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Minutes

Committee Hearing, January 29, 2004

Philadelphia City Council Committee HearingsJan 29, 2004

People mentioned

Names our system found in this transcript. Automatically extracted, so it can include anyone named in the record, not only officials or parties.

Organizations mentioned

Councilman Nutter

You have an entity that holds properties for you, but you don't know who serves on it?

Ms. Zurzolo

It holds bear title only. The equitable interest is in Tenet. As a matter of fact, Phillip Schaengold and Andrew Devoe (ph) are the directors and officers. They hold equitable title, so they have all rights and interests in the property. They alone can make decisions to sell, buy, transfer whatever. So any actions on those properties are held by Mr. Schaengold and Mr. Devoe.

Councilman Nutter

Now, was there a recent transferring of 2900 Queen Lane from PCHC and Tenet to Drexel?

Ms. Zurzolo

Correct.

Councilman Nutter

Was that back in July of last year, 2003?

Ms. Zurzolo

I believe so.

Councilman Nutter

Was the Attorney General's Office notified about this transaction?

Ms. Zurzolo

To tell you the truth, I 211 012904 - COMMERCE - RES. 040046 didn't work directly on that. Karen Rothberg is our internal real estate attorney. I was aware of the transfer. She handles our real estate transfer matters and was actively involved in the establishment of PCHC. But I can get that answer for you.

Councilman Nutter

So you don't know whether this transaction was in compliance with the AG's 1997 protocol?

Ms. Zurzolo

It's my understanding that all regulations were honored. But any specific questions, I certainly will get an answer for you.

Councilman Nutter

When will you have the answers?

Ms. Zurzolo

I can get you answers tomorrow.

Councilman Nutter

Now, Mr. Schaengold, did you answer Councilwoman Tasco's question with regard to the company's overall finances from last year?

Mr. Schaengold

I think I had stated that I don't know what the final number is for Tenet for 2003. They have not released 212 012904 - COMMERCE - RES. 040046 those earnings yet.

Councilman Nutter

Have you notified the Board of Revision of Taxes about your proposed closure, and what would that do to the tax exempt status of the properties?

Mr. Schaengold

I don't believe we've notified the Board. But when MCP ceases to be an acute care facility, then it would lose its tax abatement, in my opinion. But I don't know what the mechanics of that is.

Councilman Nutter

Let me ask one question that we went by a good while ago. When the decision was made back on December 12th, was there ever any outreach, private back channel, any other form of communication with the City of Philadelphia to let us know that the decision had been made.

Mr. Schaengold

I don't believe so.

Councilman Nutter

Why is that? I'm now not speaking of myself. I'm actually talking about the Mayor, Mayor Street, and City Administration. Why wouldn't you tell the City?

Mr. Schaengold

The only excuse I have 213 012904 - COMMERCE - RES. 040046 is the time frame was so short that we did not communicate this decision in a manner that was appropriate. But we did not communicate this to anyone in City government until the night before and the next day.

Councilman Nutter

Can you provide to the Chair documents with regard to the financials for the Philadelphia system by hospital for the last five years, profits, losses, all financial statements?

Mr. Schaengold

Yes.

Councilman Nutter

So you'll give us the last five years financials for each hospital?

Mr. Schaengold

Yes.

Councilman Nutter

In response to some questions from Representative Manderino, you indicated you have not put together a closure plan as of yet. Why is that?

Mr. Schaengold

We did put together closure plan. We did not communicate it to the State.

Councilman Nutter

So you have a closure plan? 214 012904 - COMMERCE - RES. 040046

Mr. Schaengold

Yes.

Councilman Nutter

When do you plan to submit it?

Mr. Schaengold

Tomorrow.

Councilman Nutter

And what were you waiting for?

Mr. Schaengold

We did not want to be hauled into court again for contempt. We thought that it would be in our best interest, everybody's best interest, that we don't do anything that looks like we were accelerating the closure process.

Councilman Nutter

But now you're going to file it tomorrow?

Mr. Schaengold

The Department of Health has asked for it, and we will notify the judge and others that we're honoring the Department of Health's request.

Councilman Nutter

Well, the Department of Health is trying to make sure that you're in compliance with the statute regarding 90-day notice, which allows the Department 90 days to monitor what's going on. You've announced in December that you're 215 012904 - COMMERCE - RES. 040046 closing, and I think using March 31st as the date, that will certainly not provide the Department the opportunity for its regulated process of a 90-day oversight, so I think you have a bit of scheduling problem in that regard. Though I'm sure they'll take that up with you on their own. Councilman DiCicco added to the record, and Councilwoman Tasco raised as well, the issue of collaboration with other institutions. You've made reference on a number of occasions that no one has stepped forward to talk about possible use of the facility. Isn't it true, or didn't I read in the paper at some point in time of some pronouncement from the company or your lawyers that initially the company was not expecting or anticipating or even taking the position that you would sell the hospital to another entity or another provider; isn't that true? Didn't I read that somewhere?

Mr. Schaengold

I don't know what you're referring to. I think we had always assumed that no one would come forward. But 216 012904 - COMMERCE - RES. 040046 Mr. Fetter commented to Governor Rendell --

Councilman Nutter

Mr. Schaengold, my father used to tell me a lot about assume. You know what assume does, right?

Mr. Schaengold

Well, I'm sure you'll tell me.

