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Buy a faulty hospital and profit. This could be a dangerous new book for wealthy investors



"It's not safe, we're in the middle of everything Jefferson [University Hospital] is not so far, but for a life-threatening situation, the protocol is important," said Maria Gutierrez, an oncological nurse of Hahnemann Call from a manager who announced that all her shifts had been canceled. "That's why he wants the land."

Not included in the submission: The unit that owns the entire site of the city block below the hospital, as well as some associated medical office buildings and parking garages that Freedman had split from the operational business when he and his co-investors acquired them. The same central location, which Hahnemann has made valuable as a healthcare provider ̵

1; the proximity to the city hall and the congress center – makes the location incredibly desirable, even for a high-end hotel or condominium.

"He can not earn money with the country," said Patrick Clancy, president and CEO of Philadelphia Works, the urban employment agency that now supports thousands of newly unemployed workers. "He will have left our city and with money in hand and 2,400 people crawling around, have returned to where he calls home."

Freedman declined to comment on this story by e-mail. "I'll have a lot to say about the Hahnemann situation in just a few weeks. "In a statement released on July 15, he said the state of Pennsylvania had refused to provide the necessary financial support – which the state denies – and was open to any solution that would keep the hospital running not publicly commenting on what's in store for the site.

Despite this, retailers have been reluctant to abandon struggling companies while benefiting from their real estate.

and food sectors that are filled with low-margin companies are on a land that could be more valuable in repositioning From Toys & # 39; R Us to Payless Shoesource, thousands of people have lost jobs by liquidating their employers after being burdened with unsustainable debts.

The companies know that there are always these properties, even if everything else goes awry is going to sell, "says Jim Baker, who runs the Private Equity Stakeholder Project, a non-profit organization dedicated to helping people who are adversely affected by private equity. "It will be part of the business from the start."

When it comes to a hospital, however, the stakes for the church are even higher. If the Hahnemann bankruptcy is proceeding as planned, supporters fear that other private equity companies might try with difficult hospitals to revamp neighborhoods in the US. "It will blow up if you have a success like Hahnemann," says Eileen Appelbaum, a private equity expert co-director of the Leftwing Center for Economic and Policy Research. "Everyone will know that you can make money from a hospital property."

  Senator Bernie Sanders held a rally at Hahnemann Hospital in early July, promising to introduce legislation to create a $ 20 billion fund to help local governments buy hospitals in financial distress In early July, a bill was announced to create a US $ 20 billion fund to help local governments buy hospitals in financial distress that are rapidly changing private investors. </p>
<div class= According to Bain & Company, the global value of disclosed private equity acquisitions of healthcare assets ranging from nursing home care to medical device manufacturers rose to $ 63.1 billion in 2018, the highest in the healthcare industry Overall, Bain reports higher margins than any other industry and as rel Relatively stable in the event of an economic downturn, the share of healthcare buyouts in total private equity deal volume has also risen.
It is not yet clear what this means for patients. A recent article in the Journal of the American Medical Association has voiced concerns that private investors generally demand high returns in a short time, forcing physicians to exaggerate more expensive treatments over less profitable ones and forcing hospitals to step up leaving medical personnel have less training.

More generally, the authors write Suhas Gondi and Zirui Song of Harvard Medical School, private equity companies do not have the same incentives as academic and nonprofit hospitals to use income streams from private insurance to subsidize long-term care and medical care , Its primary purpose is to increase profits for investors, typically by consolidating assets in a particular geographic area or specialty before they are sold.

"The number of private equity transactions in the healthcare sector has accelerated significantly in recent years," Dr. Joseph Bruch, a graduate student at Harvard, is exploring how this trend is affecting patient care, for which there is little definitive research to date. "We just do not know it and it's very fast."

The Hahnemann Hospital seemed from the outset to be a strange target for a private equity investor.

Former owner Tenet Healthcare lost $ 15 million to Hahnemann and St. Christopher's in fiscal 2017. Philadelphia is a highly competitive marketplace where several large academic health systems provide state-of-the-art facilities and facilities for patients with private insurance plans.

Hahnemann, who primarily served patients who were insured by Medicaid and had difficulty staying afloat with these low reimbursement rates, would have invested heavily in equipment and IT systems to gain more lucrative clientele. And the healthcare industry has generally turned away from large inpatient facilities to smaller community-based clinics that can provide most services at a lower cost.

