Thank you. Will the City representative please approach the witness table, identify yourself for the record and respond to the Representative's question.
My name is Carol Rogers. I'm standing in for Health Commissioner John Domzalski. I don't have the 145 012904 - COMMERCE - RES. 040046 figures. It's my understanding also that there were Gas Works bills that were forgiven as well, as well as other utility bills that were owed by some of these properties.
Who would have direct access to that information at this moment?
I could probably get it for you if I can make a phone call, which I'll be happy to do.
We'd like know not only what were the abatements -- I mean the give-backs, and the actual amount. Because $24 million dollars is a lot of money. And I'd certainly like to know the amount not paid to the Gas Works, as Chair of Gas Commission because the people's rates are going up. I want to know what a profit-making 146 012904 - COMMERCE - RES. 040046 company didn't pay when people in this City do have to pay. (Applause.)
If I may clarify, those tax bills belonged to the preceding organization, the one that was bankrupt. They were not bills that we generated. There was an agreement for Tenet not to be responsible for bills that were accumulated by the bankrupt entity.
That's still tax forgiveness. You didn't assume their liabilities.
The Chair recognizes Representative Roebuck. REPRESENTATIVE ROEBUCK: Thank you, Mr. Chairman. I'm troubled by this discussion, in part because it seems to focus as if MCP stands by itself. But my recollection is that in reality MCP is tied to Hahnemann. Indeed, Drexel University which runs their College of Medicine captions 147 012904 - COMMERCE - RES. 040046 everything MCP-Hahnemann as if they're one entity. And you're saying that you're abandoning MCP but you're going to keep Hahnemann going. I find that hard to believe, I really do. (Applause.) REPRESENTATIVE ROEBUCK: I find that hard to believe in light of what's going on with MCP at this point. I guess maybe the question is both to Tenet and to Drexel as to what is the real commitment here to keep Hahnemann going once you cut and run on MCP and you still own Hahnemann? (Applause.)
As a company, we have looked at the assets that we purchased out of bankruptcy in this market, and I just want to remind everyone that five years ago, Tenet was the only party that came to the table and was willing to acquire the bankrupt assets with what still remains as the largest bankruptcy of US history for a not-for-profit entity. We were the only ones who accepted 148 012904 - COMMERCE - RES. 040046 the burden of all eight properties. Unfortunately, some of these properties simply have not been able to survive. They were on the verge of closing within days of our acquiring those properties. We believe that with the closure of MCP, the remaining five hospitals are strengthened, are stable, and will continue to succeed in this market. And that is why the company included those five hospitals in its core group of institutions when we announced the restructuring yesterday. REPRESENTATIVE ROEBUCK: But again, if memory serves me correct, at least part of the viability goes on State tax dollars. Every year, as I remember, we vote in Harrisburg money to Drexel to keep Hahnemann-MCP going. And we did that this year even after you announced you were closing MCP. Now, I guess I'm troubled by -- I'm trying to understand where the money's going. I'm trying to understand what we're doing. I remember Drexel got $50 million in the course of this deal for putting this agreement together. So where is the long-term 149 012904 - COMMERCE - RES. 040046 commitment for these dollars that taxpayers across the Commonwealth have given up?
Well, the dollars were not given to Tenet. I believe they funded the continuance of the School of Medicine, and I cannot speak to the specifics. REPRESENTATIVE ROEBUCK: But every time I drive by that facility at Broad and Vine, which I just did coming here, it says Tenet on it. That's the name on it, it says Tenet.
Mr. Schaengold, I know our State friends are used to this. They go sometimes even longer than ourselves, and we'll take the time that we need. I do want to at least suggest to you that the continued defense or reference that we should continue to be just so totally thankful and possibly genuflect and bowed for Tenet coming five years ago, now, you were not here but I was. Tenet actually was not the only entity that was interested -- 150 012904 - COMMERCE - RES. 040046 (Applause.)
-- in purchasing the then bankrupt Allegheny Health System. There were others. Actually, there was a deal put together before Tenet came to the table, and for whatever reason -- with a company by the name of Vanguard. I met with them after they signed up, a couple weeks after they announced their deal. For whatever reason, the deal fell apart. That's one. Second, when Tenet came on the scene, who virtually no one in Philadelphia knew, they were in fact welcomed, although there was an attempt in bankruptcy to cherry pick the eight hospitals because they didn't want all eight hospitals because they knew all eight hospitals were not necessarily viable. The deal from the judge in Bankruptcy Court was, it's an all-or-none transaction. Tenet made a business decision, not a benevolent decision, not a holy decision, not a oh-we'll-just-come-and-help-you-out decision, they made a business decision to come to this market where there is no 151 012904 - COMMERCE - RES. 040046 for-profit entity operating and thought they could make a go of it because things were riding high and profits were up and the company was doing well and it was off to the races. So I want to caution you that many of us do have a sense of appreciation from five years ago. We didn't want to see eight hospital closed and thousands of people thrown out of work. I want to caution you that it's worn thin, because we're now in a very serious situation about this hospital. We didn't have all of these hearings about the other three, and we've gone through some of these same procedures. And actually, if the company had done what it did with City Avenue, maybe you wouldn't be sitting here under these circumstances; but you didn't, because someone made a business decision to now close this hospital. So I just want to caution you that we're grateful for things that happened in the past. We're going to resent the continued reference to it because this situation has not been handled right. You know that; I know 152 012904 - COMMERCE - RES. 040046 that. Certain statements were made, certain commitments were made, certain representations were made. Has the company made money in Philadelphia?
And when you can't make money, you close facilities; is that the model?
