Hahnemann Hospital’s demise should not be a revelation to any politicians in Philly
When the for-profit Tenet chain put Hahnemann up for sale two years ago, nobody else offered to buy it. It had lost money for more than a decade.
The politicians who stood by for years as Hahnemann University Hospital lost more and more money are all piling on now, blaming its problems on the last gang of investors to buy the place or lend it money.
“CEO Joel Freedman and his team of venture capitalists" have created "an absolute disgrace [with] a greed-driven lack of care for the community,” Pennsylvania Gov. Tom Wolf and Philadelphia Mayor Jim Kenney thundered in a joint statement Thursday.
“Freedman has positioned himself to sell off [Hahnemann] land for a fortune while allowing the hospital itself to wither away. He seems fine with trading the lives of Hahnemann’s patients”and caregivers “for a profit,” scolded City Council member Helen Gym and U.S. Sen. Bernie Sanders (I., Vt.), in a column The Inquirer published Friday.
Nobody — certainly not the professionals negotiating the planned closure of the 496-bed hospital, where Drexel University trains medical students — is defending Freedman’s performance.
Why was he allowed to buy and shut one of the city’s busiest emergency rooms? Because, when the for-profit Tenet chain put Hahnemann up for sale two years ago, nobody else offered to buy it.
Not the area’s medical schools — Drexel, Penn, Jefferson, Temple, PCOM, or Cooper. Not the politicians, or their campaign donors, or anyone in our legion of successful health-industry professionals.
What forced Hahnemann out of business? Tenet and its billing affiliate, who continued to run the hospital’s antiquated system even after Freedman took over, say Hahnemann owes them as much as $55 million. Their contract came up for expiration and they were pressuring the hospital for payment when it declared bankruptcy.
Freedman is also in hock to MidCap Financial, a corporate loan company operated by Apollo Global Management, a leading New York investment firm whose bosses include lead Sixers owner Josh Harris.
To help finance his purchase of the hospitals, Freedman got MidCap to lend him cash in exchange for the right to collect Hahnemann’s unpaid bills — about $35 million, according to the bankruptcy filings.
Later he borrowed $20 million more from Apollo’s MidCap, using Hahnemann’s buildings — which Freedman also controls through a different company, and which aren’t included in the bankruptcy filings — as collateral.
MidCap is the only entity that has so far come forward to offer additional money to keep Hahnemann going — $10 million — which should be enough to keep the place running for another week, until the proposed closing of the hospital’s emergency room, and the rapid dismissal and transfer of its remaining few dozen patients.
Will Tenet and MidCap get their money back — or profit from the closing, as the politicians have said they will? Partly, that depends on how much the bankers running the sale can collect for Hahnemann’s remaining assets -- especially for profitable St. Christopher’s Hospital for Children, in North Philadelphia. And on how successful MidCap is in collecting on Hahnemann’s unpaid bills.
MidCap also has that $20 million claim on Freedman’s Hahnemann real estate, which Freedman can either re-sell to pay his bills, or hand over to the lenders in lieu of payment. But, again, that’s not part of the bankruptcy.
It’s a relatively small deal for MidCap, which has $9 billion in loans outstanding. The company would be surer to get its loans, fees, and interest paid if Hahnemann could be sold as a working, self-sustaining hospital. But, again, no one wants to buy it.
I ran the terms of the planned debtor-in-possession financing past Josh Friedman, head of restructuring data at Debtwire in New York. Terms of the proposal, including a term loan priced at 10 percent above banks’ low benchmark rate and a larger line of credit priced at 4 percent above the benchmark, “lean on the high side but are not egregious,” he told me. “And what’s your alternative?”
Your alternative would be much bigger public subsidies for poor people’s health insurance and hospitals, which so far hasn’t won support from the people Americans elect to make those choices; or at least better-run hospitals with modern admissions and billing systems, which none of the owners or politicians had managed to impose on Hahnemann during its long financial decline.
Hahnemann’s expected closing is also a warning to Philadelphia officials and boosters who praise our “eds and meds” economy. Nine of Philadelphia’s 10 largest private employers are hospitals, medical schools, or colleges.
Some boosters think that makes us immune from recession. But hospitals depend on patients and schools depend on students. Both have high costs that appear to be unsustainable. The number of patients and students grows only as fast as the regional population, and Philadelphia has been one of the slowest-growing big-city metros in the country since the Great Depression.
Unless the city and state succeed in attracting more tax-paying private employers, all the politicians’ complaints about greedy capitalists are mere grumbling about the symptoms, not the problems at the heart of the low-energy regional economy that is claiming another of Philadelphia’s great old institutions.