The problem with experts is that they do not know what they do not know.
―Nassim Nicholas Taleb, The Black Swan: The Impact of the Highly Improbable1
In retrospect, I now realize that my indefatigably optimistic outlook about the future of Hahnemann University Hospital (HUH) was a blind spot created by my intense commitment to my patients, my faculty, and my trainees. It was the byproduct of a career devoted to the emergency care of the underserved in which, time and time again, a good outcome often prevailed over financial pressures. It was the result of witnessing the improbable resilience of my own department’s history. I believed these institutions would endure. I now wonder if I convinced myself of this only because I wanted it to be so.
The Department of Emergency Medicine (EM) at Drexel University College of Medicine (DUCOM) has been training residents in this specialty since 1971. It began at the Medical College of Pennsylvania Hospital (MCP) and was founded by David K. Wagner, MD. The department had endured the bankruptcy reorganization of MCP and the purchase and restructuring by Allegheny Health Education and Research Foundation (AHERF). Soon after I started at MCP in 1997 as the emergency department (ED) director, our department faced the epic $1.5 billion bankruptcy of AHERF. From Dr. Wagner, I learned that the way to endure circumstances of this sort was to focus on patient care, teaching, and prudent fiscal stewardship of the department. Years later, I was program director when, in 2004, MCP was closed because its new owner, Tenet Healthcare Corporation (THC), found it unprofitable. Although the loss of our primary clinical site was devastating, the closure of MCP occurred without a displacement of residents or fellows. The EM department and DUCOM successfully transitioned the EM trainees and faculty to HUH—the main teaching hospital in the region for THC, though at the time it was an affiliate site for EM.1
I was appointed chair in 2006, and for the past 13 years, the Department of Emergency Medicine, now with its primary clinical site at HUH, bloomed where it was planted. We emerged from the closure of MCP with a stronger teaching program, growth in research funding, and the opportunity to develop new programs focused on the emergency care of the underserved in an urban academic medical center. ED volume at HUH nearly tripled during this period, and with strong leadership and collaboration across departments, I am proud to say that the HUH ED had no boarding problem and never went on diversion. I was convinced that everyone—especially patients—needed HUH to remain open as a full-service hospital and that, as in previous crises, the institution would endure.
In spite of optimism, on June 26, 2019, HUH owners announced that the hospital would close in 90 days. Drexel University’s effort to halt the closure had been denied in Philadelphia Common Pleas Court. The announcement set in motion a chain of events that within 30 days caused a cataclysmic unraveling of the entire clinical and educational enterprise. Within a few days of the announcement, the Accreditation Council for Graduate Medical Education (ACGME) began the displacement process for 570 residents and fellows. Within a week, the owners filed for Chapter 11 protection. Unable to purchase supplies or retain key personnel such as cardiothoracic surgeons, HUH dedesignated as a trauma center and began to divert critical patients. Soon thereafter, ED and inpatient volume declined so precipitously that little in the way of clinical education remained for the trainees. Within 24 days, anticipating unprecedented financial losses, DUCOM terminated all its clinical faculty. The full timeline of events is in Appendix 1. And so, in July 2019, just 2 years short of its 50th anniversary, the Department of Emergency Medicine went from a bustling schoolhouse with all manner of trainees (EMTs, paramedics, medical students, residents, and fellows) to a decimated department scrambling to help trainees find positions elsewhere. We had endured bankruptcy, a variety of owners, the closure of the primary clinical site, and countless setbacks before. Why couldn’t the institution prevail now? What happened? What follows are the lessons I have learned as a result of this experience.
