I am Dr. Stephen Klasko, I'm the Dean of Drexel University College of Medicine and a practicing ob/gyn at MCP Hospital.
Mr. Chairman, I have a couple of items which I would like to put in the record. You and I have discussed 112 012904 - COMMERCE - RES. 040046 this, and with your approval I'd like to proceed. Mr. Chairman, this hearing today comes as a result of Resolution No. 040046, the title of which was read into the record, but at this point I wish to make note of a particular section of the title. This section of the title deals with "The Committee is authorized in furtherance of its investigation to issue subpoenas as may be necessary to compel the attendance of witnesses and a production of documents to the full extent authorized under Section 2-401 of the Philadelphia Home Rule Charter." With that in mind, again, Mr. Chairman, Section 2-400 -- and that resolution 18 was passed unanimously by this Council on January 22, 2004. Section 2-400 of the Home Rule Charter is entitled, "Inquiries and Investigations. The Council shall have power by resolution to authorize inquiries and investigations to be conducted by the entire body or by any of its committees in aid of its 113 012904 - COMMERCE - RES. 040046 legislative powers and functions." Section 2-401 is "The Power to Obtain Attendance of Witnesses and a Production of Documents. The Council shall have the power to compel the attendance of witnesses and the production of documents and other evidence at any meeting of the body or of any of its committees under the procedure set forth in Article 16, Section 8 of the Act of June 25, 1919, Public Law 581." Lastly, Section 2-402, Oaths of Witnesses. The presiding officer of the Council or of any of its committees shall have the power to administer oaths to the witnesses." With that in mind, I'd like to ask the witnesses to stand so they can be sworn. Please raise your right hand. Do you swear or affirm that the testimony that you are about to give is the truth, the whole truth and nothing but the truth, so help you God?
Thank you. Mr. Chairman, let me read into the record Title of the Pennsylvania 5 Consolidated Statutes, Section 4903. It's 6 entitled, "False Swearing." Section A, "False 7 Swearing in Official Matters. A person who 8 makes a false statement under oath or 9 equivalent affirmation or swears or affirms 10 the truth of such a statement previously made 11 when he does not believe the statement to be 12 true is guilty of a misdemeanor of the second 13 degree if, one, the falsification occurs in an 14 official proceeding; or two, the falsification 15 is intended to mislead a public servant in 16 performing his official function. Violations 17 of this nature are misdemeanor of the second 18 degree, is punishable by two years imprisonment or by a fine of up to $5,000." Mr. Chairman, I have a couple questions I'd like to place into the record, seek answers to those questions, and with your approval, I'd like to proceed.
Thank you, Mr. 115 012904 - COMMERCE - RES. 040046 Chairman. Mr. Schaengold, please identify all individuals who were and/or may have been involved in any way with the drafting, negotiation, or interpretation of the asset purchase agreement, specifically identifying the terms of their involvement and respective roles therein.
I do not know all the individuals that were involved in that drafting of that document. I was not part of Tenet at the time.
Is there an individual at your team who would have that information? You know what document I'm talking about; is that correct?
The assets purchase agreement to buy the assets from the Orphans Court is what you're referring to.
Right. I don't believe there is anyone here that was involved in that. We'll be perfectly happy to provide 116 012904 - COMMERCE - RES. 040046 that information to you at a later date.
Your counsel is not aware and cannot answer such a question?
I'm not sure that she could. None of those individuals are here today.
So you're not familiar with all of its terms and conditions?
No. The individual sitting next to me is Barbara Zurzolo who is our legal counsel. 117 012904 - COMMERCE - RES. 040046
That's fine. When I have a question for her, I'll ask. Can you identify all the individuals who were and/or are involved in any way with the formation, empowerment, and/or operations of the MCP Governing Board?
Can you identify any individuals who were or are involved in any way with the formation, empowerment, and/or operations of the MCP Governing Board?
The Governing Board is appointed by Tenet, and I don't know all the members on that Board.
Frank Congdon, Richard Freedman, we've got some physicians that are on there. I'm not familiar with all the members of the Board.
So you don't 118 012904 - COMMERCE - RES. 040046 know who's on the MCP Governing Board?
But you're not familiar with all the members of the MCP Governing Board?
Do you know any of the individuals who are involved in the formation of the services rider agreement that's a part of the asset purchase agreement?
I'm aware of some of the attorneys that were involved in that, but I was not part of the Tenet Corporation at the time.
Is it within Tenet's -- the sole province of Tenet 119 012904 - COMMERCE - RES. 040046 Healthcare, Tenet Health System, and/or Tenet MCP to make the decision to close MCP?
And are there any specific documents that pertain to that authority?
Well, I would say that the asset purchase agreement and as owners of the facility.
