The aftermath of AHERF: keeping your career afloat.

Like most physicians, my career has been challenged several times by forces beyond my control--mergers, bankruptcies, and reorganizations. I've managed to stay afloat through a combination of luck, planning and survival skills.

In particular, my experience working in the now defunct Allegheny Health Education and Research Foundation (AHERF) taught me many lessons about managing career risk.

AHERF

The saga of AHERF has been well documented in newspapers, journals and medical conferences. AHERF was a massive health care system based in Pittsburgh, Pa., with major operations in Philadelphia. AHERF formed in 1992, but precursor operations began in the 1980s when the prevailing wisdom in health care was that bigger was better.

At its peak, the system had revenues exceeding $2 billion, 31,000 employees and 4,500 students and trainees. AHERF owned 14 hospitals, several hundred physician practices and two medical schools that were merged into one.

AHERF's CEO, Sherif Abdelhak, pursued ill-advised strategies and acquisitions in a medical arms race with insurers and other health care systems. His overextended and debt-crushed empire collapsed in 1998 when AHERF filed a $1.3 billion bankruptcy, the largest ever in not-for-profit health care. AHERF was losing approximately $1 million a day in the end.

According to Neil McLaughlin, managing editor of Modern Healthcare, "It's worth noting that the AHERF implosion preceded the revelations of financial misdeeds at Enron, WorldCom and Tyco. Talk about pioneering. Moreover, compliant, confused and conflicted board members aided Abdelhak and his CFO and another top executive. The team hid the true financial picture and resorted to improper tactics such as internal cash transfers and dipping into hospital endowments." (1)

As someone who lived through the AHERF debacle (I bailed out six months before bankruptcy was declared), there are surely lessons to be learned about the importance of governance and sound financial management. Additionally, the human wounds incurred in the wake of AHERF should make us all sit up and take notice.

One administrator wrote, "I still work at a former AHERF facility but will have to work 10 years longer because of the pension plan being $40 million short and the government having to take it over. I am just one person; he [Abdelhak] has ruined many lives. He gave no raises for more than six years while he was giving himself and other executives huge bonuses. The result was job losses, pensions vanished and hospitals destroyed." (2)

Abdelhak pleaded no contest to using $52.4 million from more than 350 charitable funds for hospital operations, including restricted medical endowments. He served three months of his 11- to 23-month prison sentence (he was released for health reasons), much to the dismay of the medical, financial, and philanthropic community.

AHERF was the first case in which the Securities and Exchange Commission charged not-for-profit health care executives and outside auditors with misleading bond buyers. AHERF has had a continuing impact on the bond markets and access to capital. Particularly early on, it also limited the availability of bond insurance for hospitals.

Many questions still plague AHERF:

* Where did all the physicians go, and did they emerge unscathed in the aftermath?

* How did physicians keep their heads above water as the ship was sinking?

* Did physicians react to early warning signs of deception, or take action only after sensing impending disaster?

* Will the Sarbanes-Oxley Act ensure that a nightmare of AHERF's proportion will never happen again?

While we may never have complete answers to these questions, additional information has come to light in the post-bankruptcy years. Based on this information, as well as my experience at AHERF and other bankrupt and near-bankrupt institutions, I have devised a few basic rules that may help physicians avoid an AHERF-like situation in the future.

Rules to follow

I call these the "knowing" rules. I know, because I learned them the hard way!

Rule #1: Know whom you're working for.

It is well known that political interests can bring together people who otherwise have little in common. The saying "politics makes strange bedfellows" is adapted from a line in Shakespeare's The Tempest. "Misery acquaints a man with strange bedfellows." It is spoken by a man who has been shipwrecked and finds himself seeking shelter beside a sleeping monster.

Unusual pairings of people are also found in health care systems, especially ones that are shipwrecked. Hospitals and HMOs, for example, pair physicians and administrators with divergent personalities. (3) It is imperative to become aware of the personality of the individual you will be working most closely with and possibly reporting to. Good chemistry is the foundation for a productive relationship.

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It is also important to assess the qualifications and moral fiber of your organizations' leadership team. Abdelhak began his career as a mere purchasing agent, which turned out to be a strength. He had strong deal-making capabilities. But Abdelhak's business deals also led to excessive acquisitions and contributed to AHERF's undoing. Compassionate leadership was not Abdelhak's strong suit--he could turn on people on a dime.

