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The Death of Hahnemann Hospital

Many insurance companies paid less at Hahnemann than they did at other area hospitals, an arrangement that, according to Halter, Tenet had accepted in exchange for greater reimbursements in the company’s other markets. (Tenet denies having made this arrangement.) Now those agreements could be renegotiated. The insurance companies had an incentive to compromise: if Hahnemann closed, the privately insured patients treated there would go to other city hospitals, where the cost of their care would rise. “You go into Blue Cross and you say, ‘We need some help, and it’s in your best interest to help us,’ ” Halter explained. “ ‘Give us ten million dollars more per year’—versus losing fifty million per year.” Whether Freedman overlooked this tactic or simply struggled to execute it effectively is unclear. “I did initiate a recontracting effort,” he said. “But it was to their advantage to delay.”

In late 2018, Freedman told staff that, by the spring of the following year, the hospital might be profitable. His forecast was based in part on the assumption that increasing in-patient admissions through the E.R. would yield greater reimbursements from insurance companies. But insurers continued to deny many Hahnemann claims, leaving Freedman incredulous. At one point, Tillman, the health-care executive, recalled him telling her, “This is impossible. You’re lying to me!”

Hoping to convince one major private insurer that it had unjustly denied claims from Hahnemann, several doctors arranged a meeting with the company. “We found a few very good cases of patients who could have died if they didn’t get care,” Kevin D’Mello, the internist, who attended the meeting, said. “And the insurance company had rejected admission.”

D’Mello said that the insurance representatives initially seemed receptive. Then, uninvited, Freedman appeared and harangued the representatives, accusing their company of dishonesty. “He said that American Academic would resubmit all claims for the past year, and that they expected the insurance company to pay,” D’Mello recalled. The meeting ended without a compromise on the insurance-claims dispute. (Freedman does not recall the meeting.)

Such erratic behavior was becoming increasingly common. “He would call people stupid,” Tillman said. “He would say they should all be fired, that they were useless.” (Freedman told me that he does not remember using such language, but, he said, “I can express myself with passion.”) In one meeting, a Drexel administrator said, Freedman spoke for ten hours, pausing only for cigarette breaks. He threatened at one moment to close the hospital and the next he fantasized about instituting valet parking. Maria Scenna, a former C.E.O. of St. Christopher’s, told me, “He would speak as the authority on everything.”

Still, Freedman’s anxiety was rising—at least in part because of his obligations to his lenders. Since the 2008 financial crisis, the banks that once financed most leveraged buyouts have withdrawn, and private-equity firms have filled the void. According to an analysis by the Financial Times, some of the largest private-equity companies in the U.S.—including Blackstone, Apollo, and K.K.R.—now do at least as much lending as buying. Riskier deals can involve terms that one prominent New York lawyer, who represents private-equity lenders, described to me as thuggish: “knuckle-dragger” conditions. “If you’re coming to me, that means you can’t get a loan from a bank,” the lawyer explained. “So I can charge you outrageous interest.”

MidCap Financial, the Apollo affiliate, provided Freedman’s group, A.A.H.S., with two loans, representing a commitment of a hundred and twenty million dollars. The loans had nine- to ten-and-a-half-per-cent-effective interest rates—significantly steeper than most commercial bank loans—and were secured by mortgages on Hahnemann’s real estate. (Harrison Street Real Estate Capital, which provided fifty-one million dollars in loans, took part ownership of several hospital-adjacent properties.) These financial obligations, in combination with what Freedman describes as “bad debt,” raised the possibility that he would have to default, and that Hahnemann would go out of business.

Around March, 2019, Scenna said, administrators and executives suggested that Freedman consider filing for bankruptcy. Instead, he proposed gutting the residency program—an indispensable source of physician labor, whose cost was largely borne by federal funding. Eventually convinced that this was inadvisable, Freedman announced the departure of Suzanne Richards, the latest C.E.O. of Hahnemann and St. Christopher’s, and, in early April, the hospital laid off a hundred and seventy-five employees, including sixty-five nurses. Freedman said, “I felt immense pressure every hour of the day—not only from a financial perspective but, more importantly, because of my concern for quality of care.”

A.A.H.S. began closing floors of the hospital, but the execution was fitful. All or part of a floor might close one week and reopen the next, resulting in the frequent movement of patients. “Your patients could end up anywhere,” Steven Kutalek, a cardiologist, said.

One day, with little input from medical staff, the patients in the cardiac critical-care unit began to be moved to the main I.C.U. Cardiology specialists now had to shuttle between the twelfth and the twenty-first floors to see their patients, using elevators that were often broken. “Cardiac patients need specialized equipment—balloon pumps, crash beds, ECMO [a blood-oxygenation machine]—run by cardiac nurses,” Kutalek said. These items were hard to access in the main I.C.U., and it didn’t help that many cardiac nurses had been either fired or reassigned. Paulina Gorodin-Kiliddar, another cardiologist, told me, “I remember one instance where the telemetry monitor for one patient who had a critical event malfunctioned, and it went unnoticed for a while.”

Any savings proved insufficient. In early May, A.A.H.S. received a notice of default from MidCap Financial. In the next seven weeks, Freedman and his executives met with city and state officials to try to find a way to keep Hahnemann afloat. Freedman hoped 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 finances that they needed to determine how to address its operating deficit, which Freedman estimated at between three million and five million dollars per month.

On June 30th, Hahnemann, St. Christopher’s, and several related entities filed for bankruptcy. A longtime Hahnemann physician says that Freedman told her, “My wife turned the faucet off. She said, ‘No more. We’re not losing any more money, Joel.’ ” (Freedman does not recall saying this.)

