Tenet Healthcare Corp. took a big step last week toward completing its $345 million purchase of Allegheny Health, Education and Research Foundation's bankrupt Philadelphia assets by reaching a deal with Drexel University to manage AHERF's medical school.
Reversing a thumbs-down vote on Oct. 13, Drexel's board of trustees unanimously approved early last week a revised proposal from Tenet to manage Allegheny University of the Health Sciences, including the MCP-Hahnemann School of Medicine.
At a hearing in U.S. Bankruptcy Court in Pittsburgh on Oct. 28, Judge Bruce McCullough verbally approved the sale and reorganization plan for the AUHS. A final written order was expected by late last week.
Tenet expects to close the purchase by Nov. 10, barring any unexpected snags, said Harry Anderson, a spokesman for the Santa Barbara, Calif.-based for-profit company.
From the start, Tenet has said that finding an academic manager for the university was a non-negotiable precondition for proceeding with the deal for AHERF's eight hospitals, physician practices and related assets in Philadelphia.
AHERF's creditors paved the way for the deal by agreeing to pay Drexel $50 million, boosting the school's $160 million endowment by almost one-third.
Drexel's board had previously rejected the contract management arrangement, fearing it would divert university executives from fund raising for Drexel, said a person familiar with the situation.
The creditors' $50 million payment to Drexel allayed those concerns, said a Drexel spokesman.
Besides receiving financial inducements, Drexel was pressured by local politicians to reconsider. Pennsylvania Gov. Tom Ridge and Philadelphia Mayor Ed Rendell pushed for the deal in meetings with the Drexel board's executive committee over the weekend before the full board vote.
Under the agreement with Tenet, Drexel will earn a fee plus expenses to manage the university, which comprises schools of medicine, nursing, public health and allied health professions. Terms were not disclosed.
When the deal is completed, AUHS' assets would be transferred to a new independent not-for-profit organization. Tenet and Drexel would pick equal numbers of board members to govern the reconstituted university.
Drexel, primarily an engineering school with no experience in healthcare, faces the daunting task of managing a struggling medical school.
The challenges are considerable but not insurmountable, said Jordan Cohen, M.D., president of the Association of American Medical Colleges, at a press briefing in Washington. Drexel can succeed, he said, because it has the infrastructure-including information systems, personnel management and business practices-that was lacking at AUHS.
-with Jonathan Gardner
