A Legal Settlement of One Aspect of the Fall of AHERF, Only 15 Years Later

It only took 15 years, but litigation related to one of the most important, but obscure cases of bad health care leadership and governance from the 1990s was finally settled.   

Background

The Allegheny Health Education and Research Foundation (AHERF) was a large integrated health care system formed out of multiple mergers.  AHERF went bankrupt in 1998, leading to massive layoffs, hospital closures, and the near dissolution of a medical school (which ended up taken over by Drexel University).  We last discussed the case in 2012 here.. A summary of other important points about it is appended below. 

As we noted in 2008, although the AHERF bankruptcy appears to be the largest failure of a not-for-profit health care corporation in US history, its story has produced remarkably few echoes for doctors, other health care professionals, health care researchers, and health policy makers. I often use the fall of AHERF as an example in talks, at least the few talks I am allowed to give on such unpleasant subjects. Rarely have more than a few people in the audience heard of AHERF prior to my discussion of it.

I only could locate one article in a medical or health care journal that discussed the case in detail, but was written too early to address it very completely [Burns LR, Cacciamani J, Clement J, Aquino W. The fall of the house of AHERF: the Allegheny bankruptcy. Health Aff (Millwood) 2000; 19: 7-41.]  I doubt the case is used for teaching in most medical or public health schools, although it.was a formative influence on my 2003 article on health care dysfunction [Poses RM. A cautionary tale: the dysfunction of American health care. Eur J Int Med 2003; 14: 123-130] and on this Health Care Renewal blog.  (A book about the case, Merger Games, by Judith Swazey, was published in 2012, and is available here as  a set of PDF files from Project Muse for those with the proper password, but it has not yet had much of an impact, and I confess I have not yet read it.)  The lack of discussion of such a significant case is a prime example of the anechoic effect. 

One Legal Settlement, 15 Years Later, for a Secret Amount

But a brief echo of the case did appear in a brief article in the Pittsburgh Tribune Review published in April, 2013:

Lawyers would not say Tuesday how much money an accounting firm will pay to settle a 13-year-old lawsuit claiming it helped destroy one of the state's largest health care systems. 

'It will result in a very significant recovery,' James Jones, one of the lawyers representing the unsecured creditor of the Allegheny Health Education and Research Foundation, said during a settlement hearing in Pittsburgh federal court.

The creditors in 2000 sued Coopers & Lybrand LLP, the predecessor of PricewaterhouseCoopers LLP, claiming that if auditors in 1996 and 1997 had informed AHERF's board about the foundation's true financial condition, it would have acted to avoid a bankruptcy that resulted in huge losses. The foundation's assets included the Allegheny General Hospital system.

It seems only fitting, given how anechoic this case has been, that much about this settlement remains obscure,

U.S. District Judge David Cercone, in a joint session with U.S. Bankruptcy Judge Judith Fitzgerald, approved the settlement with PricewaterhouseCoopers. 

The company disputes the method the committee used to calculate losses and denies liability in the settlement.

Joseph McDonough, a lawyer for PricewaterhouseCoopers, agreed the settlement amount is significant. He and Jones declined comment.

Jones said during the hearing that a trial could have lasted 40 days. Preparation for the case generated more than 200 depositions, 19 expert opinions and more than a million documents, he said.

The committee sent more than 3,500 notices to creditors about the proposed settlement, and none objected, he said.

Both sides agreed to keep the amount secret, and they discussed with Fitzgerald how to avoid releasing the amount in filings for related bankruptcy action.

Maybe if the case had somehow generated more echoes, health care professionals and policy makers, and patients and the public at large might have learned some of its lessons.  The story of AHERF is not merely that of an unlucky bankruptcy. It shows what can go wrong when health care is taken over by generic managers who adapt the latest management fads, and health care decision making is ruled by marketing, public relations and propaganda instead of evidence and logic, and allows power to be concentrated in organizations run by imperial CEOs.  .

 

We did not get a chance to learn this history, so we seem bound to repeat it.  

Appendix

Some important points about AHERF not found above (see also this narrative, starting on page 5):

• AHERF, one of the largest health care systems of its day, was built by the poster-boy for health care imperial CEOs, Sherif Abdelhak.
• Abdelhak, who started as food services purchasing manager at Allegeheny General Hospital, was repeatedly hailed as a "visionary" (in the March, 1997, ACP Observer) a "genius," and the like. His plans to create a huge integrated health care system were part of the wave of the future. Abdelhak was even invited to give the prestigious John D Cooper lecture at the annual meeting of the American Association of Medical Colleges (AAMC), which was published in Academic Medicine [Abdelhak SS. How one academic health center is successfully facing the future. Acad Med 1996; 71: 329-336.] He proclaimed that "we will need to create new forms of organization that are more flexible, more adaptive, and more agile than ever before." And he announced that "my aim as chief executive has been to unleash the creativity and productive potential of every individual and to provide an environment that encourages teamwork"
• While Abdelhak was making these grandiose promises, he paid himself and his associates very well. For example, he received $1.2 million in the mid-1990s, more than three times the average then for a hospital system CEO. He lived in a hospital supplied mansion worth almost $900,000 in 1989. Five of AHERF's top executives were in the top 10 best paid hospital executives in Philadelphia.
• Although Abdelhak talked of teamwork, he warned the combined faculty of the new Allegheny University of the Health Sciences (AUHS): "Don’t cross me or you will live to regret it."
• As AHERF was hemorrhaging money, Abdelhak continued to pay himself and his cronies lavishly.
• After the AHERF bankruptcy, which was at the time the second largest bankruptcy recorded in the US, Abdelhak was charged with numerous felonies involving receiving charitable assets. In a plea bargain, he pleaded no contest to misusing charitable funds, a misdemeanor, and was sentenced to more than 11 months in county prison.

Posted by Roy M. Poses MD to the Health Care Renewal blog