Councilman Nutter

I'm not going to tell you on the record. Maybe your counsel would like to share it with you or I can tell you across the table. I don't talk like that in a public form, unless you really take me over the edge. I mean, you've made a lot of assumptions, actually. You've assumed that no 16 one would want the facility. You've assumed that you could not turn it around. You've assumed that there was no model that would work. You didn't talk to anybody about anything. You didn't consult with anyone about anything because somehow, some way, you guys have captured the market on intelligence and insight and you know this market so well and you know everything about Philadelphia so well that no one else could possibly work with 217 012904 - COMMERCE - RES. 040046 you to figure anything out. Has nothing been learned over the past few months, if not the past couple years? And I understand you haven't been here that long, but there are a number of people who have been around this system and in this system for some time who I'm sure could have told you, probably did tell you, that there were other ways to function and operate other than, again, a group of people getting together in Dallas over a three-day period of time and just deciding to close this particular facility. So why don't we stop at this point in making assumptions. So why don't we have a clear record. What is the company's position about either selling the facility to another potential provider, working with either the City of Philadelphia, the Commonwealth of Pennsylvania, the government of the United States of America, Delaware Valley Healthcare Council and other healthcare providers in this City to see what type of health services might be viable without solely relying on the incredible intelligence 218 012904 - COMMERCE - RES. 040046 within the company? What's your position?

Mr. Schaengold

We have announced our intention to close MCP on March 31. We also have made it very clear that if someone wants to come forward and acquire the facility and operate it as an acute care facility we would be happy to talk to them. We would be happy to lease the facility to the City of Philadelphia so they can run it as an acute care facility. I think we've been very clear about that.

Councilman Nutter

What steps have you taken to do any outreach? Tell me what health systems you've been in touch with, tell me what conversations you've had to put forward those ideas.

Mr. Schaengold

We have not contacted anyone. Everyone in the industry is aware that this property is available. Everyone in this community, any other health system, is aware that MCP is available.

Councilman Nutter

So until someone comes over to the clothes pin building and tells you that they want to do something, 219 012904 - COMMERCE - RES. 040046 you'll just sit there, let the closure happen? And then what? Then what?

Mr. Schaengold

Then we will continue to operate our five properties in this market in a successful manner.

Councilman Nutter

What do you propose to do with the little piece of real estate up there at 3300 Henry Avenue?

Mr. Schaengold

Well, we would like to work with the City, the State, private developers to turn that property into whatever is deemed appropriate.

Councilman Nutter

Well, you've started things well with the City; I can tell you that. Tell us about the conversation yesterday.

Mr. Schaengold

A conversation yesterday?

Councilman Nutter

You had a conversation, it's our understanding, or a meeting with the City yesterday?

Mr. Schaengold

Yes.

Councilman Nutter

What was the 220 012904 - COMMERCE - RES. 040046 nature of that discussion.

Mr. Schaengold

Just to talk about the potential impact on emergency services within the community. And we also addressed the way we communicated this, which has happened regularly over the past six weeks.

Councilman Nutter

What's the impact on Drexel and PCOM as it relates to medical students or residents or others who are trying to get an education and go through the process? What happens to all of those people?

Mr. Schaengold

With regards to PCOM, those are relationships on a year-to-year basis, and we have rotations of PCOM residents at several of our hospitals. And obviously, there won't be any rotations at MCP. And they will have to find other locations for those residency rotations. In Drexel's case, we are obligated to help Drexel find other places where the residents and students would be relocated and rotated through.

Councilman Nutter

I'm going to yield on 221 012904 - COMMERCE - RES. 040046 that. My colleague had a question, so I yield to the Chair.

Councilman Goode

Councilman Ramos.

Councilman Ramos

Thank you, Mr. Chairman. Mr. Schaengold, there was one statement that you made about minutes ago 9 that I concur with, and that is that there's a 10 bigger problem in this country and this City with a broken healthcare system. Those were your words, and I agree with that assessment. I know that because when you closed down Parkview Hospital last summer as I had just -- I had just won a primary. I was not an elected official. And I found myself quite powerless in trying to respond to the many anxieties and concerns of the people who were affected by the closing. And I brought up the issue that this is an issue that we're going to have to speak further with other government entities at all levels, including Washington and healthcare providers because these hospitals are closing up in neighborhoods where people need healthcare. Most don't have 222 012904 - COMMERCE - RES. 040046 the financial whereabouts to provide their own healthcare. Does that one dollar offer go for Parkview Hospital as well.

Mr. Schaengold

Absolutely. I will tell you that in that situation, again, no 8 buyers came forward who wanted to operate that acute care facility.

Councilman Ramos

I know about two entities that have visited me in the last few weeks, that I've been on honored to serve on this City Council, on assisted living facilities, so I will send them your way. I told them I knew about Parkview. So I can send them your way?

Mr. Schaengold

That is correct.

Councilman Ramos

What are you going to do with all the people that are going to lose their jobs at MCP? Can you guarantee them work in any of your five other hospitals?

Mr. Schaengold

We would like to place as many of those employees at our other facilities. Unfortunately, as a result of the litigation that is under way, we have been 223 012904 - COMMERCE - RES. 040046 prohibited from holding job fairs or having other health systems come in and offer jobs to our employees. So we are restricted to simply responding to inquiries from our employees. Once we can get through this litigation, then we will conduct our usual process of job fairs, recruitments, and placements at other institutions. Right now, we're not doing anything that would subject us to the allegation that we are accelerating closure.

Councilman Ramos

Once the litigation is over with, I would want you to give priority to those who lost their jobs at MCP and your other facilities.

Mr. Schaengold

Absolutely. They always do and would.

Councilman Ramos

And you're making that commitment; is that what I'm hearing?

Mr. Schaengold

Yes, sir.

Councilman Ramos

I found quite interesting that in your prepared text, it says here that -- correct me if I'm wrong -- but it kind of implies that the people in the immediate area of MCP didn't really need you, 224 012904 - COMMERCE - RES. 040046 didn't need MCP. It says here, "While we appreciate the concerns of the community following our announcement, our data shows that approximately 94 percent of the area residents who require hospital admission have their healthcare needs met at other hospitals." In other words, over out of 9 people who live in the same or adjacent zip 10 codes to MCP go to other hospitals. Is that what you're implying, that the hospital is really is not providing a whole lot of medical care to the people in the immediate area?

