Is it ever acceptable for a hospital to close?
Will we ever allow creative destruction in healthcare or is there a moral imperative to avoid any market forces on hospitals and healthcare?
This story is too long to quote here, but here is the gist.
For profit – bad
Not for profit – good
Private Equity – evil
The victim is Hahnemann hospital
Hahnemann for profit executive leadership – keystone cops at best, incompetent bullies at worse.
The real victim was the impoverished neighborhoods of North Philly.
Closing hospitals – chaotic and morally wrong
I’m just wondering what is worse, receiving care at a place that has been capital starved where parts of the building fall off and onto parked cars, where elevators don’t work, and basic equipment isn’t maintained or closing that place and having people travel a little more to Jefferson, Temple and Penn.
I realize this is a really big question which begets even more questions. What are your thoughts?
Today in health. It, the story is the death of Honamin hospital. My name is bill Russell. I’m a former CIO for the 16 hospital system. And creator of this weekend. How’s it a channel dedicated to keeping health it staff current and engaged. We have no show sponsor for today. So if you’re listening to this, you know, the power of podcasting, our show.
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All right. Here’s today’s story. This is from the new Yorker. We’ll actually go to print this weekend.
It was published online on Monday, the death of Honamin hospital, when private equity firm bought a Philadelphia institution, the most vulnerable patients for the cost. And this is a really long article. So what I’m going to do. Is skim a fair amount and just give you a synopsis of some of the things that are happening more so at the end than the beginning, because I want to set it up well,
And so let’s do some excerpts to give you the background.
Honamin took care of people that no one else wanted to a doctor said, Leah logo. L O G I O arrived at Honaman hospital. In Philly in March of 2018, two months after it was sold to a private equity firm, logo and internist had come from Weill Cornell. In New York, a prestigious and well-funded nonprofit hospital where she was vice chair, Haldeman served mostly low income patients, but it had a range of medical subspecialties and was.
The primary teaching hospital used by Drexel university’s college of medicine. It felt like they had all the ingredients to do something innovative and creative logo said not long ago. It seemed like an opportunity to have an economy of scale. To do coordinated care for poor complex patients, which usually doesn’t happen very well. Philadelphia is one of the poorest big cities in the United States with about a quarter of its 1.6 million residents living below the poverty line since 1977.
It has also been the largest American city without a public hospital. Honamin with nearly 500 beds, occupied, a city block on the edge of north Philadelphia and area. That includes several impoverished neighborhoods and majority of the more than 50,000 patients that the hospital treated each I had publicly funded medical insurance.
Or none at all, two thirds were black or Hispanic. All right. So that’s the background. That’s the setup for this? Because Honamin treated so many poor patients. It has significant financial difficulties, but patient outcomes, rivaled, those of. Practically any hospital in the country and the people who work there were driven by sense of mission. The doctors at Honamin were there because they wanted it to be their logo said Honaman took care of the people that no one else wanted to take care of.
So to set this up a little further, this is the new Yorker. This is sort of like the Saturday evening post. They’re gonna use a ton of anecdotes, a lot of interviews, a lot of people’s opinions and thoughts about what happened and those kinds of things.
It goes on low Gail regard for-profit medicine with deep skepticism. But her new colleagues made her hopeful. Everyone had this tremendous sense of positivity looking toward the future with the new owner. She said Honamin and another medical center St. Christopher’s hospital for children. Had been acquired for $170 million by American academic health system, a company controlled by the California private equity firm. Paladin healthcare.
Capital Joel Freedman, the founder and CEO of Paladin had managed a sizable hospital in Washington, DC. And if you smaller ones in LA, he seemed earnest about his commitment to Honamin. Buying a large town house in Philadelphia and moving there with his wife and children. All right. So that’s your villain?
Your villain is for-profit medicine and your villain is Joel Friedman. Just to, move along a little quicker here. If you have some stories of unfulfilled promises from Friedman,
and the supporting cast is a private equity firms and a for-profit companies. And those kinds of things. All right, let’s go on in May, 2018, the hospital held a banquet and Logan hotel near the Philadelphia museum of art. Some 200 doctors went to hear the new owner speak. Joseph Pacelli a 61 year old internist.
Who had been at Honamin for more than 30 years. And who is now the president of the medical staff introduced Friedman. This was the first time that many people had seen him in person, but Sally recalled. I told him, Joel, keep it short and sweet,
but Friedman talked for about 30 minutes, evidently displeased with the financial condition of this new acquisition. He sought to blame the physicians who made up his audience. He goes on and on about how he doesn’t think doctors are doing their job. Pacelli said. That they’re not training residents. Well, not seeing enough patients. All right. So they paint them.
