Pinsky of the ECGMG stated, “with any other hospital bankruptcy or closure in history, the well-being of the physician trainees was always a priority of the institution. This was not the case with Hahnemann’s closure.” The disastrous loss of Hahnemann illustrates the story of many injustices and is emblematic of the moral and ethical dilemmas associated with the rapidly changing U.S. health care environment.5 If regulators and policy makers do not disincentivize exploitation in health care, by making substantive change,
history is destined to repeat itself.
Thank you to the Philadelphia County Medical Society and the American Medical Association.
The Hahnemann trainees were going to be left without complete professional liability insurance coverage despite regulatory requirements of the Accreditation Council on Graduate Medical Education (ACGME) and the debtor’s contractual obligation to those doctors. In Pennsylvania and many other states, physicians must have professional liability insurance to maintain a license to practice medicine, including uninterrupted insurance coverage for all periods of medical practice. (See table for explanation of professional liability insurance terms.)
The residents and fellows had signed contracts with Hahnemann per ACGME institutional requirements so they would be covered for professional liability regardless of when a claim would occur. That is, the trainees were contractually promised occurrence coverage, but a different, cheaper type of insurance (that is, claims-made coverage) was purchased by Hahnemann instead, necessitating the purchase of tail coverage. The residency spots were auctioned to the highest bidder and the debtors claimed that funds from the sale of the residency positions were expected to cover the expensive tail insurance cost. Without purchase of the tail coverage to provide continuous retroactive professional liability insurance coverage, the doctors faced potential sanctions from licensing boards, including loss of licensure and potential inability to participate with third party payers such as the Medicare Program. As a result of this breach of Hahnemann’s contractual obligation, any physician trainee employed by the entity at any time (including those who previously graduated from Hahnemann and St. Christopher’s Hospital for Children, along with those who were displaced by the bankruptcy), were left to seek out and finance their own tail insurance coverage. Some were quoted more than $50,000 for an individual tail policy. Others, including some first- and second-year residents, were considered “uninsurable” so were not even eligible to purchase the coverage.
If not for the efforts of individuals such as Mark Austerberry, David Aizenberg, William Pinsky, and other individuals, including attorneys who anonymously advocated behind the scenes, the fate of the physicians employed by the entity formerly known as Hahnemann could have been very different.
The physicians in training were organized into an Ad Hoc Resident Committee and represented by an attorney funded by the AMA. Fortunately, the surge of assistance from the PCMS and AMA helped elevate the trainees’ plight. The following is an excerpt from the public court record:
Type of Professional Liability Insurance Explanation of Coverage
Occurrence
Claims-made
Covers the insured at any time a claim is made regardless of whether the individual is still insured by the carrier.
Covers the provider only while s/he is an insured of that company. If the provider ceases to be an insured, any claim made after that is not covered. This is true no matter how long the provider was insured by that carrier.
Tail coverage A policy purchased from the same carrier that effectively converts a claims-made policy to an occurrence. The time window for tail-coverage purchase is very limited.
Nose coverage
A policy purchased from a new carrier that provides coverage back to the initial effective date of any prior claims-made policy(ies). Nose coverage can sometimes be included as part of a new made policy. Nose coverage may not be available in certain circumstances.
The Ad Hoc Resident Committee brings this Motion because the Debtors have willfully created a crisis that threatens the livelihood of nearly 1,000 Residents and poses a severe threat to the Pennsylvania medical system. The Residents need relief from this Court immediately. The professional liability insurance that covers their time at Hahnemann expires on January 10, 2020. Unless the Debtors honor their contractual obligations to purchase tail insurance for the Residents, the Residents will have no professional liability insurance covering their work at Hahnemann from January 10, 2018 through
Tale of the Hahnemann Bankruptcy
continued from page 21
the closure of Hahnemann. The consequences are dire. Without tail coverage, the Residents may no longer be licensed to practice medicine. The cost of obtaining tail coverage on their own ranges from prohibitive at best to impossible depending on their specialties. These are newly practicing doctors with modest salaries and for many, hundreds of thousands in debt.
This is an emergency solely of the Debtors’ making. The origins of this emergency started in January 2018 with the Debtors’ decision to ignore their contractual obligations to purchase occurrence-based insurance. Instead, they prioritized cost savings over contract and purchased cheaper claims-made insurance. The emergency became more acute as the Debtors abjectly failed this fall to give all affected Residents adequate notice that their professional liability coverage was ending and that tail insurance needed to be procured and that Hahnemann would not honor its obligations to do so. Upon information and belief, despite the extraordinary efforts of certain Residents, the Philadelphia and Pennsylvania medical communities and the various professional and accrediting associates have undertaken, many Residents remain unaware that their ability to practice medicine is in peril as of January 10, 2020.b
Some of the physicians with Hahnemann credentials were employed by the bankrupt entity, some were in private practice and some of us were Drexel employees. At the time, we had our patients, residents and fellows foremost in our mind as the Titanic was sinking. Fortunately, the housestaff were placed in alternative training environments in the few weeks that felt like eternity. The Hahnemann physicians within the practice plan were ultimately grouped together with the physicians in training as they also lacked tail coverage, albeit for a different reason.
Eventually, in March 2020, the required tail coverage was finally purchased for the displaced Hahnemann physicians. Whether it was purchased as a consequence of pressure from the ACGME to withdraw accreditation from St. Christopher’s Hospital for Children (which the Debtors also owned), the Delaware bankruptcy judge threating to turn the bankruptcy from Chapter 11 to Chapter 7 bankruptcy (which would have jeopardized the fate of the real estate), the advocacy and interventions of the Pennsylvania Department of Public Health or the realized funds purported by the Debtors, we will likely never know.
