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Drexel accepts AHERF contract

School-operation OK boosts hospital sale

Tuesday, October 27, 1998

By Pamela Gaynor, Post-Gazette Staff Writer

In an action that brought sighs of relief here and in Philadelphia, Drexel University yesterday accepted a revised contract to manage the medical and health profession schools of the bankrupt Allegheny Health Education and Research Foundation.

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The agreement paves the way for AHERF to proceed with a planned $345 million sale of its eight bankrupt Philadelphia hospitals to Tenet Healthcare Corp.

While the Drexel contract doesn't assure the sale will be consummated, the sale surely would have collapsed without it, jeopardizing some 17,000 jobs in AHERF's Philadelphia operations and leaving creditors of the facilities all but empty-handed.

Tenet has said that if it completes the acquisition of the hospitals, most of the Philadelphia jobs would be preserved. However, an unspecified number of jobs likely will be lost in Pittsburgh because the support services that AHERF provides here to its eastern operations would no longer be needed.

"It's quite a different way of doing business than the way AHERF has done it. I think it's unlikely that we'll be hiring many of the people in Pittsburgh," said Tenet spokesman Harry Anderson.

AHERF, which operates like a holding company providing support services to all of its hospitals both here and in Philadelphia, has 2,292 employees, some 2,000 of whom are in Pittsburgh. The Philadelphia operations account for more than half of the revenues of AHERF's statewide health system.

As things stand, the sale plan is now scheduled for final approval in U.S. Bankruptcy Court tomorrow. However, the closing might not occur until early November and there is still much work to be done, Anderson said.

"We have a mountain of legal paperwork and details and there are always possible snags. ...I don't want to say nothing can stop this now, but the biggest remaining contingency has been removed," Anderson said.

Drexel's board of trustees earlier this month turned down an offer under which the university would have received management fees and expenses to manage AUHS. At the time, some of Drexel's trustees worried that the university's management resources might be diverted, hurting the rest of its operations. Turning around AUHS will be no small task. It lost nearly $30 million last year.

Under the offer that Drexel approved yesterday, creditors of AHERF and its Philadelphia operations, have also agreed to turn over $50 million of the Tenet sale proceeds to Drexel's endowment.

Manuel Stametakis, a Philadelphia businessman and Drexel trustee with ties to the Ridge administration, said another element of the revised agreement was that Drexel now has six months to study the deal before it becomes bound to a full two-year contract.

In addition to the $50 million, much political muscle helped get Drexel to reconsider.

When the last deal collapsed, Gov. Ridge contacted Drexel's board members one by one to identify their concerns.

"We were not bashful about telling the Drexel trustees that this was a call to arms for the community," said Ridge's general counsel, Paul Tufano, a key player in the lobbying and negotiating that preceded the Drexel board's vote.

Republican Ridge, who had been criticized by some Democrats for what they saw as a hands-off approach to the heath care system, alluded yesterday to the job loss that almost certainly would have followed a rejection by Drexel.

"I am deeply gratified," he said in a written statement, calling the development "particularly welcome news" for the AUHS students, patients and employees "who have been sitting on pins and needles" during the negotiations.

About 100 tenured faculty will lose their jobs during the restructuring, said Donald Faber, a Philadelphia researcher and leader of the committee drafting a restructuring plan for AUHS. Drexel's management likely will result in some staff layoffs.

And Drexel's leadership will replace those at the top of the AUHS administration, Faber said. "At the highest levels of the management team, there are too many ties to the past," he said.

AUHS was the largest private medical school in the country in 1997 with 1,067 students, according to the Association of American Medical Colleges. Under Drexel's management, the university will continue to enroll around 250 students each year, Faber said.

Doctors at Allegheny General Hospital will be able to maintain academic appointments at the Drexel-managed university.

But AGH will play a relatively small role in the new university.

"Faculty members would retain their appointments within the university, but they would not be the financial responsibility of the university," Faber said.

Whereas the old university appointed faculty chairmen in both the eastern and western parts of the state, chairmen in the west will lose their titles in the new university.

AGH will become an "affiliated" hospital used for training students, Faber said. Some of the 82 students who currently study at AGH yesterday expressed guarded relief.

"We're still concerned about what this will mean in terms of faculty and arrangements with clinical sites," said David Lebec, 27, a third-year medical student from Ambridge who is studying at AGH. "We're still kind of cautious about what the changes will be and how they'll affect students."

Students such as Lebec have been assured that, despite AGH's changing role in the university, they will be able to finish out their education in Pittsburgh. The arrangement for students who don't already study at AGH is unclear.

Adriana Cervantes, 24, a fourth-year medical student from California, is at the start of her second year studying at AGH. She said the news about Drexel was encouraging, especially considering that students were unsure this summer whether they'd even be able to graduate.

Post-Gazette Staff Writer Christopher Snowbeck and Harrisburg Correspondent Peter J. Shelly contributed to this report.

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