He’s the bully, but you know what hope persists still the medical staff hope that Friedman would provide the funding Honamin needed to survive. So it goes on. And here we start talking about the victim. The victim is hospitals are under attack. All right. So hospitals in the U S are estimated to be closing at a rate of about 30 a year. Most closures happen for financial reasons in places where there are relatively few privately insured patients, increasingly hospitals.
Are registered as businesses like any other, at least a fifth of hospitals are now run for profit and globally. Private equity investment in healthcare has tripled since 2015. Last year, some $66 billion was spent on acquisitions. The industries moving into healthcare has been linked to the price hikes and increase in unnecessary procedures and the destabilization.
Of healthcare networks,
the bad actors of private equity are sometimes accused of destroying American healthcare. But they are more symptoms than disease. The story of Honamin is as much about the structural forces that have compromised many American hospitals, stingy, public investment, weak regulation, and a blind belief in the wisdom of the market, as it is about motives of private equity firms. All right. So there’s your victim? Your victim is the hospital. So this is all happening to them.
Not enough, government money is coming in that direction. There’s not enough regulation, especially on these owners and the things that they’re doing. And we’re allowing the market to wreak havoc amongst the hospital. I I’ve also find an interesting one fifth of hospitals now being run for profit.
Is it still a really low number? I mean, one fifth, 20% of hospitals. Are. For-profit hospitals. That means 80% are not-for-profit hospitals, and I’m not sure that makes them any more altruistic not-for-profit hospitals. I’ve also done acquisitions which have led to higher costs. .
The next section is about how the hospital motives are pure. . The idea that hospitals should turn a profit is somewhat recent Pennsylvania hospital, which was widely considered the oldest in the country opened in Philadelphia in 1752 co-founded by Benjamin Franklin. It was conceived as a place for the reception and cure of the sec for, and an example of that until the late 19th century, almost all American hospitals followed philanthropy and taxes.
In the cases of public hospitals, like Bellevue in New York, which opened in 1795 covered costs and care was provided for free. All right. So the hospital motives are pure. , but that all changed. Right. Healthcare changed and Honaman was a leader at this point. So the next couple of paragraphs essentially talked about.
How hospitals changed from 1861 on, we had germ theory. We had sanitation, we had, , new, , procedures and those kinds of things that came into being and. Honaman was a leader in 1957, a Honamin cardiac surgeon named Charles Bailey appeared on the cover of time after he’d completed a groundbreaking surgery.
To correct an abnormality of the mitral valve
bailey attracted patients from around the world was one of a number of Honamin physicians working at the medical Vanguard of specialty procedures in 1958 at Honamin. Administrator noted that Bailey and his team brought in some $800,000 in a year. And I’m sure adjusted for inflation. That would be a significant number. All right. So healthcare has changed Honamin as a leader.
But in the decades after the second world war, the cost of hospital care rose significantly spurred on by expensive procedures like Baileys and by the adoption of medical insurance. After the government began to offer tax breaks for employers. Who paid for their workers, health benefits. The number of insured Americans grew to more than 60% of the population.
And in 1965, the bill establishing Medicare and Medicaid passed further increasing the number of patients seeking care guidelines, dictated reimbursement for reasonable costs, which for years, amount of to pretty much whatever providers said they were. And for-profit hospitals spring up to capitalize on the boom.
For-profit hospitals arrived in Pennsylvania in 1998, tenant healthcare based in Dallas. Owned 120 hospitals in 18 states. And that November, the company bought Honamin out of bankruptcy. Along with St. Christopher’s and six other area hospitals. We promise we will be there for the long haul. Michael folk.
F O C H T tenants’ COO said at a ceremony held at Honamin. This is not a short-term visit. Okay. So this is interesting to me in that somehow we skip the years from 1958 to 1998, when Honamin. Was in bankruptcy. This is where we pick the story up where the real villains of this story take over. Don’t get me wrong. The villains of this story, don’t do Hanukkah.
Honamin any favors. But they picked up a hospital that was in distress. And so that’s to be noted, they, they bought a hospital in bankruptcy. All right. So eight years later, 10 did agree to pay nearly $900 million in fives to the justice department. This is where it gets bad. So. This is
the event that leads to just a complete downfall here, greed of the for-profit system. All right. So they get caught in excessive Medicare billing. , scheme kickbacks, doctors, exaggerated diagnosis and whatnot. And so they had a significant fine to pay. And as a result, they started to reduce their costs across the board. And Honamin is painted as one of the hospitals that took a big hit here. They did not upgrade the.