Realigning house of medicine
In early 2020, I attended a presentation on the Hahnemann closure to learn more of the role each of the alphabet soup of physician organizations played in coming to aid the displaced physicians. In addition to the ACGME, AMA and the ECFMG, presenters included the Association of American Medical Colleges (AAMC), Federation of State Medical Boards (FSMB) and others. It seemed to be the first time that the national organizations that influence the house of medicine had collaborated to achieve a substantial common goal.
Private equity now controls many hospitals, emergency departments and nursing homes.9 As more hospitals become subletters of property where they provide care, this scenario is likely to repeat. It is terrifying to realize how the property where a hospital sits becomes more “valuable” than the hospital itself. The Hahnemann trainees had signed contracts stating they would comply and abide by Hahnemann’s policies and procedures related to the prevention of fraud and abuse. Who will hold private equity accountable?
In the wake of the pandemic, the reckoning of racial injustice and tremendous loss of life, our existence has been forever altered. Many of us just want to move on. We want to get back to “normal.”
As the Hahnemann saga remains in bankruptcy court, it is imperative to recall the saga and plead for accountability. As then presidential candidate Bernard Sanders was quoted in July 2019: “If an investment banker like Joel Freedman is able to shut down Hahnemann and make a huge profit by turning this hospital into luxury condos,” he said, “it will send a signal to every vulture fund on Wall Street that they can do the same thing, in community after community after community.”
b Debtors defined as CENTER CITY HEALTHCARE, LLC d/b/a HAHNEMANN UNIVERSITY HOSPITAL, et al. Taken from court documents Case 19-11466-KG Doc 1134 Filed 12/11/19. Philadelphia Academic Health System and its wholly owned subsidiaries declared bankruptcy. American Academic Health System and the PA Risk Retention Group (professional liability insurance company) did not declare bankruptcy.
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If the tragedies of the pandemic and the loss of Hahnemann aren’t enough to stimulate change, what will it take to address the deficiencies of our health care system? What else needs to happen before the house of medicine organizes to achieve equitable, quality patient care and a health care system that values patients and the clinicians that care for them – over profit?
Acknowledgements – Thank you to Drs. Pinsky and Okum, as well as Mark Austerberry, Karen E. Davidson, Esq., and anonymous informed individuals for their contributions and revisions to this document. 1. Pomorski C. The Death of Hahnemann Hospital The New Yorker. June 7, 2021. www.newyorker.com/magazine/2021/06/07/the-deathof-hahnemann-hospital. Accessed June 22, 2021. 2. Aizenberg DJ, Logio LS. The Graduate Medical Education (GME) Gold Rush: GME Slots and Funding as a Financial Asset. Academic Medicine. 2020;95(4):503-505. 3. Berns JS, Coull S, Paskin D, Spevetz A, Boyer WC. Reflections on a Crisis in Graduate Medical Education: The Closure of Hahnemann University Hospital. Academic Medicine. 2020;95(4):499-502. 4. Hamilton RJ. The Hahnemann University Hospital Closure and What Matters: A Department Chair’s Perspective. Academic Medicine. 2020;95(4):494-498.
Save Money With This 5. Nasca TJ, Johnson PF, Weiss KB, Brigham TP. Elevating Resident Voices in Health Systems Change: Lessons From the Closure of Hahnemann Free Discount Savings University Hospital. Academic Medicine. 2020;95(4):506-508. 6. Orlowski JM, Thompson T. Lessons to Learn From Hahnemann Card It’s been a challenging year so we’re giving you complimentar University Hospital’s Closure. Academic Medicine. 2020;95(4):509-511.y access to this $500 discount savings program - no membership, activati 7. Roberts LW. The Closure of Hahnemann University Hospital and the on or user fees - to thank you for reading our publications. Experience of Moral Injury in Academic Medicine. Academic Medicine. The PA Alliance of Professional Associations (PAPA) is affiliate 2020;95(4):485-487.d with 8. Griswold S. Graduate Medical Education Should Not Be A Commodity. Health Affairs. 2021;40(3):536-539. thousands of leading appathousands of leading apparel, electronics, jewelry, and furniture retailers, attractions and museums, overnight and destination travel, and 57,000 local, regional and national restaurants and service providers. Use of this card afford dining and s t attra ravel ctive savings, discounts purchase, and it suppor or cash ts local back on commun ev ity 9. Morgenson G, Saliba E. Private equity firms now control many hospitals, ERs and nursing homes. Is it good for health care? In. NBC ery shopping, initiatives. News. May 13, 2020. https://www.nbcnews.com/health/health-care/ private-equity-firms-now-control-manyPennsylvania Alliance of Professional Associations Benefits Savings Program $500 Discount Savings on Shopping, Dining & Travel Activation Code: HPT500 Activate @ travnoActivate @ travnow.com Benefits Montgomery County Social Initiatives hospitals-ers-nursing-homes-n1203161. Accessed June 22, 2021. Dr. Sharon Griswold is an emergency medicine physician in Philadelphia and is affiliated with Penn State Health Milton S. Hershey Medical Center. Activate your FREE PAPA™ benefits today. Click the QR Code, or visit https://travnow.com/, then click on ‘Just Got a Card’ , enter code HPT500, and start saving today!