Freedman said he would try to change that. "We are thrilled and proud to be the new owners of these venerable Philadelphia hospitals and the outstanding clinical and academic programs for which they are recognized," he said in a press release when the sale was completed in 2018.

His company, American Academic Health System, is a subsidiary of El Segundo-based Paladin Healthcare, whose sole director is Freedman. The acquisition was funded with a $ 51 million loan from investment firm Harrison Street Real Estate and a revolving credit line from MidCap Financial, a subsidiary of Apollo Global Management, one of the largest private equity firms in the country.
  Joel Freedman (left) poses for a photo with Howard University's president, Wayne AI Frederick, in January 2018. Freedman's company, American Academic Health System, previously headed the Howard University Hospital, but the university announced that it would Contract, which ended in March, will not extend.
American Academic advertises its website The management of Howard University Hospital in Washington, DC has cut costs and increased revenue since 2014. However, this contract ended in March and Howard said he decided not to renew the contract with American Academic. The other hospital system, which managed a subsidiary of American Academic – Avanti Hospitals, a portfolio of facilities in California that belonged to Freedman until January – agreed in December 2018 to pay $ 8.1 million to the US Department of Justice, to clarify the allegations made by him claims to Medicare and Medicaid.
After all, American Academic did not invest much in Hahnemann through its Pennsylvania Academic Health System subsidiary. In bankruptcy petitions, the company's restructuring offer indicated that Hahnemann lost more money than the previous owner had stated that his technology systems were in disarray and that the company had significant pension obligations and debts of over $ 100 million toward Drexel University College of Medicine – Hahnemann used as a primary educational institution – and a variety of providers. St. Christopher's also paid $ 1.3 million in monthly rentals shared by Freedman and Harrison Streets. On May 8, MidCap filed a notice of default, prompting Pennsylvania Academic Health System to sell the hospitals. When this failed, they tried to bankrupt them.

The city and the state tried to keep the hospital open. A spokesman for Governor Tom Wolf told CNN Business that the state offered tax deferred and Hahnemann offered to set up a payment plan that the hospital management never agreed to. Jim Engler, Mayor of Philadelphia Chief of Staff Jim Kenney, said officials had started meeting with hospital management in April to reach a financing agreement that would keep the hospital open, but they were shy.

"During Whom We Discussed the future of the hospital, we requested documentation to determine the actual financial situation of the hospital," said Engler. "And they have never submitted these documents."

In a joint statement released in early July, Wolf and Kenney said Hahnemann's owners "wanted bankruptcy to protect the profits they had pulled from the hospital and the community," and welcomed any suggestions for " how we can help reduce the damage to Joel Freedman and his company. "

Allen Wilen, the hospital's chief restructuring officer, said the talks were unsuccessful. "While certain aspects of this discussion were initially promising, many conditions were mentioned that were not feasible," he said. Freedman accused the state of cutting the hospital's allowances for his Medicaid population, and according to the bankruptcy records, a potential sale to Drexel failed.

In a recent trial, the city even ordered the hospital to stay open under a 1969 decree requiring the city health commissioner to sign an emergency room closure. However, on July 17, the hospital stopped the admissions. The officials can not do anything else: Hahnemann is private property, and the zoning allows many different uses, so the city does not have much influence.

  Doctors and nurses have

The real winner could be MidCap Financial, whose nearly US $ 60 million loan is secured by the mortgage on Hahnemann's main hospital building and grounds below, as well as the right to collect Hahnemann's unpaid bills. In the meantime, interest rates and fees are being raised that could generate millions of dollars.

Regardless of who pays, Hahnemann is unlikely ever to re-open as a full-service hospital, said Joseph Fetterman, a Philadelphia-based physician executive vice president at commercial real estate broker Colliers International. The land could be more valuable as a hotel or condominium, the healthcare market in Philadelphia is already overburdened, and there is no way to profitability of a security network investment that requires massive capital investment.

"These hospitals are closing in on their own weight," Fetterman said. "The value proposition of these older institutions naturally declines, and this will not be the last. The real question is how to reconcile the needs of the community with the right planning solution for the city."

