Allegheny Health, Education and Research Foundation is about to lose its independence thanks to the decision last week by U.S. Bankruptcy Court Judge Bruce McCullough to put an outside trustee in charge of AHERF.
McCullough will ask the Office of U.S. Trustee to name a trustee to supervise AHERF, which oversees five Pittsburgh-area hospitals. The hospitals weren't part of AHERF's bankruptcy filing, which led to the $345 million sale of AHERF's Philadelphia operations to Tenet Healthcare Corp. last month.
The latest development was prompted by a motion filed a month ago by AHERF's creditors. Although the motion is still under seal, the legal grounds for naming a trustee include gross mismanagement, fraud and incompetence.
A trustee is expected to be in place as early as this week, according to AHERF spokesman Thomas Chakurda.
"The management structure we have is still in place," Chakurda said. But an independent trustee can hire and fire top management, investigate alleged wrongdoing and safeguard assets.
By installing a trustee, McCullough is likely to speed up the endgame for Pittsburgh-based AHERF and strengthen the hand of creditors trying to tap into the system's operations in Western Pennsylvania. AHERF has debts totaling $1.5 billion.
"The trustee is going to give the creditors access to the assets in the West, which means the end of the West," said Gerald Katz, a healthcare consultant in Plymouth Meeting, Pa. "They will get sold off."
Several not-for-profit health systems have expressed interest in saving Allegheny General Hospital, Pittsburgh, AHERF's flagship (Nov. 30. p. 14). AHERF has expressed a preference for a not-for-profit equity partner, but, Katz said, the appointment of a trustee increases the likelihood that a for-profit hospital company will prevail in any bid for AHERF.
Presumably, a for-profit bid would yield more cash to pay creditors, Katz said.
Pennsylvania Attorney General Mike Fisher objected to the creditors' motion. His office argued that the move could harm the charitable missions of AHERF's solvent not-for-profit hospitals by forcing them to be sold to satisfy AHERF creditors.
Separately, Our Lady of Lourdes Medical Center, a 300-bed hospital in Camden, N.J., completed its purchase of 241-bed Allegheny University Hospitals-Rancocas, Willingboro, N.J., from AHERF last week for $45 million, plus $20 million in capital improvements. Allegheny University was one of the facilities excluded from AHERF's bankruptcy filing. Our Lady of Lourdes is part of Radnor, Pa.-based Catholic Health East.