Howard B. Kessler, MD

The Allegheny Health, Education and Research Foundation (AHERF)once the largest nonprofit health care provider in Pennsylvania with 14 hospitalsfiled for Chapter 11 bankruptcy protection on July 21, 1998, laden with $1.4 billion in debts. At its peak, AHERF was the largest provider of health care in the southeastern Pennsylvania region. The core business included two medical schools and eight hospitals: 618-bed Allegheny Hahnemann, 465-bed Allegheny MCP, 183-bed St Christopher’s Hospital for Children, 330-bed Allegheny Graduate, 228-bed Allegheny City Avenue, and 200-bed Allegheny Parkview, all in Philadelphia; 180-bed Allegheny Bucks County of Warminster, Pa; and 280-bed Allegheny Elkins Park of Elkins Park, Pa. At the time of the bankruptcy, the eight hospitals had combined annual operating revenues of about $1 billion. Incorporated in 1995 and dismantled in 1998, AHERF employed 2,292 staff in the parent organization statewide, 2,076 staff and faculty in Allegheny University Medical Practices statewide, and in the Philadelphia region 14,913 staff and 1,741 full-time and part-time faculty. As a result, more than 20,000 claims worth $5 billion were filed, though attorneys eventually determined that legitimate claims were closer to $800 million.

Tenet Healthcare Corp eventually submitted the winning bid of $345 million to the US Bankruptcy Court to acquire eight Philadelphia-area hospitals and Allegheny University of the Health Sciences from   AHERF. Of the $345 million bid, $60 million was set aside in an endowment for Allegheny University. Tenet also agreed to provide the university with working capital of $30 million within the first 90 days of the transaction’s completion, and $33 million in each of the next 2 years.

Despite the encouraging signs that a buyer had been found, the specter of bankruptcy and instability persisted. Doctors and patients steered clear of the facilities. Admissions at the hospitals plummeted by 14% during the 3 months ended August 31, 1998, compared with the year-ago period. Under AHERF, the hospitals and medical school  were losing an estimated $20 million to $25 million each month shortly before the bankruptcy, according to creditors and AHERF. At one of the facilities, Graduate Hospital, patient census plummeted to a range between 140 and 150 per day from 250 per day before AHERF’s financial troubles began.

Figure 1. Six months after the AHERF bankruptcy, Philadelphia Radiology Associates began the arduous process of reviving the moribund radiology department at Graduate Hospital.


In November 1998, I was contacted by Tenet to determine my interest in providing the professional services at Graduate Hospital. At its peak, before the acquisition by AHERF, Graduate was a 300-bed tertiary medical center with strong programs in internal medicine, general and neurosurgery, orthopedics, and neurology. The hospital boasted numerous residency and fellowship programs. Strong leadership and a vision for the future of diagnostic imaging exhibited by hospital administration produced the first freestanding imaging center to include all cross-sectional modalities in the Philadelphia region in 1991. From 1991 until its peak in 1995, the Graduate Imaging Center was performing 11,000 MRI studies and 12,000 CT examinations annually. With the acquisition by AHERF, procedural volume declined precipitously as referring physicians and radiologists departed for greener pastures.

In March 1999, I was appointed chairman of radiology at Graduate Hospital. Two months later, our fledgling practice bid for and was awarded the contract at another Tenet facility, Warminster Hospital in suburban Bucks County. Six FTEs staffed the Department of Radiology at Graduate. The work force consisted primarily of locum tenens. Four FTEs were employed by AHERF at Warminster during the next 3 months; our group was given the daunting task of staffing both facilities with an anticipated need of 10 radiologists. Three physicians from my prior practice were retained, two at Graduate, one at Warminster, and we eventually hired three additional physicians. By July 1, 1999, both departments were fully staffed.


As I worked through the process of recruitment, organization, and developing an operational infrastructure, it was clear that AHERF had virtually abandoned the radiology departments at Graduate and Warminster. Everywhere one looked stood old and outdated equipment. The original MRI units purchased in 1991 and the CT scanners installed 2 years later in 1993 were unchanged. Software updates were negligible. Ultrasound equipment consisted of two turn-of-the-decade, 1990 machines. Mammography suffered from a similar level of old, tired equipment. To complicate matters, there were neither maintenance nor quality assurance records. The prior radiologists left and in their wake, it became apparent that the likelihood of passing the Mammography Quality Standards Act inspections scheduled for October 1999 was in doubt.