Let's talk about the proposed closure. What date was the decision made to close MCP?
The decision was made on December 12th, I believe. 120 012904 - COMMERCE - RES. 040046
A number of executives. I wonder, sir, would it possible for me to make a statement and then answer a series of questions? Because I think I can clarify many of the comments that have been made about Tenet in the process and then I'd be happy to answer any questions. I would really appreciate an opportunity to speak to the Council.
You have an opportunity to speak to the Council right now. You're answering my questions. Who are the individuals involved in the decisions to close MCP?
Trevor Fetter, the CEO of the company; Steve Farber, the CFO of the company; Reynold Jennings, President of 121 012904 - COMMERCE - RES. 040046 Eastern Division, and I'm sure there were other individuals involved.
How many meetings were held prior to December 12th to consider the proposed closure of MCP?
We presented a budget relating to MCP and the business plan proposal two days before that, and there were other discussions that went on, on and off for several weeks.
Well, we've been talking about the performance of MCP for several weeks. And in fact, we have spoken 122 012904 - COMMERCE - RES. 040046 about the performance of MCP with their Board on a number of occasions.
When was the first discussion of a proposed closure of MCP?
Was it close to December 12th, was it a month before, was it two months before? What's your recollection of the first time that someone said, "We should close MCP"?
It probably would have happened in November-December time frame. I don't have a recollection of an exact date.
How many hospitals have you proposed to close personally?
And so since you have not closed or proposed to close a significant number of hospitals, is it unreasonable to think that you would actually recall the numbers, specific details to such a significant act? This is not something you do on a regular basis, right?
I think I've responded to the best of my recollection, sir.
So you think sometime in November-December someone suggested that maybe MCP should close; that's 124 012904 - COMMERCE - RES. 040046 your testimony?
I can't specifically recollect who specifically proposed that.
Did I propose it? I recommended that in view of MCP's financial condition that that was probably the most likely outcome.
On the 10th, our discussions must have taken place in Dallas by the senior executives, and I was advised on December 12th that the decision has been made to proceed with closure of MCP.
How many hours were these discussions? How long did it take to decide to close a 153-year hospital?
But somewhere -- now you're saying somewhere contained within a 48-hour window the decision was made; is that your testimony?
And are you the only person from Philadelphia who participated in these discussions?
In the presentation 126 012904 - COMMERCE - RES. 040046 of the budget, no. My vice president of finance presented the budget. Richard Freedman was present to present the budget for MCP and there were other Tenet executives there to hear the presentations.
And so who actually gets to make the call? Whose call is this?
I believe it would be the senior most managers of the company, Mr. Trevor, Mr. Farber, Mr. Jennings.
And who called you and told you that that was the recommendation?
I do not believe 127 012904 - COMMERCE - RES. 040046 that he had met with the Governing Board.
The role of the Governing Board is to monitor the quality of care provided at the hospital.
Was the Governing Board consulted about this decision?
No. They were advised of that the morning of the announcement.
So some of them may have read about it in the newspaper as well.
Well, yesterday we made a national announcement of a reorganization of our company, and we are divesting ourselves of 27 hospitals. We, at the same time, announced that we remain committed to Philadelphia, and the five remaining hospitals in Philadelphia will be 128 012904 - COMMERCE - RES. 040046 part of the strategic core that is kept by the company.
And based on that announcement, is your testimony that none of the remaining five hospitals will close?
As far as I know, and based on information that I have, there is no reason to consider their closure.
A year or so ago you probably could have made the same statement about MCP; is that correct?
That is correct. In fact, as of August of last year I thought we had an opportunity to be able to save MCP.
Well, I had hoped that their financial could be reversed, and I was proven wrong.
Didn't you, in fact, hire a consultant to look at this situation?
What's the name of the consultant? 129 012904 - COMMERCE - RES. 040046
When did they start doing their consulting work and when did they conclude?
They began about September, and they concluded their work around Thanksgiving period.
Their conclusion was that if you assume that there could be major changes in how the clinical practice at MCP is conducted, if you would assume that major changes in operations could be accomplished, if you assumed that we could reduce the length of stay and the resources applied to each stay could be accomplished, there was a chance that within a 24-month period MCP could reach a break-even point. However, during that same period of time, it would still experience about a $25 million cash flow loss.
During the two-year period? 130 012904 - COMMERCE - RES. 040046
The report was accepted by me and considered as part of the decision process.
So you never took advantage of any of the advice or opportunity from the consulting report or sought to implement any of the recommendations; is that correct?
That is correct. We concluded that regardless of the changes that we would make, that would not substantially change the financial losses at MCP.
We made a decision based on the facts available to us that we could not sustain the continuing losses at MCP and take the chance of jeopardizing the well-being of the remaining five hospitals in this market. 131 012904 - COMMERCE - RES. 040046
Could you provide to the Chair a copy of the consultant report?