Mr. Schaengold

When we --

Councilman Ramos

That's what you say here.

Mr. Schaengold

Yes. Absolutely. When we look at each hospital's primary service area, that is the area from which 70 percent of its admissions come from. When we look at MCP's zip code and adjacent zip codes, MCP has the fifth largest market share in its own primary service area. There are more citizens in those zip codes who receive their care from Albert Einstein, Temple, Penn and 225 012904 - COMMERCE - RES. 040046 Mercy than they do from MCP.

Councilman Ramos

I'd like to ask the distinguished Councilman from the district where MCP is located if he can -- if I can defer to him just for a minute and see if that is in fact, in your judgment, Councilman Nutter?

Councilman Nutter

Thank you, Councilman Ramos. The numbers that Mr. Schaengold is providing, which I don't know whether the exact figures that he just laid out are anywhere in his testimony, but I think my initial response is I've never seen the data that he makes reference to. But I guess I would just have to say that if the people in the neighborhood didn't care about the hospital, I don't think that you'd have the kind of reaction that you've had, the court cases, the vigils, the protests, the demonstrations. (Applause.)

Councilman Nutter

And I think, Mr. Schaengold, you are on the thinnest of ice in 226 012904 - COMMERCE - RES. 040046 terms of further insult to this community. This is not just a discussion about numbers. This is a discussion about people. It's about their lives. It's about what they need. (Applause.)

Councilman Nutter

And if every conversation is just going to become a financial discussion or an accountant's jumping through hoops of debits and credits and loss carry forwards and what year you book a loss in and all those kind of discussions, then I've got to tell you it's just going to be rough if you plan to continue to operate healthcare institutions in this market. We don't have this kind of discussion, we don't have this kind of relationship with any of the other fine institutions in the City of Philadelphia. Now, I read --

Councilman Ramos

Michael, can I wrap up.

Councilman Nutter

Yes. Let me just put on the record here, I have a copy of a speech by Mr. Fetter that 227 012904 - COMMERCE - RES. 040046 he delivered to the shareholders on July 23rd, 2003. I don't know if you have a copy of his speech. I don't know if you were there. The City wanted to address Tenet's issues, past and present. "We have committed these past several months to confronting our issues head on. This has included a focus on new leadership, a new culture and a new tone. We have new leadership in virtually every area of the company. We are building on the culture of service and team work that is well established in our hospitals and taking it right to the top. I have stressed that Tenet's culture will rest on a foundation of ethics and compliance. And we've set a new tone. The tone is transparent, it is accessible and it is confident without being arrogant." Were you there for that speech, Mr. Schaengold?

Mr. Schaengold

No. 23

Councilman Nutter

Would you like a copy of the speech? Because obviously, you don't understand how to function and operate 228 012904 - COMMERCE - RES. 040046 in this market and how to talk to us in a way that makes some sense. So I'm going to suggest to you again, if you want to continue to legitimately operate and have some kind of a semblance of a relationship with the local, state and federal government, do not come to this Council Chamber and insult us with, "Well, they go other places," or "The neighborhood doesn't need it," or "They're seeking healthcare somewhere else, and so we book the loss in 2003. They'll go on. Those people will go and find healthcare somewhere else, but we're not going to deal with it because it doesn't fit in with now our core five hospitals," which is maybe where the company wanted to be in the first place, but the federal judge and the bankruptcy court wouldn't let you do it. But I'm going to say to you, sir, very seriously and very directly, if there is a new tone and a new attitude without arrogance, I'd ask you to adopt it. (Applause.)

Councilman Nutter

I think my colleague was wanting to ask a question. 229 012904 - COMMERCE - RES. 040046

Councilman Goode

The Chair recognizes Councilman Ramos and then Councilman Rizzo.

Councilman Ramos

Mr. Schaengold, if you would be so kind as to provide this Committee the data that you refer to in this paragraph that indicates that 94 percent of the people in that area really don't need the presence of MCP, I would like to see the data, because I share the emotions at this time as those expressed by my colleague, Councilman Nutter. In December of 2002, was MCP a financially viable institution, in your judgement?

Mr. Schaengold

It was basically a break-even institution. I wasn't here in 2002, so I'm not sure how viable it would have been, but certainly it would have been one of our worst performing institutions.

Councilman Ramos

I know this has to be a coincidence -- but it might not be. On the same date a year before, on December 18th of the year 2002, the Philadelphia Business 230 012904 - COMMERCE - RES. 040046 Journal announced that you bought Roxborough Hospital, and that you bought Roxborough Hospital for $24 million and that Roxborough generated a net revenue of $45.5 million in fiscal 2002. It makes me believe that, one, that the decisions are driven by business costs because if you sold -- you correct me -- if you saw that MCP down the road from Roxborough Hospital was losing money, you might have then wanted to buy Roxborough Hospital because it was making money and you got a good price for it as well. Did the financial problems of MCP play a role in you buying a hospital that was making some profit?

Mr. Schaengold

Roxborough was not making profit. That net revenue number of $45 million is that sales number we keep talking about. That's just the amount of activity that Roxborough was generating. But Roxborough was almost on the verge of bankruptcy. The reason we acquired Roxborough is because our hope was that primary care patients seen within the Roxborough system 231 012904 - COMMERCE - RES. 040046 could then be referred to MCP for sub-specialty care. That was the reason for acquiring Roxborough. But it was not a profitable hospital when we bought it.

Councilman Ramos

So the financial problems of MCP did not play a role? I'm not a businessman, but I have family members that are, and I've seen one uncle on one occasion had a couple small businesses. One was doing poorly and he said, "Well, there's an opportunity over here. I'm going to go buy that store over there and I'll just close this store later on." Is that your thinking in providing healthcare?