Corporate Structure and Its Leadership Matters
THC, a for-profit company, purchased a sizable multiple-hospital health system out of the AHERF bankruptcy in 1998 and over the ensuing 20 years sold off all the hospitals. Each sale brought the hope of creating a profitable enterprise in the Philadelphia area. Of all 9 hospitals THC eventually acquired in the area, 5 were sold and closed, and 2 others were sold and continue to operate as a full-service hospital with a different owner. The last 2 remaining hospitals were HUH and St. Christopher’s Hospital for Children (SCHC). News reports indicated that THC had been trying to sell these last 2 institutions for the past few years. Capital investments noticeably lagged during this time. In 2017, THC finally found a buyer in the private equity group Paladin Health Care, renamed American Academic Health System (AAHS).2
THC and AAHS were 2 entirely different entities. THC was a large corporation with long-standing national expertise in health care and the ability to absorb losses as part of a strategic plan. Local hospital leadership, some of the longest-tenured in the region, was supervised at a corporate level. In contrast, AAHS was a small private equity group that soon demonstrated frequent turnover in the C-suite. While the owner was lauded for turning around struggling hospitals in underserved communities in Los Angeles and for managing Howard University Hospital in Washington, DC, rapid and frequent terminations of leadership at HUH and SCHC soon became public knowledge.3–5 Six months after purchasing HUH, AAHS announced plans to build a pediatric ambulatory care center and add pediatric beds to HUH; one month later, AAHS reversed these plans with massive layoffs at SCHC and announcements of severe financial distress. In retrospect, THC was able to control losses, manage a slow burn, sell off assets, and seek an exit strategy over 20 years. AAHS lasted 18 months.
HUH’s physicians were a devoted mix of private groups, AAHS-employed physicians, and DUCOM-employed physicians—some within the same specialty. During the period when THC was seeking a buyer and making no capital investments, the healthy patient mix of commercial and government payers that had previously allowed the hospital to at least break even eventually became predominated by government payers. In the end, HUH was a for-profit hospital serving the underserved without city or state sponsorship, in a market dominated by one payer, without an actual health system, trying to work a fee-for-service strategy in a population-health reality. There is no better formula for disaster than to work harder and harder to deliver optimum health care while losing more money in the process.
After the acquisition of HUH, AAHS formed a strategic joint venture with the real estate investment firm Harrison Street Real Estate Capital. Harrison Street acquired a portfolio of 4 medical office buildings and a parking garage on the HUH campus and the parking facilities at SCHC. AAHS retained ownership of the hospital buildings, as well as 1 medical office building and 2 parking facilities. Real estate–based transactions such as sale and leaseback arrangements of this sort can be an appealing way to create capital. However, they should be approached with caution because they create a real estate endgame if the hospital fails as a health care venture. There are a large number of hospitals, especially those situated in the urban areas typical of an academic medical center, whose real estate value exceeds their value as a health care business. Regulatory safeguards and oversight are necessary to protect long-standing health care institutions from being dismantled into real estate ventures.6
The ACGME Matters
Frequent and robust communication between the ACGME, the designated institutional official, and program directors was one of the few reassurances for the trainees during the highly chaotic situation. Even so, the announcement of the closure of HUH started a rapid countdown to displacement and residents immediately began to scramble to find positions elsewhere. The EM residents displaced into new positions 33 days after the hospital’s announced closing on June 26. Efforts to preserve training programs by moving faculty and residents into affiliate sites and creating new sponsored programs were underway around the clock the moment after the closure was announced. However, a few weeks is not enough time for the usual ACGME cycle of program submission, site visit, and committee review. In future scenarios, it would be constructive for the ACGME to mobilize a rapid deployment team onsite. This team could directly supervise the situation and respond to and communicate directly with program leadership. Furthermore, a rapid response team could provide quick reviews and possible initial accreditation of proposed programs that could keep residents and faculty together as a unit. Faculty and residents alike strongly desired to preserve the teacher–learner relationship and were willing to follow each other into reconstituted programs in affiliate sites and to endure a change of sponsoring institution, a change of primary clinical site, and more. These sorts of solutions are outside the current hospital-centric accreditation approach by ACGME. To be successful in future scenarios, these program changes must be submitted, reviewed, and accredited within a matter of weeks of the announced closure of a sponsoring institution given the rapidity with which residents and faculty need to make decisions about their future.