That is no different than our not-for-profit brethrens. You have to make a profit in order to continue the operation of your hospitals. This is not a tax exempt versus taxable issue. 153 012904 - COMMERCE - RES. 040046
I understand that. I'm not making that argument. But there are a number of hospitals that operate with similar margins and serve similar patients who are not here with us today, who are not making many of the same claims, and so he did get some tax breaks and some tax relief. And from your perspective, what were the company's revenues last year?
So I understand why $24 million might not seem like a lot of money to you, but --
Your statement was, "it's only been $24 million over the last five years." That's what you're stating.
It's a lot of money to us. It's a lot of forgiveness to us. It's a lot of pain here and anxiety, and we've yet to hear what you plan to do about it or 154 012904 - COMMERCE - RES. 040046 what your ideas are about the facility, about any one of the questions for all the people who have been accessing hospital. A lot of people go to MCP; is that correct?
What are they supposed to do? Where are they supposed to go?
My intention this afternoon is to address many of those issues in my prepared statement. I would like to address those issues, if I may. Let me first begin with comments made earlier about the way we communicated our announcement.
My Vice Chair said it was fine with him, but before you proceed with your testimony, I would like to allow Councilman Rizzo and then Representative Bishop to ask you a few more questions.
What assessment was made to decide not to try to sell MCP?
I concluded and others concurred that the likelihood of 155 012904 - COMMERCE - RES. 040046 someone coming forward who would wish to operate a facility that was experiencing the kind of losses MCP was experiencing with its payer mix and its cost structure was literally nil, and it would have been a disservice to everyone to leave the impression that somehow that was a likely outcome. We did not believe that there was anyone out there who is prepared to operate MCP as an acute care facility.
Would it be to Tenet's -- I'm trying to get the right words because this is a very pointed question. Would it be to your advantage, Tenet, not to have MCP sold and be a viable healthcare facility?
We have stated from the moment this decision was made, and we've made that statement to the Governor and to others, that we are prepared to turn this facility over to any viable operator, whether they are for profit or not for profit, who wishes to operate this acute care facility, including turning it over to the State or the 156 012904 - COMMERCE - RES. 040046 City for one dollar per year and they can operate this as an acute care facility. We do not wish for this facility not to be operated on if someone comes forward. We don't believe that that's going to happen. It hasn't happened since the announcement was made.
There's been no 9 interest, no one's reached out and even had any conversation about this, about the potential of purchasing MCP? There's been zero talk?
The contacts that have been made to us have been related to the real estate only. There has been no contact made to me from anyone who wished to operate it as an acute care facility. In fact, I've not been contacted by anyone who wants to operate it as any type of a healthcare facility.
You've had people reach out. What kind of a facility would people consider that become, other than acute?
There's been comments made that maybe this could be turned into a long-term facility, an extended-care 157 012904 - COMMERCE - RES. 040046 facility, assisted living. Those were things that people were bantering around as possibilities, but I have not been contacted by anyone who actually wanted to do those things.
The Chair recognizes Representative Bishop, followed by Senator Hughes. REPRESENTATIVE
Thank you very much, Mr. Chairman. The previous questioner went just about where I wanted to go with you. I was going to ask, with the thousands of people that you have serviced already over the past five years in the City of Philadelphia, with all of the nurses that will be out of work and all of the doctors that will be out of work and with the people that would be inconvenienced by the closing of that facility, it seems to me, before you would suggest closing, if you saw that you were in financial difficulty and losing money, the 158 012904 - COMMERCE - RES. 040046 first question most business people will ask is, "Can we sell it?" Did you look for a sale? Were you interested in a sale? Did you ask if there were any other healthcare provider, a hospital in the City, that would be interested in some way partnering with you so that at least the people who lived in that area would have had a convenient place to continue their treatments and to go for their care?
Based on the experience we had with Parkview, where we attempted to find a buyer for that facility, we concluded that no one would be forthcoming to do so. We never received any legitimate inquiries in regards to Parkview, and we concluded that the same would happen with MCP. REPRESENTATIVE
Let me ask the question in another way. Will you be willing at this point, if a viable group came, to sell MCP and allow it to continue to operate as an acute care facility?
Absolutely. We've even stated that in view of the fact that the 159 012904 - COMMERCE - RES. 040046 City of Philadelphia does not have a public hospital, we would be willing to turn over MCP to the City to operate it as a hospital. REPRESENTATIVE
Senator Hughes. SENATOR HUGHES: Thank you, Mr. Chair. Mr. Schaengold, would that include the equipment and everything else inside the facility, or are you just talking about the land and what-have-you?