We have provided a copy of that to the City, but we'd be happy to provide you a copy also.
The City is conducting an audit, and that is part of the documents that they requested.
I understand that. The question was, when did you provide it to the City?
I don't have the exact date but, it was within the last couple weeks.
I'm Barbara Zurzolo, I'm Senior Counsel for Tenet. We are working with the City on an audit under the settlement agreement. And as part of that audit, the City has requested 132 012904 - COMMERCE - RES. 040046 that document. They've come over and reviewed it on site, and we have made copies for them. And when they return, we'll give them a copy of it. But they have had an opportunity to go through it at Tenet.
Mr. Schaengold knows that we're in the course of the audit. It's an ongoing thing. It's very document intensive. And as they come over and go through documents, they're tagging them. We give them their copies when they return.
I don't understand that. What do you mean you give them their copies when they return? From where?
They'll be back. They'll be back next week, and they have identified those areas of various documents that they wanted copies of when they were here the last time.
I understand that. How big is this consultant report? 133 012904 - COMMERCE - RES. 040046
Probably about a hundred pages. We'd be happy to provide a copy to the Chair and Vice Chair.
Thank you. Mr. Chairman, I recognize that a number of members or State Legislator guests may have questions. As you can imagine, I have just a couple more. But I'd certainly relinquish so that others could participate. I do have a number of questions around the proposed closure issue, but I will yield.
Thank you, Councilman. The Chair recognizes Councilwoman Tasco.
Thank you. 134 012904 - COMMERCE - RES. 040046 When you received the consultant report, you said you made the decision to close the hospital. Did you take the report to the Governing Board? Did they look at the report?
Well, if they have the responsibility for the financial health of the hospital, why did not the Governing Board see the consultant report? And is it the Governing Board's responsibility to also participate in those decisions?
The Governing Board has the responsibility to monitor the quality of care provided to the hospital. They do not have the responsibility for the financial operations of the institution.
Well, it seems to me that they go hand in hand. You've got to have the ability to provide the services, you have to have the financial ability to do that. It seems to me that they would have some fiduciary responsibility for the hospital as a Governing Board. Do they not? 135 012904 - COMMERCE - RES. 040046
Under our structure, the Boards of the hospitals are advisory in nature. They are responsible for monitoring the quality of care. They are not responsible for the financial aspects.
So you don't take any financial issues to the Governing Board at all?
We report to them the financials, but that is not one of their fiduciary responsibilities.
Well, if they don't have the responsibility for the financial health of their hospital, why do you report it to them?
They are responsible for monitoring the quality of care provided.
Do you disagree that they shouldn't have financial information so they would know what kind of services you're providing to their patients?
Yes, they do get the financial information. The report was not 136 012904 - COMMERCE - RES. 040046 given to them for implementation.
Don't you think it was important for them to know that if you were going to close the hospital that having that report and knowing that there were other alternatives to your closing the hospital, that should have been their decision as their role in providing the health of the hospital?
Well, the decision as to whether the hospital should remain open or closed is a Tenet responsibility. In the process of evaluating our alternatives, we had concluded that the likelihood of MCP remaining open was very low and that there would not be any other alternatives to keep it open in view of the losses that were mounted in that facility.
Thank you, Councilwoman. The Chair recognizes Representative Manderino. REPRESENTATIVE MANDERINO: Thank 137 012904 - COMMERCE - RES. 040046 you, Mr. Chairman. Thank you for being here. Mr. Schaengold, it is my understanding that the Pennsylvania State Department of Health has delivered and Tenet has received a letter with regard to the State's position or perception of where you stand with regard to the 90-day notification for hospital closures in Pennsylvania. Are you aware of that letter?
Yes. REPRESENTATIVE MANDERINO: Could you describe to us your understanding of what that letter says?
Well, we obviously have a difference of opinion. The Department of Health has written to us that they believe that since we are under an order not to close MCP that the 90-day notification period will not start until the order is lifted. But in fact, there is no order prohibiting the closure of MCP. There is an agreement between the petitioner and Tenet that we won't do anything to accelerate the closure activity prior to March 31. 138 012904 - COMMERCE - RES. 040046 REPRESENTATIVE MANDERINO: Let me ask a few follow-up questions from that. First of all, it is my understanding, and tell me if you agree with me, that the State law requires 90-day advanced notification before a hospital closure. Are we on the same with regard to that?
Yes, and we in fact provided that notice. REPRESENTATIVE MANDERINO: Okay. It is my understanding that that notice comes with an obligation to file a hospital closure plan; is that correct?
That is correct. REPRESENTATIVE MANDERINO: And have you filed that hospital closure plan?