The Centers for Medicare and Medicaid Services Matters
It is now a fact that GME has been commoditized. Each GME training “slot” has a known value, estimated to be about $100,000. Centers for Medicare and Medicaid Services (CMS) is the major funder of GME slots in the United States, and CMS rules dictate the number and location of slots that it will fund. In the event of a hospital closure, CMS funding follows the displaced trainee to his or her new program, but after the trainee has completed training, the funded training slot gets redistributed. By accepting a displaced resident, the accepting institution has the opportunity to gain a higher-ranking criterion in the redistribution of these limited-funded training slots through the process set forth in Section 5506 of the Affordable Care Act (Preservation of Resident Cap Positions from Closed Hospitals).7
Unfortunately, to raise money to pay off AAHS creditors, Delaware Bankruptcy Court held an auction of HUH’s provider number and the right to more than 550 CMS-funded training slots independent of the obligation to actually own and operate HUH as a hospital. This auction process has been likened to the sale of taxi medallions.8 A consortium of health systems and hospitals from Pennsylvania, Delaware, and New Jersey outbid other entities at the auction and won the right to purchase the training slots and their CMS funding for $55 million. This decision, in the midst of the displacement process, caused many programs to hesitate or decline to take displaced residents for fear that the trainees would be unfunded and that there would be no redistribution of training slots. Furthermore, not all of the residents were fully funded by CMS since HUH had more training slots than CMS was funding. CMS was instrumental in calculating an acceptable distribution of funds and assuring programs accepting displaced trainees that funding would follow these residents and fellows. Like the ACGME, CMS would significantly enhance its ability to oversee and manage a displacement crisis like this in the future with an onsite disaster management team.
Importantly, CMS has objected to the sale of the GME training slots in federal court stating that a sale or similar transaction “would violate Medicare law and regulations.” They won a ruling on September 16, 2019, to temporarily block the bankruptcy sale pending their appeal.9 CMS and medical societies and organizations must fight to prevent the further commoditization of GME.
Collaboration Versus Competition Matters
Health care is a highly competitive market. The GME training slots, HUH, and SCHC were 3 assets that could help any health system build for the future. Because Philadelphia has no public hospital, HUH and SCHC played a historic and integral role in the care of the underserved and carried a disproportionate share of the financial challenges as a result. Health care systems often view the collapse of struggling hospitals as an opportunity to gain market share and leverage. Instead, competing health systems need to consider a collaborative mindset and view the education of residents and health care of a region as a fragile balance instead of a field of competition. Ideally, that mindset would inspire collaboration mechanisms that support struggling hospitals to fill roles that fit the needs of the region rather than allowing them to succumb to market forces.
The Mission Statement Matters
In medical education, the students follow the residents, the residents follow the faculty, and the faculty go where the patients need them. Academic medicine is considered a noble calling by all of us who are engaged in it. We felt the closure of HUH as an immediate and personal tragedy, not as a mere disruption of employment or training. Keeping the students, residents, and faculty together with their patients was a vital motivation of every faculty member attempting to salvage the teaching programs we worked so hard to create. Sadly, just as the residents needed to find new programs to complete their training, faculty who had been in fulfilling, purpose-driven roles needed to reconsider career plans so that they could find some kind of employment following the closure.
It is important to remember that residents are not mere employees. They are a CMS-supported workforce of trainees whose priority is to learn their craft. Their presence creates the academic milieu and imbues the institution and its faculty with its meaning and purpose. The tragedy for the trainees affected by the HUH closure was uniquely personal and most definitely financial. It is gratifying that all the displaced residents were placed in other teaching programs. However, it was not without personal cost. Starting dates at new training programs were necessarily delayed to allow for relocation and caused gaps in salary even while expenses, including relocation and broken leases, mounted. Based on the residents’ requests for financial assistance from relief funds created by the faculty, Drexel, and various agencies, residents able to continue to train locally had unanticipated expenses of at least $500, and those who were geographically displaced often had expenses that were well over $10,000. The total personal financial impact to the over 550 displaced trainees is likely to be over $1 million.