Mr. Schaengold

The strategy was to build a system that would support, in fact, MCP, not detract from MCP. As it turned out, it didn't work. Our patients from the Roxborough area did not gravitate to MCP. They continued to gravitate to Hahnemann and other facilities. So as it turned out, we were really wrong in our assumption that you could move specialty care to MCP. But we acquired 232 012904 - COMMERCE - RES. 040046 Roxborough for the purpose of strengthening MCP's position in the marketplace.

Councilman Ramos

In December 2002 were you thinking while you were buying Roxborough Memorial of the possibility of -- were you thinking of closing MCP already, the year before?

Mr. Schaengold

Absolutely not.

Councilman Ramos

Thank you, Mr. Chairman. That's all the questions I have.

Councilman Goode

The Chair recognizes Councilman Rizzo and then Representative Manderino.

Councilman Rizzo

Thank you, Mr. Chairman. Yesterday in the mail, I assume because I'm patient of MCP, I received a letter telling me -- maybe you can paraphrase the letter -- about an alternative facility for the patients of MCP. I got it in the mail just yesterday, and I didn't read it thoroughly. Could you explain that letter?

Mr. Schaengold

I don't know what letter you're referring to. I don't believe it 233 012904 - COMMERCE - RES. 040046 came from us.

Councilman Rizzo

I believe it did.

Mr. Schaengold

Honestly, I don't know what --

Councilman Rizzo

Could you have somebody check about this today, maybe make a phone call? I got a letter yesterday --

Mr. Schaengold

To your home?

Councilman Rizzo

To my home, as a patient of the hospital explaining -- and again, I read this quickly -- that there would be an alternative location in the very near future identified for care. So maybe you could check.

Mr. Schaengold

We'll find out.

Councilman Rizzo

I believe it was a letter yesterday.

Ms. Zurzolo

If you can give me a copy of it, I can research it back. But we will check it to see what, if anything, it could be. I don't know of any such letter.

Councilman Rizzo

It was suggesting that there was going to be some other location selected, maybe it was a practice within the 234 012904 - COMMERCE - RES. 040046 facility. I don't know.

Mr. Schaengold

It could have come from an individual physician.

Councilman Rizzo

I believe it had your logo on it.

Mr. Schaengold

Well, we have physicians that are practicing in that site. But we will follow-up and check.

Councilman Rizzo

There was a communication yesterday -- thank you. I appreciate that. Because coming to this hearing and reading it quickly, I assumed that there was going to be some good news today.

Mr. Schaengold

We didn't mail one, but we will try to find out what that letter is.

Councilman Goode

Representative Manderino. REPRESENTATIVE MANDERINO: I believe I heard you correctly, Mr. Schaengold, when you said you purchased Roxborough with the -- the intent behind the purchase of Roxborough was you thought that it would feed to the specialists at MCP, and in fact that didn't 235 012904 - COMMERCE - RES. 040046 happen. So my next logical question is, So what does that do to the value of Roxborough Hospital within your system, if the purpose of buying Roxborough was to be a feeder for MCP, which doesn't exist in your perceived new structure?

Mr. Schaengold

Well, what has happened at Roxborough is more specialists have joined their medical staff. Roxborough's census has increased, and Roxborough is beginning to perform independent of our original intention and, in our opinion, is going to serve us well as a community hospital in the Roxborough area. And they are sending specialty care patients to Hahnemann. REPRESENTATIVE MANDERINO: Is there any capacity within the Roxborough Hospital for expanded emergency room care?

Mr. Schaengold

That's difficult to say. It is a very tight box, or building. I don't know what its ER expansion is at this time. REPRESENTATIVE MANDERINO: Is there any capacity within that system for adding a trauma 236 012904 - COMMERCE - RES. 040046 center?

Mr. Schaengold

No. We would not add a trauma center to Roxborough. There are already five trauma centers with very close proximity. We are opening trauma service tomorrow morning at 7 a.m. at Hahnemann. We now have sufficient physician coverage to do so, and we've been given the green light by the Trauma Foundation to do so. REPRESENTATIVE MANDERINO: Hahnemann is in Center City. MCP is in Northwest Philadelphia. MCP is the only trauma center in Northwest Philadelphia. The next closest ones are Lankenau out in Montgomery County or Temple in North Philadelphia. Am I not correct about that?

Mr. Schaengold

Albert Einstein. REPRESENTATIVE MANDERINO: And Temple in North Philadelphia. Lankenau is not. Because people from Lankenau, I believe, were coming in from MCP for trauma centers. So now folks from Lankenau are going to come to North Philadelphia for trauma services or Center City for trauma services or West 237 012904 - COMMERCE - RES. 040046 Philadelphia for trauma services?

Mr. Schaengold

Correct. REPRESENTATIVE MANDERINO: Point of order, Mr. Chairman. I have questions also that I would like to direct to Dr. Klasko at Drexel, and I don't know if you were taking him in a different order or if I should proceed.

Councilman Goode

We're actually about to move to the testimony from Drexel. REPRESENTATIVE MANDERINO: Very good.

Councilman Goode

We'll just ask you to pose your questions and then have him respond to the questions and offer abbreviated testimony. REPRESENTATIVE MANDERINO: Very good. Thank you. Thank you for being here, Dr. Klasko.

Dr. Klasko

Thank you. REPRESENTATIVE MANDERINO: I'm just trying to follow the money. It seems to me that everyone keeps trying to make the money 238 012904 - COMMERCE - RES. 040046 flow to Tenet. And Tenet says, no, the money flows to Drexel. So help me follow the money, particularly from the state level as it flows, whether it's through non-preferreds or any other factor than -- or the $50 million that was part of the first deal that people keep referring to. Help me follow the flow of money to Drexel and how it does or doesn't at all interact with services provided in the Tenet system.

