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Anatomy of a Bankruptcy

Lifeline for an institution

When the Allegheny Health, Education and Research Foundation filed for bankruptcy in July 1998, more than a century of health care history came crashing down. Below is a capsule summary of the North Side institution’s history.


1886 -- On Feb. 15, the 50-bed Allegheny General Hospital opens the door to its first patients, becoming the only hospital in what was then the city of Allegheny and 20 years later would become the North Side. Backers include industrialists James Park and Oliver Scaife, who made their fortunes in steel and metals, and railroad, steel and banking financier John Chalfant.
         
1906 -- Iron broker and steelmaker William Penn Snyder joins the Allegheny board, beginning his family’s long association with the hospital. Other board newcomers include philanthropist and railroader Henry Darlington, banker Edward Dravo and banker and industrialist Henry Rea.
         
1914 -- The William H. Singer Memorial Research Laboratory is established.
         
1928 -- William Penn Snyder Jr. joins the board, as a campaign for a new hospital heats up.
         
1930 -- Ground is broken for a new hospital, which is to be a 22-story high-rise, one of the nation’s first skyscraper hospitals. But the Depression and cost overruns stall construction almost four years, until the U.S. Public Works Administration agrees to a $2 million loan to complete the $8 million building.
         
1965 -- William Penn Snyder III is elected to succeed his father as the head of Allegheny General’s board.
         
1968 -- Allegheny General opens a heart center, followed by a cancer study center a year later.
         
1969 -- The second heart transplant in the city is performed at Allegheny General.
         
1971 -- Sherif Abdelhak is hired as purchasing and control coordinator in Allegheny General’s dietetics division.
         
1978 -- Allegheny General launches LifeFlight Emergency trauma service, becoming the first hospital in the region to offer helicopter flights for emergencies.
         
1980 -- Allegheny General opens the region’s first sports medicine center. David McConnell joins the finance department at Allegheny General.
         
1981 -- The $104 million Snyder Pavilion opens, replacing the South tower as the operating and patient center.
         
1983 -- Nancy Wynstra is lured from the Michael Reese Hospital and Medical Center as general counsel for Allegheny General and its parent, Allegheny Health Services Inc. Allegheny General issues $66 million in bonds.
         
1985 -- Allegheny General uses two artificial heart pumps to keep a 60-year-old man alive for five days until his own heart resumes beating.
         
1986 -- After a nearly yearlong search, the Allegheny General board elects Abdelhak president. Anthony Sanzo, the 32-year-old acting president and CEO at Presbyterian-University Hospital, resigns to become senior vice president, operations, at AGH.
         
1987 -- Allegheny General strikes an agreement to take control of the Medical College of Pennsylvania, and completes the partnership in April 1988, pledging an infusion of $40 million to $60 million into the Philadelphia med school.
         
1988 -- Allegheny General issues $60 million in bonds.
         
1991 -- United Hospitals Inc., a group of four hospitals in the Philadelphia area, joins the Allegheny system. Allegheny says it will not assume United’s $137 million of bond debt, but ultimately does. Allegheny Health Services is renamed Allegheny Health, Education and Research Foundation, effective July 1992. AHERF begins acquiring doctors practices for a physician network. Allegheny General issues $60 million in bonds.
         
1993 -- Hahnemann University joins the Allegheny network, forming one of the largest medical schools in the country in combination with MCP and giving AHERF a major Philadelphia stake, with four acute-care hospitals with 2,000 beds.
         
1994 -- Hahnemann and MCP are merged to form one medical school, Medical College of Pennsylvania and Hahnemann University.
         
1995 -- MCPHU re-establishes a School of Nursing and begins developing a School of Public Health. Allegheny General issues $100 million in bonds.
         
1996 -- AHERF issues $365 million in bonds for its Philadelphia medical school and hospitals. AHERF takes over management of the Graduate Health System’s hospital affiliates. It says Graduate will remain responsible for the hospital system’s $174 million of bond and related debt, but ultimately that is transferred to AHERF. AHERF commits $100 million to develop and support cancer programs through its statewide health care system.
         
1997 -- Forbes Health System merges into the AHERF system, followed months later by Allegheny Valley Hospital and Canonsburg Hospital. The moves add more than $121 million of bond debt. AHERF unveils plans for a $100 million Center City Philadelphia office and power plant project. Moody’s Investor Service warns that the hospital climate in Philadelphia is worsening but applauds AHERF for taking steps to consolidate operations. AHERF announces it will close Mount Sinai Hospital, eliminating 500 jobs. AHERF announces 1,200 employee layoffs, and says it will trim salaries.
         
1998 -- AHERF says it will sell six of its nine Philadelphia-area hospitals to Vanguard Health Systems, a private for-profit company. Moody’s says AHERF’s fiscal situation is deteriorating and it may not recover. Abdelhak is ousted and replaced by Sanzo. Vanguard withdraws its bid for the six hospitals. McConnell resigns. AHERF, its Philadelphia-area hospitals and medical school, and its physicians practices subsidiary file for Chapter 11 bankruptcy.
     
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