At a minute past midnight on Nov. 11, scores of computers at eight Philadelphia hospitals were handed new scripts that told them to stop talking to Pittsburgh.
Nearly 100 employees and consultants working for Tenet Healthcare Corp. and Allegheny Health, Education and Research Foundation cut the electronic cord to the Pittsburgh system's data center and prayed that the computers controlling patient information, billing and clinical services would find the way to their new mother ship, a mainframe that Tenet leases in suburban Philadelphia.
"We could test the theory, but we couldn't actually do it" in a dry run, says Stephen Brown, Tenet's chief information officer. "If it didn't work, we were toast."
While most of Philadelphia slept, the computer gurus watched over the conversion, making sure the critical systems needed by doctors and nurses would be up and running when they reported for the day shift, the first under Tenet ownership.
With a few exceptions, the computers ran as promised. "It did work," Brown says. "We were gratified."
Scarcely a month earlier, Santa Barbara, Calif.-based Tenet had bid $345 million and won the auction for bankrupt AHERF's eight hospitals, medical practices employing more than 300 doctors and a medical school in Philadelphia.
Finding a manager for that medical school was Tenet's last stumbling block in the deal. Drexel University, an engineering school in Philadelphia, agreed in October to do the job. Drexel's task has just begun: The school must rebuild the faculty and find out whether it has what it takes to run a medical school.
Tenet, the nation's second-largest for-profit hospital chain, must forge moneymakers from the hospitals that helped sink AHERF, one of the most aggressive not-for-profit hospital operators.
And make no mistake, Tenet executives know that the healthcare world is watching their every move.
Tenet's prescription of for-profit healthcare as the salve to heal the wounds inflicted by not-for-profit AHERF is not just a Philadelphia story; it's a test case for the company's strategy and carries national implications -- whatever the outcome.
Without a doubt, Tenet has a lot of work to do.
As bankruptcy loomed and then struck, doctors and patients steered clear of the facilities. AHERF said admissions at the hospitals plummeted by 14% during the three months ended Aug. 31, 1998, compared with the year-ago period.
Under AHERF, the hospitals and medical school were losing an estimated $20 million to $25 million each month shortly before the bankruptcy, according to creditors and AHERF. Accurate figures are in short supply, however, because this summer AHERF acknowledged that its historical financial statements were unreliable.
Even the most optimistic estimates are troubling. Shortly before his ouster in June, for instance, former AHERF Chief Executive Officer Sherif Abdelhak said the Philadelphia hospitals had lost more than $200 million during the preceding year.
The first steps. The daunting switch of computer systems was just the start of the Tenet makeover. In short order, Tenet expects to invest more than $59 million in improvements from redecoration to repairs of broken medical equipment.
One of the first steps was a stem-to-stern cleaning of the facilities, a symbolically important action that Tenet executives stressed during multiple interviews in Philadelphia last month.
But rejiggering information systems, sprucing up tired buildings and attending to long-postponed capital investments are easy compared with the Herculean task of reshaping public perceptions.
After the last hospital floor has been polished, Tenet will still be working to win the trust of doctors and patients, whose faith in the hospitals was shattered by AHERF's ugly slide into bankruptcy. Notwithstanding Tenet's unaccustomed role as white knight, questions have already surfaced about whether the first for-profit chain to enter Philadelphia is out to protect or plunder the cradle of American medicine.
The week before Christmas, for instance, local activists picketed outside Hahnemann University Hospital, demanding that Tenet sign a pledge to care for the poor and uninsured.
Veterans in taking over hospitals and health systems, Tenet executives acknowledge the AHERF purchase is different. Simultaneously assimilating eight struggling hospitals, whose backs were nearly broken by bankruptcy, means that Tenet is quickly taking special measures.
Calling in the cavalry. "We sent the army in here," says Michael Focht, Tenet's president and chief operating officer, during an interview at regional offices across the street from City Hall in downtown Philadelphia.