A 2005 survey of 1,381 ACPE members revealed that almost 54 percent of the respondents believed that a health care organization in their community was involved in unethical business practices. (4)

Do you work for a company that has a corporate jet, corporate offices furnished with rare and expensive artifacts, a building constructed out of imported Italian marble? I worked for such a company (not AHERF), and I failed to realize the impact corporate largesse may have on the morale of workers, not to mention financial statements. You probably want to think twice about job offers from these types of companies.

Rule #2: Know what's expected of you.

Everyone expects clear job expectations and a written job description prior to starting a new position. You should be concerned if your future employer cannot articulate the responsibilities of your position, remarks that he or she will discuss fine details with you once you come on board, or radically changes your job description shortly after you begin work.

Many physicians came to AHERF with high aspirations but unclear expectations. They were lured by promises of practice and research, administrative support, steady growth and expansion of the health care system, regional dominance and, in some cases, large salaries. I was lured by the challenge of the job and the excitement of the work. I was appointed the first-ever medical director of managed behavioral health care operations in Philadelphia.

AHERF had entered into a large, all-inclusive, capitated contract with a prominent local HMO. I had responsibility for all mental health care utilization and quality management functions.

At first I did not realize there was an inadequate infrastructure, outdated information system and poor alignment between medical and psychiatric providers. I should have assessed the situation better. I learned from my mistake, however, and since then always make a point to ask about the availability of resources prior to taking a job.

Rule #3: Know where the locus of control is.

Polish poet Stanslaw Jerzy Lec observed, "No snowflake in an avalanche ever feels responsible." Multiple factors contributed to the AHERF "avalanche," but most analysts cite an all-too-powerful and out-of-control chief executive coupled with a lack of accountability, responsibility, and oversight of AHERF's executives, trustees, and external stakeholders. (5)

It has often been said that smart leaders surround themselves with smarter people. Many brilliant people worked at AHERF, but given Abdelhak's strong control and reluctance to delegate authority, a real system of checks and balances could not be established.

Physician attempts to impact the situation were fragmented and frequently working at cross purposes. Obstacles to unification were different agendas at different campuses, fear of lost business to other campuses, and difficulties in establishing equitable compensation plans for various physician specialties, including pressure on academic physicians to increase clinical income. These issues remain problematic for health care systems today.

Ironically, the Sarbanes-Oxley Act was passed in 2002, the year Abdelhak pleaded no contest in court. Sarbanes-Oxley spells out specific governance and financial standards for management and board members to follow, including potentially stiff penalties if they're not met. Sarbanes-Oxley's rigid auditing and oversight rules don't apply to not-for-profit organizations like AHERF, but they may one day apply to tax-exempt organizations or become the de facto standard.

Sarbanes-Oxley may be seen as a silver lining in the AHERF bankruptcy because the unraveling of AHERF was partly responsible for the passage of the legislation.

Another benefit, according to Philadelphia-based health care consultant Jerry Katz, is the fact that the University of Pittsburgh Medical Center (UPMC) amalgamated to deal with AHERF, and the dominance of UPMC in Pittsburgh today is attributable in part to AHERF's failure. (6)

Rule #4: Know your company's business strategy.

Abdelhak's seize-and-control tactic was one-dimensional and proved to be a failure. Other strategies, such as combining and centralizing medical operations, entering into capitated risk contracts and investing in medical research, never paid off. There were huge losses resulting from the acquisition of physician practices. Physicians were absorbed into the AHERF's network but they never showed loyalty to AHERF by referring patients to AHERF's hospitals.

Joseph Brezin, MD, who chaired the department of medicine at one of AHERF's flagship hospitals, said he knew AHERF's days were numbered two years before bankruptcy was declared. At a medical staff meeting in 1996 Brezin asked Abdelhak about his strategy for managing the physician practices acquired by AHERF. Abdelhak responded, "You can't stop a freight train going 70 miles an hour." (7)

AHERF paid lip service to vision and mission statements. There was little use of a balanced scorecard to monitor and improve organizational performance. There was insufficient throughput to align organizational objectives and employee objectives. There was no defined set of organizational behaviors to give employees a common framework for driving business and personal success. Most importantly, there were no comprehensive core values to lay the foundation on which AHERF could build its reputation.

AHERF reminds us that health care systems have generally failed to solve problems of governance and accountability or to provide analytic and financial tools that today are prerequisites for effective management. Make sure you settle into a job with an organization that has a clearly defined strategy and explicit financial and non-financial goals to get there.

Rule #5: Know your career options--and when to act on them.