We would be happy to sit down with either the State or City or any operator and talk about what would be the appropriate relationship and transaction to accomplish this. SENATOR HUGHES: Okay. I guess kind of two things. Since you weren't around in the first transaction back in 1998 -- it's kind of piggybacking on a lot of questions and dialog that Councilman Nutter was going on. The City and the State has done a lot -- did a lot then and has done a lot since then to 160 012904 - COMMERCE - RES. 040046 support MCP, Tenet, the whole thing, Drexel University. We pulled some numbers of some direct stream dollars that goes to MCP and Tenet Healthcare Corporation. The way the structure is set up, they're all kind of intertwined here. It's really hard to separate out one from the other because of the way the money flows from Harrisburg and because of the way the nature of the whole entity is set up. You have the teaching going on here and the actual care provided here and the inpatient and the outpatient, who's doing what, who's on first, what's on second. 9 million of state money that has flowed into the entity. And I don't see specifically the Drexel money on this list, nor do I see the $50 million that was put up at the front end. You can't separate out all of these things, because in order to put the deal together, all these things had to be factored in together. And so Tenet did step up in '98, but they stepped up in the context -- and this goes 161 012904 - COMMERCE - RES. 040046 to the other part that you need to understand and be clear about. They stepped up in the context of everybody sitting together in a partnership to work this out. And that's the frustration that exists when we got the call on December 18th. It was stated in the meeting that the Governor convened that all of us were part of that Monday in the Governor's office with your CEO, that by doing what you did and not talking to folks beforehand to see if we could work something out to try to piece all this together the same way we pieced it together in 1998, you hamstrung everybody. ) SENATOR HUGHES: Now we're at the situation where now we've got to rush from all sides to put this together. We've got to go through this extended hearing. We've got to stand up in the cold at 19 degrees outside at 3300 Henry Avenue, 500 or so people out there, to make a point because we should have worked together in partnership, The same way a partnership was put together in the front end. 162 012904 - COMMERCE - RES. 040046 And I agree with Henry Nicholas. The State, the City, the federal government has failed in its commitment to provide high-quality healthcare for folks. That's our responsibility. Hopefully, that will change when we get a new President here. Hopefully, we can make some changes at that level and make some changes there. ) SENATOR HUGHES: This is why you're in the situation that you're in right now. This is why Councilman Nutter and Councilman Goode have to have you stand up and raise your right hand and swear, because you violated the moral commitment that was established in 1998. And I don't know who advised you on that and I don't know who suggested that to you, but they gave you some bad information. I don't know how your corporate structure works, but you need to flip it around and kick it back to them. That's probably why they had to make an announcement the other day to close down 27 hospitals, because of the way they run their operation. It's causing hardship and 163 012904 - COMMERCE - RES. 040046 harm to the very people who need them the most; the employees, the patients and everyone else. The question that I have to you after all of that is, What can you project -- maybe we need to ask the CEO this question, Mr. Trevor. Where are we with the other hospitals here in the City of Philadelphia, And what is the financial strength of those institutions?
Because this, for me, is almost a tip of the iceberg conversation, especially when we hear 27 other hospitals being announced to shut down yesterday. )
My company has decided that the five remaining hospitals in Philadelphia are a part of the strategic core of our company. We have recognized that with the closure of MCP, we have been able to strengthen the remaining five institutions, and there is no reason to believe that we could not have a very successful five-hospital network continuing here in Philadelphia. 164 012904 - COMMERCE - RES. 040046 SENATOR HUGHES: Can you give us some picture, an abbreviated version of the financial strength of those institutions, what kind of profit they're operating under?
The six hospitals in 2003 will have generated a slightly negative margin. With MCP not counted in the performance of the five institutions, the operating margin would be a positive.
The five hospitals without MCP would generate about a 7 percent margin.
How much money are we talking about? What are the numbers?
It would be roughly $50 million of the remaining five hospitals. You have to remember, MCP has lost over $30 million in 2003.
Cash flow. We have to pay tax on that so -- you have to remember, all of our money gets accumulated corporately, so we really look at this from a cash flow perspective. Bottom line, you have to cut it in half because if there is a profit, there is a tax there that we have to pay.
So it's $25 million in net income to the company; is that what you're saying?
Anywhere from $5 to $10 million. MCP generated a loss of $30 million.
For 2003, we have a negative result in the Philadelphia market.
What was the actual dollar loss with the -- are you talking 166 012904 - COMMERCE - RES. 040046 about with the six?
The Chair recognizes Representative Williams. REPRESENTATIVE WILLIAMS: I think Tenet is in this microphone system. My problem with this whole process, Mr. Chairman, is I think something smells here, and it smells foul. (Applause.) REPRESENTATIVE WILLIAMS: Let me explain myself. Here's a gentleman who's only been here about four or five months, who has all the figures and got all the instructions in how to deal with this proceeding. Where are the folks who were here four years ago who can give us some real, real answers? Because I'm not going to say I'm going to disrespect this gentleman, but it sounds like a snake oil salesman coming to 167 012904 - COMMERCE - RES. 040046 tell us about the deal. I want to know where are the folks from four years ago, from two years ago, who knew everything was going to the bottom when they could not find a way to resolve this? I think it's a disrespect to this body that we have someone here who has only been here six or eight months, and this is a four-year product. It's almost like someone called you up and said, "We're now in Philadelphia; straighten it out; and after it's over, we're going to sell it anyway." Bottom line, if you guys feel as though you're not making any money in the City of Philadelphia with MCP, then make the hospital, the facilities, available. Take your losses there. Give us something back. You got almost $41 million, the state tax dollars, subsidies, tax breaks. Give us something back. That's all we're asking for. Because we can move on. The Chairman said something about when Tenet came in and did a great thing for the City of Philadelphia. You didn't come here 168 012904 - COMMERCE - RES. 040046 to not make money, because everything I'm hearing is dollars, dollars, dollars. Nothing about the care of people. Nothing. Nothing about people. (Applause.) REPRESENTATIVE WILLIAMS: And this is a people issue. People are concerned about the quality of healthcare in that community. As a former law enforcement person, I can tell you five to eight minutes going from one trauma center to another trauma center, somebody is going to die. Are you thinking about that? Do you care? Does Tenet care about people? Because if you care about people you'll make the right decisions and you would have made the right decision three years ago, two years ago, and four years ago when you came to get these deals from the City of Philadelphia. (Applause.) REPRESENTATIVE WILLIAMS: And I'm angry because numbers count itself. You guys can find a way to make money or you can find a way to lose money. You highlighted you gave 169 012904 - COMMERCE - RES. 040046 $3 million to gifts and grants to the community. Like that's a big deal. When you first came here you got $41 million. So I'm not impressed. I'm not impressed. The people are offended. I believe that you, the Tenet folks, all have an obligation to make sure the citizens of the City of Philadelphia and the folks who live in this community, that we get some good answers and get some good results and make sure that we have a hospital in this community like when you came here five years ago. Do us a favor and help us make sure that hospital stays open. (Applause.)