Morale was, as could be expected, at a low point. As AHERF careened toward bankruptcy, uncertainty had left people wondering about the ability of the hospitals to survive. Mass layoffs in October 1997 confirmed people’s worst fears. Many of the technologists and administrators departed during the AHERF era. A core of competent, committed personnel remained, but others within the department lacked either the desire or motivation to leave; a sense of entitlement at times seemed to be the order of the day. One week before our start date, the department administrator resigned.

The medical staff was skeptical but very supportive. Accustomed to a fully staffed department, we operated on a lean complement of radiologists, in part because of the recruiting time frame (4 months) and the difficulty in convincing quality personnel to come to a department/hospital emerging from bankruptcy. Traditional recruitment from the training programs was not possiblewe were 6 months removed from the recruiting season. Our grace period, which I anticipated to be 6 months, turned into a 12-month honeymoon: the medical staff, house staff, and administration were very helpful and supportive.

Figure 2. While disappointed with the lack of growth procedure volume, the radiology practice covering Graduate and Warminster Hospitals put a halt to the outgoing flood of studies to competitors.


As we peered beneath the veneer of the imaging department, it became apparent that the infrastructure supporting radiology was virtually nonexistent. The hospital information services department, which under AHERF had been reduced to a skeleton crew, could not provide our practice with legitimate billing and coding information on a reliable and reproducible basis. This delayed our billing and collections and the accounts receivable skyrocketed. By October 1999, our loan reserves dropped to 5% of what we borrowed to start the practice. What I had taken for granted before my time at Graduate, the generation of quality reports in a timely fashion, was not possible. Poorly maintained hardware and software resulted in our inability to generate timely inpatient results and outpatient reports. Inpatient turnaround was approximately 72 hours. Outpatient imaging turnaround was approximately twice that due primarily to an inefficient bulk mailing system designed to save 6 cents per mailing while delaying delivery by 3 business days. Projecting a 6% rise in procedural volume, we were dismayed as volume remained stagnant because doctors continued to seek services elsewhere. Within a three-mile radius, we were competing against the Hospital of the University of Pennsylvania, Thomas Jefferson University Hospital, and two community-based hospitals, as well as numerous outpatient facilities.

The situation was similar at Warminster Hospital, although not to the same degree as Graduate. Lacking a radiology information system at Warminster, we were less dependent on automation, more reliant on personnel, and aided by a more resilient work force with less turnover than had been anticipated based on our experience at Graduate. Our ability to turn out reports in a timely fashion was aided by in-house transcription. However, an assessment of the imaging technology led us to a similar conclusionAHERF had done nothing to improve and little to maintain it: the two CT scanners were installed in 1987 and never updated. The MRI scanner installed in 1989 was in a similar state of disrepair. Within 6 months, a new helical CT scanner and a high field MRI were installed. New ultrasound and software enhancements to the nuclear medicine department soon followed. Our agreements with Tenet were predicated solely on the opportunity to practice radiology; no equipment purchases at either hospital were a contingency of the deal. The situation at Warminster was deemed to be a priority by Tenet. The quick infusion of capital for equipment purchases was crucial for the department and the hospital. Procedural volume had fallen hard and fast between 1995 and the inception of our contract in July 1999 (see Figure 2).


Nine months into the turnaround, our practice participated in a request for proposal (RFP) for Pottstown Memorial Medical Center (PMMC) in suburban Montgomery County approximately 40 miles from Graduate and Warminster hospitals. We were awarded the contract in March 2000 and scheduled to start 4 months later on August 1, 2000. Thus began another round of intense recruiting to find five radiologists willing to start a new practice at the Pottstown Center. Unlike the previous scenarios at Graduate and Warminster, we did not have the luxury of physician retention. The hospital did not renew the prior group contract and circumstances were such that none of the existing radiologists were interested in staying on. Neither could we spare human resources on a full-time basis. At the time the contract went into effect, the facility was performing approximately 100,000 procedures annually. The complement of equipment far exceeded that apparent at the former AHERF hospitals. Technical, administrative, and support staff were stable. Report turnaround was variable for inpatient and outpatient work. The professional component of the practice at PMMC required a fundamental change in the manner in which professional services were apportioned and services rendered. Before our arrival, all studies (with the exception of mammography) were read without the benefit of alternators. Physicians were responsible for hanging new and old comparison studies and taking them down after the interpretation was rendered. Soft-copy reads and a picture archiving and communications system (PACS) were not in the hospital plan for future department initiatives. We focused on changing work flow with new alternators and the installation of soft-copy interpretation for digitally acquired modalities starting with MRI and eventually extending to CT. Off-campus expansion beyond mammography and ultrasound included a new open MRI.