Dr. Klasko

Thank you. I think it would be worthwhile to talk a little bit about a medical school versus a hospital. We had a clinical research in education mission --

Councilman Goode

Dr. Klasko, have you been paying attention?

Councilman Goode

I think you should answer the Representative's question and then proceed with your abbreviated testimony.

Dr. Klasko

Okay. The flow of money that goes to Drexel would be to handle the clinical education and research mission of the 239 012904 - COMMERCE - RES. 040046 medical school, which is totally separate from the operations and owning of a hospital. The reality is that only 40 percent of our medical students' clinical rotations currently occur at Tenet hospitals. REPRESENTATIVE MANDERINO: It was my understanding from a meeting that I attended a couple of weeks ago, which you were in attendance, convened by Senator Specter where I -- and it was probably just a lack of knowledge on my understanding prior to that. But I learned at that meeting that all of the physicians are not employees of Tenet, but they are employees of Drexel. Is that because they are also faculty of the medical school, or is that regardless of whether they're faculty of the medical school? Explain to me the employment relationship of the physicians to Drexel, whether they're at MCP or Hahnemann.

Dr. Klasko

The medical staff of MCP, approximately 85 percent of them are full-time faculty of Drexel University. And the reality is I am one of them. I have an 240 012904 - COMMERCE - RES. 040046 ob/gyn practice at MCP. We have continued to provide care for that community. At Hahnemann about 50 percent of the medical staff are full-time faculty of Drexel University. A full-time faculty means that we employ them. We pay their salaries. Their revenues come in to us. Many of the volunteers are also faculty members, but we do not employ them. REPRESENTATIVE MANDERINO: So when you said to me the state money flows into Drexel for the medical school for clinical research --

Dr. Klasko

And education. REPRESENTATIVE MANDERINO: Okay. That has nothing to do with the payment of the doctors for health services provided to patients in Tenet's hospitals.

Dr. Klasko

It has nothing to do with the operation of a hospital. Obviously, the clinical mission -- and there's been a lot of testimony today about the difficulty of running an academic clinical mission in an underserved area. We continue -- and I want 241 012904 - COMMERCE - RES. 040046 to say this again -- we continue to have the exact same group of people taking care of those patients, even though the hospital is closing. The letter that Councilman Rizzo refers to is a letter that came from Drexel University physicians to all of our patients, talking about what we were going to do, what alternatives were going to be available for the care of patients. REPRESENTATIVE MANDERINO: What did that letter say? Go to Hahnemann?

Dr. Klasko

No, not at all. The reality is we are not the hospital. The reality is that nothing has changed, not one thing has changed since November as it relates to Drexel University physicians. We have offices at MCP. We have offices at Andorra. We have offices in Manayunk. We see the patients that need to be seen. We haven't referred any primary care patients to different areas to this site to this point.

Councilman Goode

Representative Manderino, would you yield to Councilman Rizzo? 242 012904 - COMMERCE - RES. 040046 REPRESENTATIVE MANDERINO: Certainly.

Councilman Rizzo

For the record again, could you please restate this letter that I received? What letterhead was it on?

Dr. Klasko

My understanding, if it's the same letter, we sent out a letter yesterday to our patients -- remember, Tenet doesn't have any physicians, doesn't employ any physicians at MCP. The physicians at MCP are either privately employed, like any other physician, or are a part of PCOM or part of Drexel University physicians. We have been constantly communicating with our physicians through the strike and through this closure so that they understand they'll have places to go. We sent a patient letter out yesterday. I'm not sure, Councilman Rizzo, if that's the one you got. We appreciate that you're a patient, but we sent a letter out yesterday talking about what we were doing to continue to provide care for the East Falls community through this difficult time and 243 012904 - COMMERCE - RES. 040046 through the whole closure piece. We have offices in Andorra, as I said. We have offices in Manayunk. And we're looking for ways to continue to care for the East Falls community, regardless of a hospital staying open.

Councilman Rizzo

And Tenet wouldn't know about this letter?

Dr. Klasko

Tenet runs a hospital. We are not part of the same system. Tenet runs MCP Hospital and Hahnemann Hospital, as I said, and that's where some of our physicians practice. So the answer is that, obviously, Mr. Schaengold didn't know about that. If he's not a patient, there's probably no reason that he would. REPRESENTATIVE MANDERINO: I'm not the dumbest cookie on the block; I don't claim to be the smartest one either, but I really am having trouble understanding. There was $50 million put together at the beginning, I believe from the State, to entice Drexel, and everyone thinks you were the savior and you were the savior of our medical school. So 244 012904 - COMMERCE - RES. 040046 Drexel came in with a lot of arm twisting and $50 million to save medical education at these two institutions when Tenet was buying the hospital system and wasn't interested in running the medical schools. Are my facts right so far? I mean, was there not $50 million part of the Drexel deal for Drexel to take over operation of the medical schools?

Dr. Klasko

I'm not sure of the exact number. But the reality is that with Allegheny going bankrupt, they were losing close to a million dollars a day. That million dollars included hospital operations. That million dollars included the educational mission of training 1,000 medical students. REPRESENTATIVE MANDERINO: I'm not disagreeing with you. But at that point you severed hospital operations -- at least that's part of what you're telling us today. You severed hospital operations from medical school operations, and the $50 million was for medical school operations. But medical school operations is also physician services, 85 percent of which are at the hospitals, That if 245 012904 - COMMERCE - RES. 040046 the faculty wasn't there, the hospitals wouldn't have staff. And so am I wrong in thinking that the money is flowing into providing healthcare services to people?