Starting in mid-July, Tenet flew a SWAT team of more than 30 employees and consultants to Philadelphia. They scoured the hospitals to prepare for Tenet's bid and later to develop a battle plan. The team swelled when the chances for an AHERF deal brightened and again after the transaction closed. At the high point this fall, Tenet was renting 45 apartments and 90 hotel rooms in Philadelphia to house the takeover crew, most of them shuttling in from Tenet's Sunbelt strongholds in California, Florida and Texas. Despite the obvious challenges, Tenet executives brim with confidence.
"This is major, but we've been through much, much bigger transactions," says Jeffrey Barbakow, Tenet chairman and CEO. When Tenet acquired OrNda HealthCorp in 1997, for instance, the chain had to digest 50 hospitals, many of which were far weaker than expected, Tenet says.
Nevertheless, skeptics abound in Philadelphia, and several have pointed to the overbedded and overdoctored market there as contributors to AHERF's demise and lingering obstacles for Tenet.
Home to 78 hospitals, Philadelphia maintains 3.6 hospital beds per 1,000 people, compared with 3 beds per 1,000 people nationwide, according to the 1998 Dartmouth Atlas of Health Care in Pennsylvania. Likewise, there are 296.7 doctors per 100,000 residents in Philadelphia vs. 184.6 doctors per 100,000 nationally.
"Philadelphia may be tough," Barbakow says. "But we've been through some pretty tough markets." South Florida and Southern California are no less challenging than Philadelphia, he says.
Courting the docs. Tenet's tallest order in Philadelphia might be boiled down to a variation of James Carville's famous campaign dictum: "It's the doctors, stupid."
Tenet must sway hundreds of internists and family practitioners as well as the heavy-hitting specialists who decide where their patients should be admitted.
"Winning the hearts and minds of doctors has to be their No. 1 objective by far," says Dan Grauman, a healthcare consultant in Bala Cynwyd, Pa.
Already, though, Tenet has seen several key doctors slip away.
In September, shortly before Tenet won the AHERF bidding, the 3B Orthopaedic Group said it would leave Graduate Hospital so the seven doctors could return to private practice. They'll be under the sheltering wing of 414-bed Pennsylvania Hospital, part of rival University of Pennsylvania Health System.
Money-losing Pennsylvania Hospital rolled out the red carpet for the orthopedic big shots. "They'll be the cornerstone of part of turning the hospital around," says COO Timothy Morgan, who expects the group to perform about 4,000 orthopedic procedures per year. This fiscal year the group should boost the hospital's net income by about $7 million, he said.
Tenet is still wooing the orthopods to send some of their business Graduate's way. But the chances seem slim, according to people familiar with the situation.
Tenet was dealt an even bigger blow in November when Bernard Segal, a rainmaking cardiologist at Hahnemann and Medical College of Pennsylvania, defected to 686-bed Thomas Jefferson University Hospital, where he will direct a newly created heart institute.
Referrals from Segal and his six colleagues, who also switched to Jefferson, had gone a long way toward filling the coffers, surgery suites and cardiac-care wards at Hahnemann and Medical College hospitals.
Losing the stars. "There's no way they'll ever replace that," says Gerald Katz, a healthcare consultant in Plymouth Meeting, Pa. An admirer of Tenet's game plan so far, Katz says the marquee medical losses are a big problem. "Tenet's first move should have been to nail down these star players."
Out of the spotlight, Tenet executives have been pressing the flesh with hundreds of doctors.
To buy negotiating time, Tenet signed 120-day contracts in November with about 170 primary-care physicians who had been employed by AHERF. Tenet elected not to pursue contracts with the rest.
By early next year, Tenet expects to have signed new employment agreements with 80% or 90% of those under temporary contracts.
Unlike AHERF, Tenet generally prefers not to directly own physician practices. Instead, Tenet seeks to build physician referrals based on the quality of service.
To that end, Tenet is beefing up systems to improve patient scheduling, billing and coding and other clinical support for doctors, whether the practices are owned or merely aligned.