In 1993, Abdelhak ended his first speech to the faculty of the newly acquired Hahnemann University School of Medicine by pointing a finger and threatening, "Don't cross me, or you will live to regret it." (7)

A few physicians saw the handwriting on the wall and left AHERF. Others were stunned and waited to see if AHERF's relationship with physicians and faculty would improve. Still some physicians waited until the system collapsed, possibly because they were in denial, or they believed life would be better under new management. Few physicians considered the possibility that their hospitals would eventually be shuttered or that they would become disenfranchised from their practice and disowned by AHERF.

This brings us to a critical juncture--the fate of physicians in the AHERF system. It has been estimated that between 1997 and 1999, the years immediately preceding and following bankruptcy, more than 50 percent of AHERF faculty departed, from a total of 1,200 physicians to fewer than 600. (8)

Physicians caught in the wake of AHERF's bankruptcy were reminded of a bitter lesson: alignment with a large hospital system does not guarantee the security of a physician's practice. The AHERF saga dramatizes a larger problem, however. Hospital system expansion may inevitably lead to reduced influence over your practice, not only where you practice, but for whom and at what level of income.

Whereas a hospital system's decision-making board is centralized and has control over the entire system, there exists no physician organization comparable to a unified board. As a result, physicians within the hospital system remain fragmented and their interests remain localized.

The situation is compounded by divisions among physicians themselves: specialist versus primary care physicians, academicians versus community physicians, and salaried physicians versus self-employed physicians. AHERF demonstrated that the absence of a unified medical staff within a hospital system impacts decision-making authority and has significant career implications for physicians.

Despite the reduction in autonomy and authority, there is no record of any public protests by prominent faculty. Responses from health care leaders outside AHERF were likewise muted. It is probably fair to say that physicians voted with their feet. Those who viewed themselves as marketable and mobile, capable of making a significant contribution elsewhere, and perhaps even willing to leverage their clinical skills and explore nontraditional career options, were probably among the first to leave AHERF.

Physicians who were able to read early warning signs of financial problems may have also departed early. The warning signs included deferred compensation, delayed capital improvements, failure to hire promising new physicians, leased rather than purchased equipment, diversion of grant funds, and cuts in research budgets. However, most physicians at AHERF were kept in the dark.

In the end, the AHERF bankruptcy reflected a large and powerful health care organization whose leaders and governing body were unaccountable. The human and financial costs of its mismanagement have never been entirely calculated and are ongoing. Learning from cases like this may help physicians' minimize career risk and the risk of repetition.

Arthur Lazarus, MD, MBA, CPE, FACPE, is senior director of clinical research for AstraZeneca Pharmaceuticals in Wilmington, Delaware. He is a frequent contributor to The Physician Executive and author of MD/MBA: Physicians on the New Frontier of Medical Management (American College of Physician Executives, 1998). He can be reached by phone at 302/885-4542 or by email at [e-mail]. His opinions are not necessarily those of AstraZeneca, its management, agents, or employees.

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References

1. McLaughlin N. "In a galaxy not so far away ... AHERF lost its way." Modern Healthcare, 35(26):30, June 27, 2005.

2. Johnston L. "Not an Abdelhak fan." Modern Healthcare, 33(6):32, Feb 7, 2003.

3. O'Connor SJ, Shewchuk RM. "Enhancing administrator-clinician relationships: the role of psychological type." Health Care Management Review, 18(2):57-65, Spring 1993.

4. Weber DO. "Unethical business practices in U.S. health care alarm physician leaders." The Physician Executive, 31(2):6-13, March-April 2005.

5. Burns LR, Cacciamani J, Clement J, Aquino W. "The fall of the house of AHERF: the Allegheny bankruptcy." Health Affairs, 19(1):7-41, Jan-Feb 2000.

6. Becker C. "AHERF revisited." Modern Healthcare, 35(26):40-46, June 27. 2005.

7. Carpenter M. "Anatomy of a bankruptcy, part 6: last dance." The Pittsburgh Post-Gazette, January 24, 1999. Available at http://www.post-gazette.com/aherf/part6.asp. Accessed March 23, 2006.

8. Christoper L, Tunkel AR. "The impact of bankruptcy on an internal medicine residency program." Workshop presented at the 23rd Annual Fall Plenary, Alliance for Academic Internal Medicine Association of Program Directors in Internal Medicine, Washington, DC, October 13-15, 2000. Available at http://www.im.org/AAIM/Meetings/PastMeetings/2000/APDIM/tunkel.pdf. Accessed March 23, 2006.

By Arthur Lazarus, MD, MBA, CPE, FACPE