Dr. Klasko

Certainly some of the money went into that, right. REPRESENTATIVE MANDERINO: Now, if MCP as a hospital doesn't exist, is there not some agreement -- or tell me, is there an agreement between Drexel, the university entity that runs the medical schools, and Tenet, the hospital entity that owns two medical teaching hospitals, with regard to what happens if there's closure of one of those or both of those medical teaching hospitals? Is there an agreement that exists?

Dr. Klasko

There is an academic affiliation agreement which happened in 1998, which again was revised, I believe, in 2001, which governs Tenet's responsibilities to Drexel should they decide to close either Hahnemann or MCP. REPRESENTATIVE MANDERINO: What is Tenet's obligation to Drexel in this instance 246 012904 - COMMERCE - RES. 040046 since they're deciding to close MCP?

Dr. Klasko

Their specific obligations relate to our students and to our faculty and staff. And basically becomes -- in essence, the agreement specifies that they would have to give us a certain period of notice. In this case, we got a one-day notice, which is a similar notice to the Councilman. REPRESENTATIVE MANDERINO: Was that the agreed to notice in the agreement.

Dr. Klasko

No. They would have to -- I forget exactly what it was, but maybe a two-year notice. It was understood that that probably wouldn't happen. And it specifies what they will have to do to help us rearrange students and rearrange faculty and rearrange staff. REPRESENTATIVE MANDERINO: What do they have to do?

Dr. Klasko

Basically, cover the cost that we can continue to have faculty after the closure of MCP so that we can continue to care for the people that we care for. 247 012904 - COMMERCE - RES. 040046 REPRESENTATIVE MANDERINO: And has a plan for that been developed and has a price tag been put on it, and if so, what is it?

Dr. Klasko

The plan is being developed. It's probably what I spend most of my time doing, looking at what's in the best interest of that community, of our students, residents, faculty, staff. We're recruiting residents right now and we're going to lose a significant amount of residency slots. So these are all things that we have to look at with the closure of MCP. We have continued to provide every single bit of primary care service to our community, to that community, to that underserved community, through this period of time. REPRESENTATIVE MANDERINO: So help me again. Remember, I'm following the flow of the money. Has a price tag been put on this and what's the price tag and what does it mean to you and what does it enable you to do, or what doesn't it mean to you and what doesn't it enable you to do? 248 012904 - COMMERCE - RES. 040046

Dr. Klasko

The price tag has not been put on it yet. What it will enable us to do is to continue to operate as a medical school because we have to find clinical rotations for a thousand medical students, of which about 300 or 400 at any one time -- 300 or 400 total did rotations through MCP. At any one time, there are probably 40 or 50 medical students. So it will allow us to do that. It will allow us to keep our faculty, and Tenet will have to pay with the understanding that if I were to let any faculty go, I would need to give them a good period of time to take care of their patients and move to wherever they were going to go. So it allows for that also. REPRESENTATIVE MANDERINO: We now have this entity, the Healthcare Foundation. That's the one that all this money flows through; is that correct?

Dr. Klasko

Yes. REPRESENTATIVE MANDERINO: Then that's the entity that got the first $50 million and that's the entity that gets the non-preferred appropriations from the 249 012904 - COMMERCE - RES. 040046 state, or they're one in the same.

Dr. Klasko

That is our corporation. It's our governing board. REPRESENTATIVE MANDERINO: Okay. So the initial state money that went into kind of making this deal happen and then the continuing state appropriations that go to the entity is going to this Healthcare Foundation?

Dr. Klasko

Again, for operations related to the medical school, that's correct. REPRESENTATIVE MANDERINO: Correct. That foundation entity at the end of the day, if MCP closes and Drexel has two medical schools and -- right, you're still going to have MCP Medical School --

Dr. Klasko

No. There's only -- REPRESENTATIVE MANDERINO: Two campuses?

Dr. Klasko

No. We have actually about 18 campuses. Our primary two campuses are MCP and Hahnemann. REPRESENTATIVE MANDERINO: Wait. I'm sorry. I'm really lost. When you're saying you have 18 campuses, you're saying places you 250 012904 - COMMERCE - RES. 040046 place residents or classrooms where you teach people?

Dr. Klasko

Let me give you exactly what goes on. The first two years of our medical students' lives are at Queen Lane. They learn basic sciences. Their third and fourth year is learning the clinical parts of being a doctor. Those parts of being a doctor is our only relationship on the students' side with Tenet. Forty percent of our students go through MCP and Hahnemann. The others go to Allegheny General Hospital. They go to lots of other hospitals. REPRESENTATIVE MANDERINO: I don't mean to be dense here, but I was under the impression that first and second-year residents were getting education at the Queen Lane campus and there were first and second-year residents getting their classroom training at Hahnemann. That's wrong?

Dr. Klasko

No, that's wrong. It's also not residents. First and second-year students are all at Queen Lane. 251 012904 - COMMERCE - RES. 040046 REPRESENTATIVE MANDERINO: So there was a merger at some point when you took over the medical schools.

Dr. Klasko

The first years of medical school are all basic science. There's really no reason that they have to be at a hospital. Even at Hahnemann, when there was just Hahnemann University, which is where I went to school, the first and second year was in the new college building adjacent to Hahnemann. It was never at the hospital. REPRESENTATIVE MANDERINO: It was not at Queen Lane?

Dr. Klasko

Queen lane wasn't available at that time. REPRESENTATIVE MANDERINO: I think you're beyond my knowledge right now. I thought there were students, first and second year, at Queen Lane. Students first and second year downtown somewhere?

Dr. Klasko

No. The students experience 95 percent of it. I want to be very accurate about that. REPRESENTATIVE MANDERINO: That all 252 012904 - COMMERCE - RES. 040046 happened when you came in --

Dr. Klasko

No. That actually all happened with Allegheny. The merger of MCP -- you're not really confused. What happened is there were two discrete medical schools. Women's Medical College became MCP. That was a discrete medical school. Hahnemann where I went to school was Hahnemann Medical College, then Hahnemann University. Two discrete medical schools. They merged at some point. REPRESENTATIVE MANDERINO: Before you?