"If we do just an average job, (the doctors) are going to love us," says Jeff Heinemann, vice president of Tenet physician services. "And if we do what we know we can do, they're going to think we walk on water."
The remarkable fluidity of the Philadelphia market, where doctors freely switch hospital allegiances, seems likely to help Tenet gain a foothold. The arrival of disaffected doctors at one hospital puts pressure on those already there to consider switching.
"These docs move," says consultant Grauman, "and they move for money and for deals."
Bringing back CEOs. Besides appealing to doctors, Tenet has moved quickly to shore up the management of the hospitals.
Since November, Tenet has installed executives at the vacant helms of several of the former AHERF hospitals. Under AHERF, Tenet says, five of the facilities were essentially without their own CEOs, run instead by regional committees.
"CEO is not a part-time job," says Lee Domanico, who has been senior vice president of Tenet's newly created Pennsylvania region since November. Domanico, 44, was vice president of Tenet's 12-hospital Los Angeles region and CEO of 247-bed USC University Hospital, owned by Tenet and affiliated with the University of Southern California School of Medicine. Before that, Domanico was CEO of Columbus-Cabrini Health System, a not-for-profit system in Chicago.
Underscoring that each hospital will be run as its own business, Tenet has named interim or permanent CEOs at all eight institutions.
One of the first to come aboard was Christopher DiCicco, formerly CEO of 368-bed Doctors Medical Center, Modesto, Calif., one of Tenet's most profitable hospitals. In November, DiCicco was tapped as CEO of 198-bed Graduate Hospital, hit particularly hard by physician defections. Patient census at Graduate has slipped to between 140 and 150 per day from 250 per day before AHERF's financial troubles began.
Echoing the emphasis on doctors, DiCicco says, "I need to build my medical staff back up again." Orthopedics, cardiology, cardiac surgery, neurology and neurosurgery all have "major holes," he says. "If I can bring those programs back, I've accomplished what I need to accomplish."
Surviving and competing. Ultimately, Tenet is out to take market share from competitors. "We need to grow revenues, which means we need to see more patients," says Domanico. To make inroads in the cutthroat Philadelphia market, Domanico vows to "broaden the scope of services" the hospitals offer rather than consolidate them, as market watchers may have expected.
Once the hospitals are financially stable, Tenet envisions offering some tertiary services -- possibly neurology and neurosurgery clinics, for example -- to outlying hospitals such as Elkins Park from inner-city teaching hospitals such as Hahnemann.
Domanico and other Tenet executives stress that they intend to keep all eight hospitals open. Closing hospitals is "not what we're here to do," says Domanico, adding "our challenge is no different from Penn's and Jefferson's in keeping their hospitals open."
Tenet is in the midst of figuring out the right staffing levels at the facilities. But Tenet's regional staff will be only a tiny fraction of the 1,500 AHERF employees who once oversaw regional operations there.
At the hospitals, however, Tenet is hiring -- especially skilled workers such as lab technicians, technologists and programmers. While Tenet couldn't provide figures on how many positions need to be filled, a hiring freeze imposed by AHERF in late 1997 and a steady loss of employees disheartened by deteriorating work conditions at the hospitals combined to create shortfalls in key areas throughout the system.
It will take six months to a year to undo the direct damage of bankruptcy by improving the infrastructure and restaffing, Domanico says.
Meanwhile, Tenet is rolling out a multipronged marketing campaign using mass media and targeted direct mail to convince patients and doctors that times are changing. For the campaign kickoff -- which extends from November through mid-January and marks Tenet's entry into Philadelphia -- Tenet is spending nearly $1 million. The campaign message is "Let the healing begin."
As Tenet turns up the heat, the competition is oddly quiet.
"The other systems are huddling in their caves to see if the mastodon lands near them," says consultant Katz. "They're all counting on Tenet's failing."
Tenet executives, Katz says, have made some mistakes and will surely make a few more. But he says he wouldn't bet against them: "They didn't buy this mess of bricks to fail."