Finally, a commitment by a hospital to the mission of academic medicine is a sacred trust with the faculty, trainees, and the patients that it serves. In the case of HUH, this commitment spanned 2 centuries until its tragic closure. Such a serious commitment should not be undertaken by any enterprise that is not well resourced and equipped with the knowledge and expertise to meet it. Health care and the institutions that deliver it must evolve to be more than resilient and robust; they must be recast to become “antifragile.” Until that time, the HUH tragedy will continue to repeat itself.
1. Taleb NN. The Black Swan: The Impact of the Highly Improbable. 2010.2nd ed. New York, NY: The Random House Publishing Group.
2. Klasko SK, Ekarius JC. Collision course: The privatization of graduate medical education at one university. Acad Med. 2007;82:238–244.
3. George J. $170M deal: Tenet selling Hahnemann, St. Christopher’s hospitals. Philadelphia Business Journal. https://www.bizjournals.com/philadelphia/news/2017/09/01/170m-deal-tenet-selling-hahnemann-st-christophers.html
. Published September 1,2017. Accessed October 26, 2019.
4. Paladin Healthcare president receives lifetime achievement award. National Minority Quality Forum. https://www.prnewswire.com/news-releases/paladin-healthcare-president-receives-lifetime-achievement-award-300257032.html
. Published April 25,2016. Accessed October 26, 2019.
5. Brubaker H. New CEO fired at Hahnemann and St. Christopher’s Hospital for Children, two months into the job. The Philadelphia Inquirer. https://www.inquirer.com/business/hahnemann-st-christophers-hospital-ceo-turnover-20190308.html
. Published March 8,2019. Accessed October 26, 2019.
6. Feldman N. Many fear Hahnemann’s story will send a message: Buying a failing hospital pays. WHYY News. https://whyy.org/articles/many-fear-hahnemanns-story-will-send-a-message-buying-a-failing-hospital-pays
. Published July 31,2019. Accessed October 26, 2019.
7. Centers for Medicare & Medicaid Services. Direct graduate medical education. https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/DGME.html
. Accessed November 8, 2019.
8. Brubaker H. Hahnemann University Hospital gets higher bid from California firm. The Philadelphia Inquirer. https://www.inquirer.com/business/hahnemann-higher-bid-kpc-global-20190815.html
. Published August 15,2019. Accessed November 8, 2019.
9. Brubaker H. Federal judge stays Hahnemann residency sale; St. Chris auction pushed to Thursday. The Philadelphia Inquirer. https://www.inquirer.com/business/health/hahnemann-residencies-sale-stayed-federal-judge-20190916.html
. Published September 16,2019. Accessed November 8, 2019.
Appendix 1 Timeline of Events for Hahnemann University Hospital (HUH)
1848: Hahnemann Medical College opens as a first-of-its-kind homeopathic medical college.
1928: Hahnemann Medical College and Hospital moves to its current location on North Broad Street in Philadelphia. The South Tower of the hospital was the first skyscraper teaching hospital in the United States.
1979: HUH expands and builds the North Tower.
1991: Allegheny Health Education and Research Foundation (AHERF) purchases Medical College of Pennsylvania (MCP) and its hospital.
1993: AHERF purchases Hahnemann University and HUH and merges Hahnemann and MCP into Allegheny University of the Health Sciences (AUHS).
1998: Tenet Healthcare Corporation (THC) acquires HUH and the assets of AHERF out of bankruptcy. Drexel University agrees to operate the nonprofit medical and health sciences schools, renamed MCP Hahnemann University.
2002: Drexel merges MCP Hahnemann University into Drexel University College of Medicine (DUCOM).
December 2003: THC announces closure of Medical College of Pennsylvania Hospital (MCPH).
June 2004: All MCPH resident slots are transferred to HUH. MCPH is sold to a nonprofit physicians group, which closes it in 6 months.