With regard to your testimony and your ability to move forward with it, let me say for the record, I think you have said on the record already that your organization has separate government structures; one that deals with health service and the quality of it, and the other deals with the financial bottom line; is that correct? 170 012904 - COMMERCE - RES. 040046
Each hospital has a governing body whose primary purpose is to monitor quality of care and credentialing of clinicians in their hospital, and they get reports relating to the financing, but each individual hospital's finances are really governed by the corporate side.
The people who monitor the quality of health services do not make the final financial decisions; is that correct?
I'm speaking for Tenet as a company and responding to the questions relating to the decision we made to close MCP.
And who are you better able to represent, those people who are monitoring the quality of health service or those people who are dealing with the financial bottom line?
Well, everything we 171 012904 - COMMERCE - RES. 040046 do as a company is to ensure that the quality of care provided at our hospitals is of the highest level and meets state, local and federal regulations. I'm responsible for everything that goes on at these institutions.
My question actually was, Who are you better positioned to represent? Did you come here to talk about the quality of health services or did you come here to talk about the financial bottom line?
I came here to explain the circumstances surrounding the MCP closure decision, as well as explain the circumstances surrounding the original communication, and I've just not been able to get to that.
Over the course of this hearing, over the course of your panel presenting and answering questions, Members of this Committee, members of the State Legislature had a chance to review your testimony. I believe all of us have had a chance to read it. And having read it, I think during the course of your answering 172 012904 - COMMERCE - RES. 040046 questions, you've presented much of that testimony. You can move forward if you'd like with that testimony, but I would suggest to you that time would be better served for you to summarize that testimony and actually address it from your real purpose for being here today. Because it is not to address the quality of health services at Tenet; It is to address the financial bottom line. So you can proceed with your testimony.
Well, in order to save the Council's time -- and I appreciate very much that I had the opportunity to speak with you. The first thing I want to state is that there is no question that the communication relating to this announcement was not done in an optimal manner. We were operating on a very short time frame. We were being governed by a number of SEC regulations that we were trying to avoid violating. One only has to look at today's headlines to see how strict the SEC regulations have become, and our adherence to them in a sense drove the 173 012904 - COMMERCE - RES. 040046 communication time frame. We had a plan by which everyone of importance and a party to this activity would have been notified in a timely manner.
I was going to apologize for the failure to communicate properly.
I appreciate that. We'll get to that. You've made a couple statements that are eliciting physical responses from the Members. As the Chair indicated, we're naturally primarily concerned about high-quality healthcare, the patients, the jobs, the impact on the community, and certainly the financial situation. We are not unconcerned about that. But you started by talking about the communication was not handled in an optimal fashion. Okay, that's an understatement. But then you made two other comments; You had a short time frame and you were concerned about SEC violations. What 174 012904 - COMMERCE - RES. 040046 does that have to do with the people over in East Falls? Why are their lives now a function of what goes on at the SEC?
I didn't say that. You're twisting my words, and I don't believe that's fair.
You can finish when I'm finished. You said you had a short time frame. You made reference to today's paper and you talked about being concerned about SEC violations. Now, those were your statements. The reason I'm asking you about them is so I don't take them out of context. I do not twist other people's words. And I'd like you to explain what they mean.
What they mean is that the communication of the notice of closure was not done appropriately because of the short time frame we had to execute this and because the information -- 175 012904 - COMMERCE - RES. 040046
The communication of the notice of closure. I'm trying to explain. The information was leaked to the paper, and we all woke up the next morning without having an opportunity to speak to everyone about the decision that was made. We do believe that the people of East Falls deserve the best possible care, but in our opinion, the financial viability of MCP and the losses generated by that institution simply could not be sustained and jeopardized the future success of the remaining five hospitals.
But what caused such a precipitous decision to be made in such a short time frame? I understand the losses from earlier in the year or earlier in the fiscal year. What was it about December 18th that was so critical in this discussion? You've now had sent over to me the consultant report, which we'll have copies for the Committee. You received that on December 176 012904 - COMMERCE - RES. 040046 9th, 2003. Your earlier testimony is you were then in Dallas on December 10th. You presented your financial plan for the hospital, and somewhere in the course of a 48-hour period of time, some executives somewhere on December 12th made a decision to close MCP. Less than a week later you were in my office, on the 17th, and the company announced the next morning, on the 18th, the closure. What was it about that period of time, the closeness to the end of the year, what was it about that time frame that caused this decision to be made so quickly? It was not the case with City Avenue. It does not appear to be the case with some of the other hospitals. Why did it have to be made then?
It is my understanding that in order to have recorded that loss in 2003 and the costs associated with closing it, it needed to be made before the end of the year.
So this is about 177 012904 - COMMERCE - RES. 040046 finances, accountants, the SEC, and other decisions that have nothing to do with healthcare, nothing to do with the proper operation of a hospital, have nothing to do with the process that puts things in any kind of logical fashion that anybody in this room 8 can understand. It is about 10Q or 10K filings with the SEC as to why it had to happen right now. I understand you don't want to lose money, but you had been losing money already. But that decision did not have to made that day for any other purpose than what you laid out, which is somebody tried to book something in one year, as opposed to booking it in another year, because this is just an exercise in Accounting 101. Isn't that true?
I think that is the mechanics of this decision. You also have to understand --
What does that have to do with the City of Philadelphia and the relationship you have with this City and the other hospitals in this town? 178 012904 - COMMERCE - RES. 040046 I'm increasingly left with the impression that the company will just do whatever it wants to do, whenever it wants to do it, however it wants to do it; everyone else be damned. Is that where we are at this point? (Applause.)