Dr. Klasko

Well before me. And then Allegheny came in. So they went to being one MCP Hahnemann to Allegheny. Then when the bankruptcy occurred, Tenet got the hospitals. Drexel managed what was then MCP-Hahnemann University. And then last year sometime our university, in essence, Hahnemann University, merged with Drexel and became Drexel University College of Medicine. But this has been one medical school for quite a while. One of the differentiating parts of this medical school has always been that we 253 012904 - COMMERCE - RES. 040046 don't just work at one hospital. We don't just send our students to one hospital. We send them throughout the state. REPRESENTATIVE MANDERINO: I'm looking at the flow of money. I'm looking at the state contribution. I'm looking at the continuing appropriations from the state level and I'm looking at an entity that is going to be changed in some way, shape, or form by the closing of MCP the hospital. And I'm saying, does this foundation end up better off financially or worse off financially as a result of this, so that I can anticipate what happens in terms of requests for assistance at the state level?

Dr. Klasko

Well, I can tell you that certainly what has happened since November has put us in a much worse situation financially from the point of view of taking care of the population of MCP. We have not cut our costs. We have not cut staff. We have continued to take care of the primary care folks there, who in many cases, because of the circumstances around MCP, are not able 254 012904 - COMMERCE - RES. 040046 to be hospitalized at MCP and might go someplace else. So if you're asking me for my perspective, what's happened since November has been certainly financially very difficult for us, and we are riding it out and we found ways to send our students to other places and we found ways to send out residents to other places and we are continuing to find ways -- and that's what the letter was about -- to care for the patients of East Falls. I always see patients one day a week, but almost my entire patient population is from that community. I'm going to have to decide where I'm going to see them. REPRESENTATIVE MANDERINO: So then the rumor -- and I really can't attribute it to anyone, so I'm just going to call it a rumor. The rumor that is out there in the community that Drexel benefits to the tune of $33 million by this deal going down the way it is, that's just false based on -- you don't know what the heck it's based on, but there's no truth that this foundation system and the Drexel University operation of that ends up 255 012904 - COMMERCE - RES. 040046 $33 million or any kind of million in the plus column as a result of the agreement you have with Tenet should they close MCP Hospital?

Dr. Klasko

That's clearly not the case. Again, I will say that since November when MCP started to reduce its census first in the nurses' strike, our revenue has been down by over 50 percent and our expenses have been the same. There is nothing currently to subsidize us for that. The affiliation agreement will only subsidize our direct cost by their decision to give us less than two years notice in closing MCP. So by definition, there's no way that we can end up ahead. If it doesn't cost us anything then we don't get anything. If it costs us $30 million that we wouldn't have had to spend or that we're losing that we wouldn't have lost if MCP hadn't closed, then that probably will be what the bill is. REPRESENTATIVE MANDERINO: So that $30 million figure might have some basis if it's, we had 600 physicians and now we're only going to have 300 physicians, so 300 of those 256 012904 - COMMERCE - RES. 040046 physicians we have to buy out their severance contract and so that money goes to the physicians who we're going to not continue to employ? Is that how the money flows?

Dr. Klasko

Well, let me give you one example. Again, we are a university. We teach medical students. So we have deals with our professors that are mandated in some respects by our bylaws in the American Association of University Professors. One of them is that I can't just tell a faculty member, you know, "I'm sorry. Tenet closed the hospital. Have a nice life. You're doing research here, you're teaching students and you're seeing patients, but I'd like you to leave in a month." I can't just do that, even if we chose to. In many cases, I have to give them up to about 17 months notice. So if I told somebody that we didn't want them anymore for whatever reason, I will literally -- they will have to maintain themselves as a faculty member until June 2005. It might be that their revenue goes way, way down, and I might lose a couple 257 012904 - COMMERCE - RES. 040046 hundred thousand dollars on that faculty member that was doing fine before MCP's closure. Those are the kinds of things that Tenet will make up for. It doesn't make us any better off because our -- REPRESENTATIVE MANDERINO: Do those physicians stay employed with you, or no? It's like a severance good-bye kind of thing?

Dr. Klasko

No. They stay employed with us and they teach medical students, but their revenue is going to be way down. They could go and find another job, and many of them are doing this, but with what's happening at MCP, many of our good physicians are looking for jobs in other health systems and they could go get another job, in which case our obligation to them ends. And then Tenet's obligation to us would end. There's absolutely no situation, frankly, where from a financial point of view this is a good thing for us. REPRESENTATIVE MANDERINO: This will be my last question. I appreciate the indulgence of the Chair. 258 012904 - COMMERCE - RES. 040046 Certainly there will be some attrition in faculty because you're not going to need as many. If that's a correct assumption, how does the attrition happen? Is there contractual relations that govern who stays and who goes? Will it be Drexel's decision who they want to let go and who they want to try to keep or retain? How does that all happen?

Dr. Klasko

We have added an exhaustive communication plan with our faculty, our staff, our students and our residents. We agree with just about every one of those groups. We've had honest discussions with every faculty member. We've asked every faculty member to look at what their practice look like without MCP Hospital. There are many that are looking and saying, you know, I really believed in this place and I'd like to stay with Drexel, but I think I need to move on. There are some that are coming up with plans to continue to care for the community, and we're going to try to give them the chance to do that. 259 012904 - COMMERCE - RES. 040046 So the answer is, I have about 115 faculty, 215 residents and 400 student rotations that I literally -- since I found out that this was happening on December 17th -- have been literally spending almost all my time looking at how we're going to replace. REPRESENTATIVE MANDERINO: I know I said this in my last one, but since you said this in your comments about folks saying, this is how I want to continue to serve the community, if a group of Drexel physicians decide that they want to continue to serve the primary care needs of the residents in East Falls, is Drexel committed or able to -- just like you have a place up in Andorra and you have other places -- are you open to physicians saying, "Let's put one in East Falls?" And can some of that revenue that is the result of MCP closing the hospital able to be used for that purpose?