, infrastructure, they did not upgrade the, , equipment and they didn’t do the necessary investments that’s required. And as we know, healthcare is very capital intensive. All right. So then the story goes on to Joel Friedman, who was steps in as a CEO, he makes the acquisition is Paladin and he had some success turning around health systems and wanted to replicate it. Right. So Paladin had worked with Howard university hospital in Washington, DC, and had turned that around from a significant loss to a profit and had done the same thing in LA hospitals.
They paint him as a proud man as a vain man. There’s a lot of anecdotes in here of him saying some things that, you know, he’s beating his own chest and, , saying, look at me how, what a great philanthropist and. A wonderful person. I am. So again, a lot of anecdotes. I don’t know this person from Adam. This is what they’re painting is a picture.
The next section paints a picture.
When his plaintiffs didn’t work out, he started to become a bully of a manager. He started saying things that were rude. , saying things to people like you have no idea what you’re talking about amongst other anecdotes, which get actually worse from there.
When he got stuck, he called consultants. Who couldn’t figure out what was going on either. Right? So this was part of the sucking the life out of our hero. Haldeman hospital
and this sort of cracks me up. So I’ll go ahead and share it. Joel had a 20 week relationship with consultants, a former Honaman executive said the first eight. You’re a rock star in the middle. You don’t hear from him
the last day, weeks, he goes on to say, you’re a nice guy, but I need a rock star here. , and he probably didn’t need a rockstar quite frankly, because this was a very challenging situation. So they go on to paint the picture again, that the staff had great ideas, which were ignored while the Keystone cops have leaders and consultants
may changes that indicated that they didn’t really understand the complexities of academic care. And in the interest of time, I’m just going to skip some of those things. Just suffice it to say they may change this to the ER, which really bungled things and slowed things down. .
All right. So the story goes on. So building out a referral network was the last hope at this point, it’s important to note that Philadelphia is loaded with academic medical centers. The doctors. In Philly have choices. Jefferson, Penn temple among others. And the story goes on to talk about this. So since 2008, American hospitals have been involved in more than a thousand mergers and acquisitions.
Resulting in large powerful health systems. With influence on the price of hospital care and reimbursement rates paid by private insurers. These conglomerates generally make up the losses incurred, treating poor patients by building referral networks that attract privately insured patients. Seeking specialized care. All right. So it’s time to build out that referral network tenant drew few referrals as Jefferson and Penn health systems cultivated, satellite hospitals, physician practices.
And urgent care centers, including those in wealthy suburbs. On mainline and south Jersey.
So there’s the one sentence that mentions competition, but the remaining tells colorful anecdotes around how bad Friedman was at negotiating. With the potential referral partners and payers. So our, villain is a bumbling finger pointing and name calling full, but he also is an evil genius. Right. So here’s where it gets interesting.
Mid-cap financial, the Apollo affiliate provided Freedman’s group a H S with two loans, representing a commitment of $120 million. The loans had nine and 10 and a half percent effective interest rates, significantly steeper than most commercial bank loans and were secured by mortgages on Hanuman’s real estate,
all right. So real estate keep this in mind because the story only gets worse from here and it gets really bad from here. So it gets bad and they got the residency program. They start closing floors. They did drastic measures to avoid filing bankruptcy. Story goes on. Any savings proves insufficient.
In early may a H S received a notice of default from mid cap financial in the next seven weeks, Friedman and his executives met with the city and state officials to try to find a way to keep Honamin afloat, freedom, and hope that the government would provide emergency funding or that Drexel would buy the hospital.
But according to government officials, they never received the details about the hospital’s financials that they needed to determine how to address its operating deficit. Which Friedman estimated at between 3 million and $5 million per month. On June 30th. Honamin at St. Christopher’s and several related entities filed for bankruptcy
a long time. Honaman physician says that Friedman told her. My wife turned the faucet off. She said no more. We’re not losing any more money, Joel.
And Friedman does not recall saying this. We’ll just call this the final anecdote. Don’t hear me defending Friedman at best. He was an ineffective leader at worst. He was arrogant and bully. Amongst other words that this article freely implies.
Let me close this out.
So what story would be complete without a Bernie Sanders citing? All right. So Bernie Sanders sets up outside of Honamin and has a rally or an event. And he says this, if an investment banker like Joel Freedman is able to shut down Honamin and make a huge profit by turning this hospital into luxury condos, he said it will send a signal to every vulture fund on wall street.
That they can do the same thing in community after community, after community Sanders was expressing what had become a widely accepted theory from the beginning, that thinking went that Friedman’s purchase of Honamin had been employed to acquire the land on what you stood, situated steps from city hall.