One afternoon in July, hundreds of people gathered outside Hahnemann, on North Broad Street. The road was closed to traffic for several blocks, and, in the southbound lanes, white folding chairs had been arranged in rows to face a lectern bearing a blue Bernie Sanders placard. A recently released patient, a Black man with facial scars, held a bag containing medication and personal effects. Doctors in scrubs and white coats looked on from the sidewalk. Sanders had come to speak against Hahnemann’s closure. “If an investment banker like Joel Freedman is able to shut down Hahnemann 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, the thinking went, Freedman’s purchase of Hahnemann had been a ploy to acquire the land on which it 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 Hahnemann and Temple University, in North Philly, had long been run-down. But now developers were building luxury condos and rentals. To renovate the Metropolitan Opera House, a moldering wreck at North Broad and Poplar, Live Nation spent fifty-six million dollars, then filled the schedule with such acts as Alicia Keys and Sting.

“Let me eat cake!”Cartoon by Liana Finck

“Everyone and their mother was trying to get that real estate,” Peter Kelsen, a partner at the Philadelphia law firm Blank Rome, told me, speaking of Hahnemann. “I received calls from dozens of different people.” Developers speculated that it could be worth as much as a hundred and twenty million dollars—only fifty million less than A.A.H.S. had paid for Hahnemann and St. Christopher’s and all their assets. Crucially, the site was not part of the bankruptcy. Upon buying Hahnemann, Freedman had put its real estate in a suite of holding companies that were now beyond the purview of the bankruptcy court.

The maneuver was typical of private-equity deals, in which firms can borrow against the assets of the companies they’re buying. Eileen Appelbaum, a co-director of the Center for Economic and Policy Research, a progressive think tank, has written extensively about the influence of private equity. She told me that Hahnemann’s demise reminded her of the retail sector, where hedge funds and private equity have used leveraged buyouts to purchase chains like Sears and Toys R Us, and then stripped their assets, including real estate, en route to bankruptcies. Appelbaum worries that Hahnemann might become a model, encouraging investors to destroy hospitals that occupy valuable land. “It definitely looks as if it was meant to be a real-estate deal,” she said.

The structure of the Hahnemann deal insulated Freedman from much of the potential fallout. As the hospital floundered, staffers said, Freedman told them that, if they couldn’t make the hospital succeed, he would simply turn the property into something else. Freedman denies making such remarks, and, as a strategy for acquiring real estate, deliberately bankrupting a hospital of Hahnemann’s size was likely too messy to be practical. “It’s not the path that anyone would have chosen,” Andrew Eisenstein, the founder of the Philadelphia development and investment firm Iron Stone Real Estate Partners, said. (Iron Stone later acquired two parcels of real estate from companies controlled by Freedman and Harrison Street.)

Freedman told me that he would never have invested millions in the venture if he intended to turn a quick profit and leave. But his leveraged buyout made excellent insurance against his own mistakes.

By May, 2019, when staff at Hahnemann tried to order basic supplies venders had begun to turn them down, saying that the hospital hadn’t paid its bills; by summer, conditions were dire. Surgical equipment was broken. The air-conditioning failed. To stretch supplies, nurses cut up the washcloths that they used on patients. Parts for instruments used to intubate patients and deliver intravenous medicine became scarce. It was difficult to find a pacemaker. Medications ran out. Even the FedEx account was cut off. “It happened so quickly and so horribly,” Lorraine Alexander, a senior nurse, told me. “It was heartbreaking to see, and it was also just mind-boggling—the things that were allowed to happen.”

Bruce Meyer, the president of Jefferson Health, told me that Thomas Jefferson University Hospital began hearing from Hahnemann physicians that the hospital could no longer provide quality care. “We began parking ambulances outside [Hahnemann] in mid to late June, and shuttling back and forth,” Meyer said. Leaders from Jefferson and other Philadelphia hospitals asked for information about Hahnemann’s patient population, to prepare for their arrival. “We never got any of that data,” Meyer said.

Pennsylvania law requires a hospital to provide ninety days’ notice and a detailed closure plan in advance of ceasing operations. But, even before a closure plan was approved by city and state officials, A.A.H.S. frantically tried to empty Hahnemann. At night, private ambulances lined up at the rear of the building, waiting to take patients away—part of what staffers viewed as a reckless effort to discharge Hahnemann’s occupants. “You’d have a census of two hundred and seventy-five at midnight, and the next day at noon it would have dropped to two hundred,” Alexander said. Patients were released without clear plans for follow-up care, and often ended up back in the E.R. within twelve hours. Shanna Hobson, an E.R. nurse, said that a patient who had been prematurely taken off I.V. antibiotics returned with sepsis. Others came back with infected diabetic wounds.

Around that time, Sean Temple, who had been treated at Hahnemann for a heart condition for a decade, went for a routine cardiology appointment. His doctors had just been informed that their practice would be shut down. “They were under the gun,” Temple said. He felt blindsided. “It’s not like I came in and I knew that y’all were shutting down. Who’s gonna pick up where they left off? And when and where?” Months passed without Temple’s seeing a doctor, and he ended up at another hospital with a cardiac emergency. “I felt like a child lost in the park,” he said.

Freedman places responsibility for the execution of Hahnemann’s closure on EisnerAmper, an accounting-and-consulting firm that he hired to manage its finances and, later, the bankruptcy. (EisnerAmper declined to comment.) A report by a bankruptcy-court-appointed ombudsman describes two visits to Hahnemann in July, 2019, when the hospital’s census had already fallen significantly, and after a temporary manager had been assigned by the state. “None of the nursing staff indicated any concerns over diminished care or safety of the patients,” the report reads.

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