Oil has its Enron, telecommunications has its WorldCom and healthcare has its AHERF. The acronym sounds like it comes from the deepest recesses of the gut, and it does when mentioned in certain circles. The 1998 implosion of the 14-hospital Allegheny Health, Education and Research Foundation in Pittsburgh shattered the hospital marketplace in Pennsylvania's two largest cities, ruined careers and left the municipal bond market for private, not-for-profit hospitals nationwide shellshocked.The fiasco is largely blamed on AHERF's acquisition-crazed Chief Executive Officer Sherif Abdelhak, enabled in large part by a board of directors that was widely acknowledged to be asleep at the wheel. The feeding frenzy was fueled by the system's raid on restricted endowments, bankrupting its Philadelphia hospitals and bringing the flagship Allegheny General Hospital in Pittsburgh to the brink of insolvency. Abdelhak eventually paid his debt to society with some jail time. The bankruptcy subsequently set the stage for a new era of accountability in hospital governance. Long before Congress enacted Sarbanes-Oxley to rein in the freewheeling accounting practices of publicly traded corporations, AHERF tested the patience of the Securities and Exchange Commission, provoking the agency to rebuke its executives and external auditors for misleading bond buyers. Cock-eyed optimists might say the net result of the bankruptcy was a much-needed culling of the herd in the over-bedded Philadelphia market, while in Pittsburgh, it emboldened the now mammoth University of Pittsburgh Medical Center. "I think definitely the lesson (from AHERF) is that no matter how great you think (a turnaround strategy can be) certain hospitals can't be turned around," said Philadelphia hospital consultant Dan Grauman.
Rise and fall of AHERF
Story originally published August 4, 2006
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