We did not file a closure plan because we were concerned that that would be construed as accelerating the closure process and we would then be in contempt of the agreement. We are now discussing this matter with legal counsel, and we are perfectly prepared to work with the Department of Health, but we were basically 139 012904 - COMMERCE - RES. 040046 caught in a no-win position. We were trying to respond to -- REPRESENTATIVE MANDERINO: You certainly are. Let me get this straight. (Applause.) REPRESENTATIVE MANDERINO: On the one hand, you don't believe that there is any stay of action or anything that the court case currently going on and that the judge has ordered did anything to stop the 90-day clock from starting to tick, but at the same time you legally were concerned that you couldn't file a closure plan because the judge may think that in contempt. Now, to me, there's an incongruity there. To me, it means that you certainly have concerns about the legal ramifications. And let's not have a legal argument, because that's what the lawyers will have in court. But do you not agree by what you just said that the 90-day clock doesn't start to run until you file, under the State law, the closure plan?
Our legal counsel 140 012904 - COMMERCE - RES. 040046 will be filing a formal response to the Department of Health tomorrow on that issue. REPRESENTATIVE MANDERINO: For the record -- and it looks like Councilman Nutter wants me to --
Just a point of information, Representative. Please continue. REPRESENTATIVE MANDERINO: Go ahead.
Representative, I think there's a clear difference of opinion, but this is the order from Judge Carrafiello. "And now this 8th day of January 2004, it is hereby stipulated by the parties and ordered" -- in bold type -- "that, one, defendant has agreed until further order of this Court not to take any action to implement closure of the hospital of the Medical College of Pennsylvania subject to the following paragraphs of this order." And then it's four or five paragraphs that detail all of the things that the defendant in this matter cannot do; can't take equipment, can't stop providing service, can't do a whole host of things. There is no ability under this court 141 012904 - COMMERCE - RES. 040046 order if you read the plain English for the hospital to close until the judge takes further action. And that matter, at least according to this order, won't be taken up until February 19, 2004, at o'clock a.m. I 7 don't think there's any dispute about that. 8 REPRESENTATIVE MANDERINO: Thank 9 you, Councilman Nutter. I think that you have 10 helped to further make my point, but I do want to, again, make sure that I understood the answer submitted for the record, which was the reason a hospital closure plan wasn't submitted to the State was because you were concerned that if you did so you would violate what Councilman Nutter just read. Did I understand you to testify as such?
That is correct. REPRESENTATIVE MANDERINO: Okay. For the record, I will just state for the record what I believe is now the time frame and what I think the Department of Health believes is now the time frame, and I think that is that until at the earliest February 11th, if at such time on February 11th that 142 012904 - COMMERCE - RES. 040046 the Court takes any kind of action -- and if they don't, then that time frame of February 11th doesn't even stand -- but once the Judge lifts any stay, that then would allow for a closure plan to be filed with the State, then the 90-day clock starts to run. So the way I do math, March 31st does not seem to meet a time frame that is consistent with Pennsylvania State law. Does Tenet agree that March 31st is not consistent with State law or is that part of what you -- the March 31st closing is not consistent with complying with the State Hospital Notification Closure Act, or are you at this point still disagreeing with that conclusion of the Pennsylvania Department of Health?
I'm going to have to defer to our legal counsel to respond to our position. REPRESENTATIVE MANDERINO: Are we deferring now, or are we deferring --
We're going to be filing our response tomorrow. 143 012904 - COMMERCE - RES. 040046 REPRESENTATIVE MANDERINO: Filing a legal response tomorrow. My last question, and I didn't get a chance to ask it when the City representative was here, but I do believe as a Tenet representative you have equal knowledge. And that is, there was discussion in the first panel about tax implications, tax reliefs, tax abatements. But it's my understanding that there is as part of the asset purchase agreement that Councilman Nutter talked about there was already some sort of tax relief, tax abatement, tax deferrals that were given to Tenet as part of that 1998 agreement. And I would like to hear you state for the record what those were so that I make sure I understand it.
Representative, I believe there's also still a City representative here. I ask them to approach the witness table to answer that question as well. You may proceed.
In 1998, Tenet paid 144 012904 - COMMERCE - RES. 040046 the Orphans Court $345 million for the eight hospitals, and we pledged another $70 million to support the College of Medicine. Because we committed to continue the educational mission of both Hahnemann University Hospital and MCP Hospital, the City agreed to continue a tax abatement for the two properties. The tax abatement that was extended to Tenet was for Hahnemann and MCP real estate, and it totalled $4.8 million per year for a 10-year period. Five years of this abatement has been realized, totaling approximate $24 million. So that is the only State and City tax support that Tenet has received as part of our multimillion dollar rescue of the eight properties.