No, that is not so. You have to understand that at the time the analysis of MCP was being done on a corporate level, our census at MCP was about 70 to 80 patients. We did not believe -- (Audience reaction.)
We did not believe as a company that this hospital was viable financially and, therefore, a decision was made to close it.
Mr. Schaengold, that statement has to be made with the rest of the context of what else was going on in the world around you. Wasn't there a nurses' strike going on at the same time you were in Dallas? (Applause.)
Wasn't the 179 012904 - COMMERCE - RES. 040046 obstinance and all the other things that go along with negotiations causing a drop in census at the hospital at that time? It's hard to operate a hospital if you don't have nurses. How long did the strike go on, five weeks? The hospital was already having financial problems, I know, before that. We had the discussion about the consultant's report. But you cannot sit at the table and then say, "Well, a part of the reason that we had to close is because we only had 70 patients in the place," which was a function of an ongoing nurses' strike which was settled on the same day or the day before you announced the closure. Now, you can't have it both ways. (Applause.)
Now, what I want to know is -- you and I had a conversation about MCP. We had a conversation about the consultant, either prior to or around the time of hiring the consultant. My recollection of 180 012904 - COMMERCE - RES. 040046 that conversation is, "Phil, if you're going to hire a consultant, I don't want to go through what we went through with City Avenue, Because what happened there is, a consultant was hired and subsequently the hospital was closed through an extensive process. So if we're going to hire a consultant, is the purpose to put things in motion to close the hospital or is it for the purpose of keeping the hospital open?" Your statement to me was, "We absolutely are bringing on the consultant in order to save the hospital and keep it open." Isn't that correct?
So what happened? Why did I not see the consultant report and what process were you thinking about in terms of bringing a consultant on and doing anything with it? Or was it, in fact, the realization of the worst fear and the issue I raised with you in the first place was that you get a consultant, you have a report that says two years from now maybe you can 181 012904 - COMMERCE - RES. 040046 break even. You take that to Dallas. That gets blown apart. And two days later, somebody from somewhere, nowhere nearby here, makes a decision on a day, close the hospital. Now, is that what happened?
When you and I had the conversation that you're speaking of, I believe I made it very clear that it is my goal to try to save this institution. And the purpose of the consultant was to try to come in and identify whether that was possible. The conclusion of the consultant was, that even after doing all the things they were suggesting, we would still have a $25 million negative cash flow at the end of two years, and that therefore caused us to make a decision that that was not financially viable. The purpose of the consultant was not to come in and prove that it needs to close. The purpose was to try to identify a way to save this institution. The results were --
What steps did you take to do that? 182 012904 - COMMERCE - RES. 040046
When we received the report, together with accumulating losses, it became clear to us that this institution could not survive and we made a decision to close it.
I appreciate the response. It's not responsive to my question. What actions did you take to save this hospital?
We worked for months with the medical staff, with the employees --
When you received the consultant report, which is dated December 9th, what actions did you take to save this hospital?
None. We concluded based on that report that there was no chance of saving the institution.
Point of order. I hate to interrupt, Councilman Nutter. On the same line of questioning, was there anything in the consultant report that identified areas where improvements could be 183 012904 - COMMERCE - RES. 040046 made that would reduce the debt service or the loss of money and that could possibly over a period of time turn the hospital's finances around? Was there anything in that report?
There were a number of items listed there that would reduce costs, would change the way the hospital operates. It was based on a number of assumptions. But at the end of the day, their own financial analysis showed that even if all of these things occurred, there would still be a $25 million net cash flow loss over a 24-month period, and we simply concluded that that was not something we wanted to keep incurring.
Thank you. I didn't mean to interrupt. I just wanted to make sure that I was hearing that right.
Mr. Chairman, thanks for allowing me to take this point of information also. I know that you're sworn here today. I've got a question. There's been a lot of speculation about this point, and I think it's been alluded here today, but I want to ask you 184 012904 - COMMERCE - RES. 040046 straight on. When Tenet acquired these hospitals here in this region, was there ever a discussion that "We'll get our foot in the door, two years down the road, three years down the road we're going to close MCP and the other hospital that you closed"? Was there ever any discussion? Because it was said either you take them all -- did you ever have a conversation or were you ever privy to a conversation that that was part of the grand plan?
I was never privy to such a conversation. But I will assure you, sir, that if that was our intention, we would not have spent $200 million over the past five years in capital improvement at every one of these hospitals, including $43 million at MCP over the past five years. We thought as a company -- and I wasn't here, but I'm giving you my impression -- that as a company we thought we had a chance at turning some of the these institutions around. What we discovered is that all the advisors that were advising us at the time were 185 012904 - COMMERCE - RES. 040046 correct when they told us, "Don't take Parkview, don't take Elkins Park, and don't take MCP." We thought we could turn it around. What we have found over the past five years, that even after investing $200 million in capital improvement and contributing over $5 billion to the economy of this City, some of the hospitals we could not salvage, and we have had to make very difficult decisions in terms of their continued operations.
Would you today -- and I know there's been some conversation about the time line of when the facility could close. Today, could you give this institution more time and aggressively try, as a good corporate citizen in this community, to find a person, another company, a real aggressive effort to get an operator of this facility? I think what we want to hear here today is that you'll do that and you'll continue to operate this hospital. Because you have, obviously, some legal questions right now because you indicated earlier you're 186 012904 - COMMERCE - RES. 040046 going to file the documents that will start that process tomorrow. But I think what we need to hear today is that you will try to find an organization, a company, another business competitor to run this facility and give us some more time to get that accomplished.