] This question is actively discussed at the national level. Sanders hosted a rally at the hospital in early July, which served as the backdrop to his Medicare for All-Plan, and promised to introduce legislation to create a $ 20 billion fund to help local governments fund hospitals Not to buy.
The Democrats not only help the hospitals, they also curtail the wings of private equity. Earlier this month, a group of legislators, led by Senator Massachusetts and presidential candidate Elizabeth Warren, tabled a bill that would restrict many fund activities, in particular by holding the private equity firm responsible for all its debts incurred through its acquisitions becomes.

] This legislation is unlikely to go anywhere in the Republican-controlled Senate, but there is a chance it will pass if the political winds change after the 2020 elections, a similar strategy with sick hospitals in the US. "data-src-mini =" // cdn.cnn.com/cnnnext/dam/assets/190727113234-03-hahnemann-hospital-private-equity-restricted-small-169.jpg "data-src-xsmall =" / /cdn.cnn.com/cnnnext/dam/assets/190727113234-03-hahnemann-hospital-private-equity-restricted-medium-plus-169.jpg "data-src-small =" http: //cdn.cnn. com / cnnnext / dam / assets / 190727113234-03-hahnemann-hospital-private-equity-restricted-large-169.jpg "data-src-medium =" // cdn.cnn.com/cnnnext/dam/assets/190727113234 -03-hahnemann-hospital-private-equity-restricted-ex-large-169.jpg "data-src-large =" // cdn.cnn.com/cnnnext/dam/assets/190727113234-03-hahnemann-hospital-private- equity-restricted-super-169.jpg "data-src-full16x9 =" // cdn.cnn.com/cnnnext/dam/assets/190727113234-03-hahnemann-hospital-private-equity-restricted-full-169.jpg "data-src-mini1x1 =" // cdn.cnn.com/cnnnext/dam/assets/190727113234-03-hahnemann-hospital-private-equity-restricted-small-11.jpg "data-demand-load =" not -loaded "data-eq-pts =" mini: 0, xsmall: 221, small: 308, medium: 461, large: 781 " src = "data: image / gif; base64, R0lGODlhEAAJEAAAAAP /////// wAAACH5BAEAAAIALAAAAAQAAkAAAllI + py + 0Po5yUFQA7" />

A system that was emphasized

The effects of Hahnemann's closure are already being felt. In the last three weeks, the emergency department at nearby Thomas Jefferson University Hospital has treated up to 290 patients per day, averaging 175 on average. Despite additional staff and new space, patient walking time has shortened in the doorway she is a provider of 13 minutes to 18 minutes. The maternity ward has grown from a predicted annual delivery rate of 1,800 births to 2,800 births.

"It was stressful," says Jefferson's President Bruce Meyer. Complicating the problem: The vast majority of new patients are covered by Medicaid. The state and the federal government had allocated millions of dollars a year to Hahnemann to supplement the low reimbursement rates. "In order to maintain the cost-effectiveness of this patient population, we would have to see that part of it comes to Jeff," Meyer said.

About 573 medical residents started on July 1 in Hahnemann – filed one day after the bankruptcy petition – now new places need to call home for next year. The approximately 800 nurses who worked in the hospital have a good chance of finding new jobs in Philadelphia's vibrant healthcare market, said Clancy of Philadelphia Works. But with so many looking at once, many may need to travel much further or return to school to improve their certifications. No severance pay was currently offered to facilitate the transition.

There are other types of resolution disorders that were more abrupt and chaotic than expected.

The oncology nurse Emma Vrancik (26) from Hahnemann should give birth to her second child in August. However, when told that her health insurance would end in July after having suffered serious complications during her first pregnancy, she decided that she could not take the risk if something went wrong again. So she asked her doctor to start the birth early. Her daughter Dylan has lost a pound since she was born because she has difficulty eating, and stays in the sixth weight percent.

"I forced my body to do something it should not do," said Vrancik, who brought the newborn to a protest outside the hospital on Wednesday, and talked about the difficult choice.

Nevertheless, she mainly thinks of her patients. Vrancik did not know what to say to them when they asked her what was next for them.

"Of course we all wonder where we're going," Vrancik said. "But the bigger question for us is where to go, nobody wants the people we treat, but we want them."

"Our patients keep coming back, we spend birthdays with them, we get Christmas gifts, we're there when they get their diagnosis, and they're all over the family," Vrancik continued. "We lose a paycheck, we lose our maternity leave, we lose our health insurance, but we also lose a family."


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