And the convention center, the real estate had skyrocketed in value the mile and a half stretch of north broad between Honamin and temple university in north Philly had long been run down, but now developers were building luxury, condos and rentals, and it goes on to talk about. What that was all about. So, yes, he’s an evil genius. He wanted the real estate and he got the real estate.
The deal was written so that the real estate did not go into the bankruptcy proceedings. It actually went to the creditors that had secured the funding, the $120 million. And it will likely become luxury condos. Friedman points, a finger at a firm and accounting and consulting firm that was brought in towards the end. That it was them that really precipitated the, a bankruptcy, which at this point was a foregone conclusion. And it has a bunch of stories about where the patients go, right? So, uh, temple and Pennsylvania hospitals soon saw that ER volume increased by about 12% while at Jefferson only a mile from Honamin volume client by 20% adding almost 1200 visits a month
And here’s the one that just boggles my mind. Most Philadelphia hospitals are using electronic record. Sharing system, but Honamin had never taken part in it. Once the hospital closed doctors at other medical centers had difficulty obtaining records for Honamin patients. There were patients who had complex social histories who were receiving many kinds of sub specialty care.
London said they’d lost heart doctors, kidney doctors, and ended up in our emergency department. We had to understand as best we could, what was going on with them.
And in the final paragraphs, this is the last insult. The author of the story talks about when I spoke to Freeman by phone last summer, he returned to California. Where he had bought a new 8,000 square foot house south of Los Angeles. With 20 foot ceilings and a stone spa for nearly $7 million. He was in the midst of two lawsuits with tenet healthcare.
Which he believes misled him about Hanuman’s financial situation, Freedman estimates that he has personally lost about $10 million on the Haldeman deal. He was asked to step down from his board position at the university of Southern California. Which he says really hurt him. But St. Christopher’s hospital had been sold for $50 million and mid-cap financial had been repaid in full now. Friedman was trying to reinvent himself. As we spoke one afternoon,
there was an audible breeze on Friedman’s end of the line. The family’s multi snow barked in the background. Friedman’s confidence was undimmed I’m working on some things that I think could be meaningful. He said, I would like to go back to working in healthcare someday. I have a lot of knowledge. I’ve seen a lot of bad things. Unfortunately, the solutions demand a lot of capital.
All right. So that’s the story. Why do I share that story? You know? Because it creates a question for me and a question I’m, I’m struggling to answer. And, and that is, is it ever acceptable for a hospital to close? Will we allow creative destruction in healthcare or is there a moral imperative? To avoid any market forces on hospitals and healthcare.
You know, the answer to these questions are really important. They will shape how we move forward. Government bailouts to keep capital intensive hospitals operating while the building equipment and conditions deteriorate beyond what is recognizable is that the best solution keep a building there. So we feel good, even though we know that better care is available just one mile or so in either direction.
I’m not sure that we identify the right villain in this story. The bankruptcy happened before tenet even moved in. Turnarounds are hard turnarounds and red ocean territory with lots of competitors and little room for growth is even harder.
Few of the elements that lead to a successful hospital operation were president Haldeman, no matter how hard and the well-intentioned people that worked there wanted it. They could have been given the reigns completely. And perhaps it would have lasted a little longer, but I can’t imagine the fate would have been any different.
So, is it the system, should the government step in and make it lucrative to stand up hospitals in north Philly? Should we adjust Medicare and Medicaid rates based on location? Or should they be tied to outcomes? If they are tied to outcomes? And a new entrant comes in and figures out how to deliver , better outcomes at a lower cost taking even more money away from the capital intensive hospital. Should we stop those new entrance? Because they are a risk to those hospitals. You know my primary question, which is not answered by this article. Is, will we allow healthcare to change based on market forces
or is the human cost too high, and we’re going to lock in place the healthcare we have today forever with policy and payments. I want to be real clear that people depicted in this story provided bad leadership. They were dealt a bad hand for sure, but really bad leadership. I don’t think anyone set out to make Honaman into luxury condos, but to secure any kind of future. That is the deal they made for capital.
They raised for pink slips and they lost. Will this happen again? Absolutely. Hospitals sit on some of the most expensive real estate in the country, especially in urban locations. There will be others with bad balance sheets and a bad business model and poor leadership that strike the same deal.
That kind of deal is a last ditch effort. The supplier of capital will be painted as a villain, but are they really, or was it the system and leadership that created the environment that required the deal to be made? There’s really too many questions to answer in this show. I’ll let you think about it and comment on LinkedIn. Go ahead out there. Comment on the story. I’ll put it out here in a couple of minutes.
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