I wish I could do that, sir. I don't have the authority to do that. What we have said to the Governor and to others is that our closure date is March 31, but we will be happy to sit down with any party that wants to talk about operating this facility. Unfortunately, sir, there has been not one inquiry about someone wanting to operate this facility.
Well, when most things are sold, you have to put a sale sign on them. And I know that the media has gotten the word out. And I'm sure you have a close-knit industry. A lot of people that do what you do know that the facility is for sale. And again, it makes sense that no one's approached you, 187 012904 - COMMERCE - RES. 040046 that it's not likely, but based on -- you know, did you ever think you'd be in a hearing with all these State and City officials? I think you really need to give it that extra push to see what creative program you can come up with here to keep this facility open. I injured my knee a few years back and I needed surgery. Where do you think I got it? I went there because it was close to my home. So I could have gone downtown to all the Center City hospitals, but I didn't. I went there to get my surgery. In and out. Went back after to get it checked. It was convenient. I can understand what the people in this room -- especially the people that work there. You're in a position to close it, but you're not in a position to give it a little extra time?
The decision has been made by our company to notify the State that we would like to close MCP on March 31. That is the direction that I am trying to execute. But I will certainly share this 188 012904 - COMMERCE - RES. 040046 Council's wishes with those that I report to, and we will certainly make it clear to them what you all are requesting.
One final question. Going back to the consultant's report, is there anything in that report that speaks to the "what if"? What if additional grants from the State, federal government, tax incentives, any mechanism that is not unusual for a municipality to offer a business, a company, encourage a company as an incentive to stay within the City and keep the employees working? Is there anything in the consultant report that speaks to something of that nature?
No. That was not their charge. I will tell you that that question internally was discussed. Should we go to the City or the State and ask for, quote, bail-out? We concluded that neither the City nor the State had the funds to bail out MCP. And if the State chose to do that, they would also have to do the same for about 189 012904 - COMMERCE - RES. 040046 30 to 40 other hospitals around the Commonwealth that we consider at-risk institutions. So with that in mind, we made a decision that to put the City or the State in a no-we-can't-bail-you-out position was not fair either. So we did not think that there would be any funds available to help.
I appreciate the fact that you would not want to put any of the municipal authorities in that position. But I learned a long time ago if you don't ask, you don't get. I'm not suggesting that we are in a position where we would even consider it, But I think it would have been prudent on the part of Tenet to at least speak to the various -- you have a Councilperson who is obviously very concerned with this, as the rest of the Members of this body, and the State and government officials are here. I think all of us would at least be willing to have listened to your situation. And maybe creative minds -- again, it's a big maybe. Creative minds could have come up with something. Maybe, maybe not. I don't know. But in all due respect, I think 190 012904 - COMMERCE - RES. 040046 the right thing would have been -- and we can all talk about what should of, could of happened -- would have been to at least raise the issue and let's see if in our creative minds something could have been proposed and put on the table. We've done a lot of creative things in this town, and there's something that's being discussed now about setting up a new cause to create a more friendly business environment in Center City for a particular entity or entities, which I'm not necessarily in favor of. But those are things that at the state level are filtering down to the city level as financial tools to enhance the business climate, if you will, in the City of Philadelphia. And Tenet is a business. I don't mean that in a negative way. It is a business. It's a company that employs people. I, for one, would not like to see the door closed entirely. I can't force anyone to do anything, but I would suggest -- and I know that your Councilperson, Councilman Nutter, and the 191 012904 - COMMERCE - RES. 040046 Chairman of this Committee would certainly be willing to spend as many, many hours we can to maybe kind of come up with some creative financing mechanism. Maybe at the end of the day we don't, but we have to exhaust every avenue that we possibly can, working with the Commerce Department, working with PIDC and all those other agencies, both at the local level and the state level and the federal level, because it is a crisis in this City. Not only as it relates to Tenet, but I'm going to be faced with and the Council President Verna who's district Saint Agnes is in which is directly across from my district -- I will be impacted. We've got to figure these things out. This may be a good benchmark for us to start that conversation. Thank you. Thank you, Mr. Chairman. (Applause.)
Mr. Schaengold, I notice during the course of your answering questions you tried to work in some more testimony and are still talking about the 192 012904 - COMMERCE - RES. 040046 capital investment made by Tenet Healthcare. But I guess the question that really needs to be asked is, I'm sitting here reviewing a settlement agreement which I think many people who were a party to this agreement, who designed this agreement back in 1998, thought was a public/private partnership to try to save healthcare services in the City of Philadelphia. Many people feel right now that to you it was just a deal, not a public/private partnership, that basically business was concluded in 1998 and now you can do whatever you want to do. This is really not about, as many members have said, just about the closing of MCP, although that is the issue at hand. This is about what type of relationship you're going to have with the City of Philadelphia, what type of relationship you're going to have with the Commonwealth of Pennsylvania, and whether you're going to believe, as you did in December, if you can make decisions for us, that the City cannot afford to come up with the creative financing that is necessary, the 193 012904 - COMMERCE - RES. 040046 State cannot do it, it cannot be a City and State partnership to do it, when the very nature of our relationship was our commitment with that type of package in 1998. I think that is a ridiculous assumption to assume, that nothing could be done, and more importantly, that it was not our decision to decide whether we could do it. In essence, what you said is that you made a financial bottom line decision and you basically have severed your relationship with the City of Philadelphia and the Commonwealth of Pennsylvania and now you're just now out for yourselves. Is that a fair statement?
