Sherif Abdelhak's 12-year ride as engineer of the Allegheny Health, Education and Research Foundation healthcare freight train came to a screeching halt this month-derailed by mounting financial troubles.
Abdelhak, an immigrant from Egypt, made a breathtaking rise from hospital purchasing agent to tertiary-care titan in Pennsylvania. His abrupt fall-as the AHERF board ousted him as foundation president and chief executive officer-serves as a cautionary tale for other hospital executives about the perils of aggressive system expansion.
Ultimately, Abdelhak, 52, succumbed to the drain of fighting too many battles in too many places at once, observers said last week.
Under Abdelhak, AHERF has been battling the equally acquisitive University of Pittsburgh Medical Center Health System for shares of the western Pennsylvania healthcare market.
Meanwhile, Abdelhak directed an expensive foray eastward into notoriously overbedded Philadelphia, where he acquired 10 hospitals and two medical schools, giving AHERF the academic cachet it had lacked. By all accounts, however, Abdelhak's Philadelphia experiment siphoned off heavy measures of management attention and financial reserves.
In a watershed move symbolizing its reversal of fortune, AHERF in March crafted a deal to sell six of its hospitals to for-profit Vanguard Health Systems of Nashville. The total price is said to be between $300 million and $400 million.
AHERF's aggressive acquisition of physician practices also has drained, rather than bolstered, the balance sheet of the 15-hospital system.
AHERF always has been tight-lipped about its finances. But in a sign of the system's distressed financial times, Moody's Investors Service, a New York-based bond-rating group, downgraded bond ratings for Allegheny General Hospital, AHERF's biggest cash cow, and Allegheny University Medical Centers, its community hospital division, in May (June 1, p. 28).
For the six months ended Dec. 31, Moody's said, AHERF's cash needs exceeded cash generated by $96 million. Five of the systems six biggest subsidiaries posted net losses.
Mincing no words, Moody's wrote, "These problems have emanated from the troubles that the organization has experienced in managing an aggressive growth strategy coupled with extreme payer pressures in two very arduous healthcare markets."
A little more than a week ago, the AHERF board acted, replacing Abdelhak with regional executive Anthony Sanzo, 43, said system spokesman Thomas Chakurda. "The board simply believed, as we . . . back off what was a period of expansion, that Tony's leadership was best-suited to meet that (new) agenda, based on his operational and leadership skill," Chakurda said.
In perhaps an indication of the suddenness of the board's decision, Abdelhak's severance package has yet to be determined. Chakurda said Abdelhak was not available for an interview.
Foreshadowing Abdelhak's fall, doctors at Allegheny General Hospital last month circulated a letter for signatures that said they "have lost total confidence" in Abdelhak.
The letter, obtained by the Pittsburgh Tribune-Review, was addressed to AHERF board Chairman William Snyder III and called for Abdelhak to resign.
Until his promotion, Sanzo was head of Allegheny University Hospitals, West, AHERF's western division. It includes flagship Allegheny General, where both Sanzo and Abdelhak had served as president and CEO.
Connie Cibrone was named president and CEO of Allegheny General Hospital. No direct replacement for Sanzo has been named.
In a telephone interview from AHERF's Philadelphia headquarters last week, Sanzo told MODERN HEALTHCARE his first priority is to immerse himself in AHERF's operations there. As head of AHERF in the west, Sanzo wasn't involved in the workings of the Philadelphia hospitals. Raising the management ante, Donald Kaye, M.D., president and CEO of Allegheny University Hospitals East and AHERF's medical school, resigned effective immediately last Monday to devote more time to clinical work and his family.
Despite AHERF's setbacks, Sanzo said he is committed to preserving its statewide health system, grounded in academic medicine.
"My focus will be away from building broad networks of physicians and hospitals in order to take risk contracts," Sanzo said. He plans instead to review AHERF's current risk contracts, which are losing money, and emphasize focused disease management approaches over population-based capitation.
The turmoil at AHERF hasn't toppled its six-hospital deal with Vanguard. Sanzo said he met for the first time with Charlie Martin, Vanguard chairman, president and CEO, last Wednesday, and both men affirmed their commitment to completing the transaction.
AHERF and Vanguard now expect to wrap up the deal in July, a month later than planned, pending regulatory review and approval of the disposition of the hospitals' charitable assets by state Orphans Court.
In a first for hospital deals in Pennsylvania, Attorney General Mike Fisher said last week that he will hold a public hearing on June 23 in Philadelphia to gather community views on the sale of the five Pennsylvania not-for-profit hospitals to Vanguard. Rancocas Hospital, the sixth in the group, is located in Willingboro, N.J.