The Pittsburgh Experiment - II - Another Echo of the Fall of AHERF

We recently started a series of posts about the battle for domination of health care in western Pennsylvania.  The contenders are the UPMC hospital system, the dominant hospital system in the region, and Highmark, the dominant health insurer in the region.  While these two health care behemoths fight, patients, health care professionals, and the public seem to be caught in the crossfire.

There is something of history repeating itself in this battle.

The biggest bone of contention in it is Highmark's attempt to purchase the struggling West Penn Allegheny hospital system.  UPMC leadership seemed to feel that this would put the insurer in direct competition with it, even though UPMC already provides a health insurance product, the UPMC Health Plan.

West Penn Allegheny, in turn, is struggling because it is a remnant of a previous attempt by a single organization to dominate the health care system in this area.  As we wrote in 2011,  West Penn Allegheny was formed from some components of what used to the be the Allegheny Health Education and Research Foundation, AHERF.   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).

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 major 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, albeit incompletely since it was written before Abdelhak's guilty plea [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. (There is a new book out about the case, Merger Games, by Judith Swazey, 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.

Therefore, let me summarize some of 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.

The story of AHERF is not merely that of an unlucky bankruptcy. It shows what can go wrong when health care adopts business practices such as jumping the latest management band-wagons and genuflecting before imperial CEOs.  It also shows what happens when a single health care organization, and the person who leads it, becomes too powerful.

If either UPMC or Highmark definitively wins their current battle, the winner will become at least as locally dominant as AHERF.  As we shall see in the posts to come in this series, the leadership of both organizations has already demonstrated a certain arrogance.  Yet since 2008 we have not progressed to the point of controlling the tendency of a laissez faire health care system to approach monopoly, nor the monopolist's tendency to put his self-interest ahead of all else. 

If nothing else, maybe the messiness of the fight between UPMC and Highmark will remind more people of AHERF, hence the need not to let our health care leadership and governance problems remain anechoic, hence the need for true health care reform that would constrain health care leaders to put patients' and the public's health before their narrow self-interest.