January 2018: After selling all its assets in the region over the past 20 years, THC sells its last 2 facilities, HUH and St. Christopher’s Hospital for Children (SCHC), for $170 million. The buyer is a private equity-backed firm named American Academic Health System (AAHS), an offshoot of California-based Paladin Healthcare.
July 2018: AAHS announces plans to build a pediatric ambulatory care center and add pediatric beds to HUH.
August 2018: 45 physicians at SCHC are laid off.
October 2018: AAHS president Barry A. Wolfman, an industry veteran with experience in Philadelphia, steps down.
December 2018: Tower Health and DUCOM sign a medical school academic affiliation agreement and plan to build an additional school location adjacent to Reading Hospital in Reading, PA.
March 2019: The new CEO of HUH and SCHC is fired just 2 months into her tenure.
April 2019: Joel Freedman, president of AAHS, states that he is “running out of time” to turn HUH around. The hospital lays off 175 nurses and staff. Freedman says in order for HUH to survive, the hospital needs help from government, insurers, and Drexel University.
May 2, 2019: HUH is sued by benefit funds for union employees over unpaid contributions to pensions, health benefits, and training totaling nearly $2 million.
May 31, 2019: Drexel announces it is working with multiple partners to save HUH, its main teaching hospital, to avoid closure and disruption to medical education.
June 21, 2019: Drexel sues the owners in the Philadelphia County Court of Common Pleas to prevent the closure of Hahnemann. Drexel simultaneously files a petition for preliminary injunction, arguing that the closure would violate Drexel’s agreement with Hahnemann to train medical students and the closure would “greatly disrupt the health and medical community in Philadelphia.” Four days later, Judge Padilla declines to rule on the petition and instead urges the parties to talk.
June 26, 2019: Hospital officials announce that HUH will close its doors permanently in early September. However, finances at the hospital are so dire that it cannot continue to care for patients, and services are rapidly eliminated. HUH dedesignates itself as a trauma center and an ST-Elevation Myocardial Infarction receiving center. The Accreditation Council for Graduate Medical Education opens a website to curate alternative training programs for residents. AAHS physicians and staff are terminated.
June 30, 2019: HUH’s owners file for bankruptcy in Delaware. Because of this bankruptcy filing, Judge Padilla ultimately never ruled on Drexel’s petition for a preliminary injunction and the claims remain pending.
July 17, 2019: DUCOM Department of Emergency Medicine hosts other program directors for onsite interviews to assist resident relocation.
July 18, 2019: DUCOM announces termination of 245 physicians.
July 29, 2019: All emergency medicine residents and fellows are officially displaced into other programs.
August 9, 2019: Tower Health is outbid in the auction for HUH’s more than 550 residency slots by a winning $55 million bid from a consortium consisting of Philadelphia-based Jefferson Health, Einstein Healthcare Network, and Temple University Health System, who joined forces with Main Line Health in the Philadelphia Suburbs, Cooper University Health Care in Camden, New Jersey, and Christiana Care Health System in Wilmington, Delaware.
August 16, 2019: The HUH emergency department closes its doors.
September 6, 2019: HUH closes.
September 16, 2019: Centers for Medicare and Medicaid Services wins a stay in Federal Court, thus temporarily halting the sail of HUH’s graduate medical education training slots.
September 20, 2019: Tower Health and Drexel reach a deal to buy SCHC.
November 12, 2019: When they purchased HUH and SCHC, the owners made the unusual decision to purchase a claims-made malpractice policy for the residents and fellows (instead of an occurrence-based policy). This necessitates that the bankrupt organization now purchase a tail policy. Unfortunately, the proceeds of the sale of SCHC can only be used to pay SCHC creditors, leaving HUH’s recently graduated residents, displaced residents, and employed attending physicians without a tail policy unless they purchase it on their own. The total cost to these physicians and advanced practice providers is estimated to be over $5 million, with some tail policies costing as much as $70,000.