No. I don't believe that was our intention. I don't believe that that is what we meant to do. We did make a business decision with regards to MCP. We did a poor job in communicating. But we also thought that in order to subsidize the losses of a hospital like MCP, the precious resources that would have to be used by the City or the Commonwealth are simply not there. 194 012904 - COMMERCE - RES. 040046 That's the conclusion we made.
With all due respect, sir, that's not your decision to make.
But that is a conclusion we made. We may be wrong, but it was not made out of malice and it was not made out of --
I will ask the question again. Have you severed your relationship -- I'm not going to get into the issue of whether you were being a good corporate citizen in the actions you have taken. I'm talking more specifically about your relationship with the City of Philadelphia and the Commonwealth of Pennsylvania was one of creative financing to save healthcare services in Philadelphia because Allegheny Health System went bankrupt. That was the nature of the relationship. Did you make a decision for yourself that you would not engage in that type of relationship with the City, with the Commonwealth, that there will be no more public/private partnership? Is that the financial bottom 195 012904 - COMMERCE - RES. 040046 line decision that you made?
Well, please explain yourself, because we're still open for business, both at the city and state level.
We made a decision that this hospital, MCP, could not be salvaged financially and that the resources were not going to be available from either the State or the City, so we made that judgment call. It was not meant to disrespect the partnership. We have complied with every element of our partnership in that settlement agreement. We made a judgment that the resources available to save a hospital like MCP were simply not going to be available, so we made a business decision to close. It was not a decision to disrespect the partnership. We may have made the wrong decision, but it was a decision based on our analysis of the available resources and the environment we were in.
Once again, you are here at a hearing of the Committee on 196 012904 - COMMERCE - RES. 040046 Commerce and Economic Development, so I'm addressing this as a business decision you made and a business decision that we would have preferred to have been involved in and would like to be involved in now. I will actually recognize Councilwoman Tasco, the Chair of Health and Human Services, and allow her to address the issue from a different perspective.
Mr. Schaengold, you spoke earlier about the dollar loss, how you had lost with MCP in the mix of your hospitals. And of course, this is a corporate decision. You have hospitals throughout the country. Was that loss a regional loss here in Philadelphia or was that in the overall scheme of your hospital network you lost $25 million?
The $30 million loss is at MCP alone. Our company is under significant financial stress these days, as all of you have been reading. The reason for the reorganization is to try to stabilize our company and set course on a group of hospitals that we believe can grow and contribute 197 012904 - COMMERCE - RES. 040046 financially to our company. That is why the five hospitals in Philadelphia have been retained as part of that core. But that is also why the decision to close MCP took place, because it wasn't contributing to the success of our company or this region and was, in fact, jeopardizing our ability to have this region succeed.
I agree with Councilman DiCicco. We want businesses to thrive because they employ people. But when you talk about your corporation and your for profit, how much money did you make last year? How much money did Tenet make last year, not just in Philadelphia, but in your -- what's your corporate bottom line?
Honestly, I don't know. Our year just ended and I don't believe that our company is going to show a profit this year. But I don't --
Right now, the books are not finalized, but it is a loss of 198 012904 - COMMERCE - RES. 040046 roughly to $12 million. 3
It's a loss, 4 but what is your profit? You don't have a 5 profit. 6
You can still 8 have a profit, but you have a loss on the 9 books, or something like that. 10
You can still make money -- MCP was a $30 million loss, right? So if you made a million dollars, you could have a million plus $30 million?
That's right. How much revenue did you generate last year?
Within the system, the six hospitals within Philadelphia.
It's a $1 billion network of revenue, which this year will lose 199 012904 - COMMERCE - RES. 040046 money.
If you take MCP out, then the other five hospitals have generated probably a $20 million profit, roughly.
So the other hospitals generate $20 million, but if you put MCP back in you lose $30 million?
That actually wasn't my question. The question was, How much revenue did the other five hospitals generate, not how much profit, how much revenue?
The five remaining hospitals will generate about $800 million in net revenue. MCP this year generated $160 million of net revenue and has lost $30 200 012904 - COMMERCE - RES. 040046 million in the process. The revenue is simply the sales. So MCP is $160 million sales, and it lost $30 million -- over 30. It cost us $200 million roughly to operate a $160 million business.
You still believe with the elimination of MCP that some of the reasons for MCP's losses are not going to move to those other hospitals?
Some of MCP's patients will move to other Tenet hospitals, absolutely.
Well, I think it would probably have a negative impact, but the other hospitals can generate a positive bottom and they can absorb some of those patients.
A quick follow-up of Councilman Rizzo, and then we will recognize Councilman Ramos.
When you came here to Philadelphia, I'm sure you didn't walk in the door thinking -- and we were privy to 201 012904 - COMMERCE - RES. 040046 your business plan. I don't think you came here thinking that you're going to have a windfall profit the first few years. I assume that when you came the first year, you anticipated this. You did anticipate, I'm sure, some growth as time went on, especially when you buy new equipment, you're spending millions of dollars on new technology, that it's easy to say you lost money when you're spending a lot of money to upgrade a system, which you, I believe -- and again, not knowing a whole lot about what you do, but know a little bit about business -- you did not anticipate making a tremendous amount of money in your first few start-up years; is that fair?
That is correct. And MCP was performing at about a break even point all along. A couple years profit, a couple of years loss. With the elimination of the outlier payments and with the dramatic increase in malpractice costs, labor costs and the rapidly changing payer mix that MCP was experiencing, the losses began to mount at an 202 012904 - COMMERCE - RES. 040046 enormously rapid pace, reaching about $5 million losses a month this fall.
Tell me why it's happening there and not in other Tenet hospitals. Why did you have a good year, a bad year, a good year, a bad year? What is different about that facility than others?