Dr. Klasko

We would willing to talk about that. I think that I can't go without saying what's been said many times here before, taking care of underserved patients with the 260 012904 - COMMERCE - RES. 040046 malpractice rates that exist, which are the highest in the nation, among the highest in nation, the reimbursement rates which exist, which are among the lowest in the nation, is a very, very difficult thing to do. We do it. More than half of our patients that we see at Drexel University physicians are underserved or self-pay. It is an incredibly difficult think to do. So the answer is, yes, with the proper support working with the City and the State, we look forward to having that discussion about how we can continue to take care of that community.

Councilman Goode

Thank you, Representative. Let me note for the record that also present at this hearing today is Majority Leader Jannie Blackwell. Let me say to this panel we have enjoyed conversation with you, so much that we want to bring you back next week. In fact, we need to bring you next week because there has been several different requests for information that we need a chance to receive, review, and 261 012904 - COMMERCE - RES. 040046 then respond to. We've made our way through probably only about half of this witness list, and we thank those people who have come today to testify and we will allow them to testify if they want, but what we would prefer to do is actually recess this hearing until next Thursday at the same time, have a chance to receive the information we have requested, have a chance to bring you back, respond to that and continue this dialog and then allow people from the community to be able to respond to that information, as well. So we think we would be better informed next week once you give us the information. At this time I'm going to ask the sponsor of the resolution to review what we have requested from you in preparation for next week's hearing.

Councilman Nutter

Thank you, Mr. Chairman. Mr. Schaengold and anyone else with you, I'd like to put a number of requests into the record. I would like to ask if you could 262 012904 - COMMERCE - RES. 040046 have the appropriate people take these information requests down so that you know what we're looking for. We would ask in anticipation -- ladies and gentlemen, we just need a little quiet. We're still actually in the hearing. m. on February 5th, the hearing. It would be helpful to have this information by probably Monday so that we can read it. First, we'd like copies of the reports that you're required to provide to the City under the community benefit services and the agreement with regard to Sections 8A and 8B that are required on an annual basis. If you have submitted such reports, naturally, we'd like the copies of them. We'd like to know who they were submitted to and when. If the reports were submitted in conformance with the section, we'd like to know what person or persons, what department of the City government received them and whether they were approved by 263 012904 - COMMERCE - RES. 040046 the City government. I'd also like information with regard to your proposed plans for the future use of the real property, if and when MCP closes, and the actions that you've taken and the discussions that you've had with the City or other potential healthcare providers looking at proposed reuse. I mentioned to you earlier we'd like the last five years of financials for MCP and the other five hospitals showing either naturally profits or losses and any back-up documentation that goes with that. We'd like a detailed understanding of how you arrived at the $30 million loss this past fiscal year and any explanation that goes with. We'd like payer mix information, percentage of Medicare patients, Medicaid patients, private insurance, HMOs and others treated at MCP. The hospital case index for Medicare purposes. I'd like to know the total number of doctors employed at MCP, as well as the number 264 012904 - COMMERCE - RES. 040046 who are independent contractors. I think Representative Manderino took you through some of that information. What is going to happen to the gamma knife (ph), where or when would it potentially be relocated. I'd like to request additional detailed information with regard to the residency program and the impact again on Drexel and PCOM. I heard a very brief answer with regard to PCOM. I did not have a chance to explore that particular response, but I'd like to know what you're going to do to work with PCOM and their residents or students. The questions that I asked earlier were related to the MCP Governing Board. I'd like to know any changes that have been made to the Governing Board, the date of those changes, the people who served on the Governing Board or who have served on the Governing Board, any documents, data, resolutions or other materials related to any discussions with the Governing Board with regard to the closure, or proposed closure. 265 012904 - COMMERCE - RES. 040046 I'd like a detailed written explanation of the timetable involved in leading up to the announcement of the closure, the names, titles and location and responsibilities of all individuals who were a part of the closure discussion or process going back to either the fall or the meeting in Dallas referenced on December 10th, as well as the decisions made on December 12th. Any other data or information that we've discussed today. And we'd certainly make our transcript available as quickly as possible, although it may negatively impact on your ability to be responsive. I asked questions earlier with regard to Philadelphia Charitable Holding Cooperation, the people involved, any details or information with regard to the transfer of 2900 Queen Lane to Drexel and any documents or data related to those questions. Mr. Chairman, I think at the moment that may be the extent of the questions.

Councilman Nutter

I would ask with the Chair's permission if other questions do arise, that if the Chair approves, 266 012904 - COMMERCE - RES. 040046 that I be able to submit those requests for other information to the Tenet personnel under the premise that within reason we should be able to get that information prior to the hearing.

Councilman Goode

Absolutely. We thank all those who have testified today or were prepared to testify. We ask that you make yourselves available next week. I also thank Members of the Committee, as well as those representatives from the State Legislature and Congress. This hearing stands in recess until Thursday, February 5th at 1:00. (Council adjourned at 6:24 p.m.) - - - - 267 C E R T I F I C A T I O N I HEREBY CERTIFY that the foregoing proceedings of the Council of the City of Philadelphia of January 29, 2004, were reported fully and accurately by me, and that this is a correct transcript of the same. RE: COMMITTEE ON COMMERCE AND ECONOMIC DEVELOPMENT _________________________ Lisa C. Bradley, RPR