Our biggest challenge at this crossroads was to infuse administrative and operational support to the new practice without compromising the existing practices at Graduate and Warminster hospitals. Adding five radiologists together at a new practice would be daunting. Individual radiologists have their own work ethics, traits, areas of expertise, and weaknesses. It is interesting to observe this phenomenon, and at the time it was extremely helpful to accept observations, comments, and criticisms in an attempt to head off problems before they surfaced. Weeding out poor work habits and altering the concept of what the work day consisted of led to early termination of several physicians. Others were notified that their 1-year contracts would not be renewed.

Administrative support from the CEO and vice president for medical affairs was invaluable. The medical staff had justified concerns about an entire new group with no past history or track record. Eventually, most of the individuals hired to start the practice were terminated or left on their own. The recruiting portion of the activities went on without pause for 9 months as radiologists left and others were recruited to take their place. By July 2001, things were relatively calm at the PMMC practice. The Tenet practices at Graduate and Warminster were also maturing and stabilizing. Within 2 years, the original practice had grown to 18 full-time and an assortment of part-time physicians. We avoided locum tenens physicians for numerous reasons. From July 1999 to June 2001, the collective practices were performing 247,000 procedures at the core hospitals and an additional 22,500 MRI interpretations at freestanding facilities annually.


There is no substitute for hard work. Practice organization and department reorganization require a unique triumvirate of skills: medical/professional, accounting/administration, and legal expertise. Leaving our prior practice gave the group the opportunity to take with it the benefits of our combined 35 years within a strong and stable working environment. Conversely, it provided us with the opportunity to look for new and innovative ways to develop and grow a practice. This began several months before we were open for business. Those who left and began anew took salary cuts necessary to provide the bank with a reasonable business plan demonstrating our business acumen and fiscal responsibility while not burdening us with excessive debt. The discipline to look at all expenses as cost centers and identify ways to control costs was invaluable. Three years later, we are preparing to strip away the cobwebs of the last 36 months and look at new and innovative ways to run the practice and control costs. We are also preparing to review our benefits plans in light of recent changes in the tax code. Malpractice insurance remains an unresolved dilemma.

The most valuable asset of a radiology practice is its physicians. In this era of increasing workload and the dearth of radiologists, recruitment and retention are increasingly difficult tasks. We experienced higher than expected turnover in the first year. Going forward, we have learned from our mistakes. In the beginning, we were unable to articulate a cogent message to potential physicians. Commonly asked questions were difficult to answer. How does one explain the future of a practice with no past? How can you describe future earning potential with nothing more than budgetary projections? Conversely, we were able to portray a young, aggressive practice, one without the encumbrance of nonproductive radiologists. The 10-person practice had a mean age of less than 40, the oldest member was 44.

Looking back on the last 3 years, I am continuously reminded of how little we started with and how far we have come. Within 6 months, we were able to reduce report turnaround by 50%. But physician dissatisfaction with AHERF and skepticism about Tenet as the first for-profit chain in Philadelphia resulted in static volumes at Warminster and Graduate during the first 36 months. Perseverance is mandatory given the emotional ups and downs of a constantly changing practice. A commitment to excellence and a vision for the practice carried us through bleak circumstances and the ensuing successes and setbacks. The end result is a product that my colleagues and I are comfortable with. As 2002 winds down, we look forward to new opportunities and the challenges they inevitably create.

NOTE: I wish to acknowledge my colleagues and staff for the hard work and tireless efforts they bring to work every day. My special and heartfelt thanks to Andy Shaer, MD, and Locke Barber, DO, my colleagues, without whom this journey would have ended long ago.

Howard Kessler, MD, is chairman of radiology, Graduate Hospital, Philadelphia, and a member of the Decisions in Axis Imaging News editorial advisory board.