In the last couple of years, the percentage of Medicaid and non-paying patients have increased dramatically at MCP. And I apologize because some of these comments are in here, but I need to work this thing out. Medicaid in the State of Pennsylvania reimburses hospitals at about 75 cents on the dollar. In a traditional community, there is a shift between the Medicaid/non-paying patient to the private insured patient. Everybody has known it for years. The privately insured patients pay more than the cost of the service in order to subsidize the under-insured and uninsured. In Philadelphia, this doesn't happen. So when a hospital like MCP sees its Medicaid and non-paid business rise to almost 40 percent of 203 012904 - COMMERCE - RES. 040046 its total volume and there is nothing on the other side to make up for it because of the way this community functions, it gets hurt. And the reason it's getting hurt more than our other facilities is because it has the greatest percentage of Medicaid and non-pay of any of our other hospitals, and that causes the loss from operations.
No. It's an unusual situation that you have in Philadelphia. You have a commercial market that is governed by basically one payer whose rates are at about 100 percent of cost. Now, I appreciate their position because they're a business too. In other parts of the country, the commercial side pays about 112 to 115 of cost, and that money is used to subsidize the less than 100 percent of Medicaid and non-pay. In this community it doesn't happen. It's not that Philadelphia is poor. It's just that the commercial reimbursement rates aren't high enough to make up for the under-insured and 204 012904 - COMMERCE - RES. 040046 uninsured. And a hospital like MCP gets hit with that burden.
Based on your comments then, what would happen if -- maybe this would be unusual, but it's certainly possible. Suppose the same mix and the patients who would normally go to MCP now all decide to go to Roxborough. What happens to Roxborough?
If the exact same mix occurred at Roxborough or Chestnut Hill or any other hospital in this town, Mercy, even Penn, you would have more closures of hospitals than you have today.
I'd like to restrict the answer to Roxborough. It's in the northwestern side of the City in a location somewhat similar to MCP. If all the people who presently go to MCP, if you are successful in closing the hospital, and those patients turn around and go up the road, what happens to the financial viability of Roxborough?
It would be jeopardized. 205 012904 - COMMERCE - RES. 040046
Suppose it was jeopardized and you took it to the next step and then you had a consultant report and then you got the report and then you went to Dallas and then two days later somebody decides, close that hospital, and then all of those people decide to go to Hahnemann or Graduate. What happens to those hospitals? Where does this end and what are you prepared to do about it?
This ends when this City and the Commonwealth comes to grips with the fact that we have a broken healthcare system that does not reimburse hospitals sufficiently for the care we provide, nor are there facilities in this community to provide primary care services. Instead they're coming to the emergency rooms of all of the hospitals in this community, and you have many other hospitals at risk in this community. I think this morning's paper outlines it in the starkest terms. St. Agnes and Methodist are trying to figure out how to survive when both of them have lost money in the past year. So until we come to grips with 206 012904 - COMMERCE - RES. 040046 the fact that we need to fix the system, you could have a domino effect in this community.
Which is what many of us are concerned about. This is not just a conversation, as serious as it is, about a 153-year-old institution that in the course of a three-day period of time someone decided to close. It's not just about MCP. As much as it is about MCP, some of us can also see a little bit of the future. We are concerned not only about the financial strength of the other five, but if it's just going to be a continuation of shuffling the chairs on the Titanic, then we actually do need to have a conversation about where this company is, what it is prepared to do, how does it stop either these kinds of losses or shift things around and work with us in a coordinated fashion. You have an agreement with the City that was signed at a time when you had eight hospitals. You agreed to provide a certain level of service. How is it possible in 1998 to agree to provide a certain level of service throughout a system with eight hospitals -- 207 012904 - COMMERCE - RES. 040046 and I'd like to have your perspective on do you provide the same level of service when you have seven, do you provide the same level of service throughout the system when you have six and five or four or three or two or one? How does that match up with the agreement that you have with the City which was signed when you had eight? How do you provide the same level of service with five that you agreed to with eight? Is that possible?
Well, the agreement did not quantify level of services. It stated that we will continue to provide services such as OB, such as ER, such as AIDS services, provide non-compensated charity care per the policy. And as many in this room know, we have exceeded that policy. We have done everything that we had committed to on that service agreement.
I can appreciate your perspective. We probably have a difference of opinion about that. Let's talk about PCHC. What's PCHC stand for? 208 012904 - COMMERCE - RES. 040046
Councilman Nutter, I'm happy to address that, if you'd like. It's Philadelphia Charitable Healthcare Corporation.
I believe it was 1999. I don't have the documents in front of me.
There are articles of organization. It's sole function is to hold bear title to two properties.
What's it stand for, how was it established, who serves on it.
My understanding is that it was a function of -- as there were two academic medical centers as part of the asset purchase, there was an agreement. Those entities have been assessed a certain tax base. My understanding is that those not-for-profits actually had never paid those taxes, but nevertheless, that tax assessment was on the books. As Tenet came in and purchased the hospital, Tenet intended to 209 012904 - COMMERCE - RES. 040046 challenge the tax basis on all the hospitals. Rather than go through that, my understanding -- and I wasn't part of that -- was that there was an agreement, a settlement agreement, by which Tenet would pay taxes on six of the eight hospitals, which it did, and paid -- I think there was an amount paid for the two academic medical centers in year one, after which those two entities were to be put in a non-profit corporation, holding bear title only. It has no other function. And that there would be a tax abatement on those two properties for 10 years.
Is that the $4.8 million in value that was assigned at the time?
Who serves on the Board of the Philadelphia Charitable Holding Corporation?
To tell you the truth, I don't have those documents in front of me, but I'm happy to get them for you. There is no function for it except to hold title. 210 012904 - COMMERCE - RES. 040046