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AHERF, AHERF Sat on a Wall; AHERF, AHERF Had a Great Fall / 227 in philadelphia (stark 1998p). A new chief financial officer, Joseph Dioniso, also was appointed to replace one of Abdelhak’s chief lieutenants, David mcConnell, who resigned on June 26 “to pursue other interests” (Business news in brief 1998a). Terminal Events: July 1998 From the time the vanguard sale collapsed, news stories, editorials, and letters to the editor, often quoting medical school and hospital staff, conveyed a bleak prognosis for Allegheny. medical images of a critical, probably terminally ill, condition and sinking-ship analogies abounded (Code blue 1998; Cramer 1998; Gaynor 1998b; lam 1998; stark 1998p). sanzo and his senior staff were attempting to salvage AHerF, but most within the organization, as well as the media and its commentators, doubted that the downward spiral could be stemmed. On July 1 sanzo issued a “message from the president” announcing steps that “the university leadership ” was taking to “preserve [the university’s] academic mission and the Allegheny organization in the eastern region.” letters of non-reappointment , he stated, would be issued to all nontenured faculty, effective June 30, 1999. this step did not mean that the board or senior management intended to “dismiss the entire faculty,” and “we are not closing the university.” “in order to achieve a necessary immediate financial impact,” sanzo continued, “the non-reappointment action is being accompanied by a salary reduction program”; all noncontract AHerF and eastern region employees earning $100,000 or more will “experience” a salary reduction of up to 25 percent, and contract employees “are being asked to voluntarily accept the same reduction.” Depending on how many contract physicians agreed to a voluntary pay cut, Allegheny estimated it could save $11 million to $30 million. But by the approach of the July 8 deadline, a substantial majority had rejected sanzo’s request. their reason, a lawyer representing several dozen of the physicians told the press, is that if Allegheny should “sell out or go bankrupt, . . . it would put [them] in a worse position” (stark and Gerlin 1998c). more bad news was delivered on July 8, further narrowing Allegheny’s options, when moody’s downgraded two groups of bonds and voiced its concern that the system might be unable to pay the back interest and principal on $160 million of its debt load (Gerlin and stark 1998b). On the hopeful side, discussions again were under way with vanguard, aided by a powerful philadelphia political figure, David Cohen, a former top assistant to the mayor, and a new suitor, tenet Healthcare, the country’s second-largest forprofit hospital company, had expressed interest in a making a bid. the AHerF board met on July 10 in pittsburgh with its senior management and outside financial consultants, for an “information session” and further discussion of its options, but adjourned without deciding on any actions. rumors abounded that the board would vote to declare bankruptcy 228 / Chapter 12 July 13. that expectation was quelled when board chairman snyder vaguely told the press on July 12, “i think we’re going to be meeting. . . . i don’t know whether we’ll vote or not. . . . We’re not ready yet to make a final determination on whatever we have to do” (mcCullough 1998). A pronounced worry for the university’s faculty, staff, and students was that a bankruptcy declaration that included the university would jeopardize federally backed student loans and research grants from the national institutes of Health and other federal agencies. Because institutions in bankruptcy are ineligible to receive federal funds, many of the university’s 3,200-plus students could lose an estimated $43 million a year in loans and faculty as much as $56 million yearly in niH grants (mcCullough 1998; Gerlin 1998c). those effects, they realized, likely would close the university, precluding any opportunity to reorganize under Chapter 11 bankruptcy protection. new students, scheduled to begin classes in August, wondered if they should go to AuHs and, if they did, how long their school might exist. rapid action by pennsylvania senator rick santorum and others salvaged the student loan program. An amendment santorum introduced to a federal housing bill, which was passed by Congress on July 16, temporarily waived the federal rule barring student loans to bankrupt institutions, if Allegheny— which was not named in the bill—filed for Chapter 11 by December 31 (mondics 1998). niH funding was not addressed in santorum’s bill, but niH acknowledged that it was “conferring with Allegheny officials to assess...

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