Philly Hospital The First To Be Stripped For Assets By Private Equity

A 171-year-old institution in Philadelphia could become a test case for if hospitals can be stripped for real estate assets by private equity.

Hahnemann University Hospital sits on a desirable plot of real estate in the north part of Philadelphia's Center City and was purchased in 2017 by Joel Freedman and his private equity firm, Paladin Healthcare. A year and a half later, Freedman announced that Hahnemann was not profitable enough and would be forced to close, the Philadelphia Inquirer reports.

The hospital is set to close in September. Paladin has not spent any significant money on capital improvements since it purchased Hahnemann with a loan from Apollo Global Management's financing arm, MidCap Financial, The American Prospect reports.

Rather than sell the hospital business, Freedman is dissolving it and selling the campus' buildings for their considerable real estate value. The strategy is reminiscent of leveraged buyouts from private equity in other industries, such as Eddie Lampert's troubled acquisition of Sears, but has not been practiced on medical facilities to this point, according to TAP.

If Freedman succeeds in producing a return on Hahnemann's real estate, some worry imitators will follow suit and imperil urban hospitals across the country. Presidential candidate Bernie Sanders has already commented on the issue and is planning a campaign event in mid-July in Philadelphia, TAP reports.

The state of Pennsylvania has issued a cease-and-desist order on closure operations until Paladin comes up with a plan for patients who rely on the hospital for care.

That patient base is among the most vulnerable in the city, as nearly half of them are on Medicaid and over two-thirds are black and Latinx, according to the Inquirer. Over 2,500 hospital workers will lose their jobs, and the emergency room has already begun turning away patients suffering from heart attacks or severe trauma.

“Hahnemann is the most significant of hospitals who serve the neediest communities, almost two-thirds of their patients require public assistance," Philadelphia City Councilwoman Helen Gym told TAP. "They serve people regardless of [immigration] status, they serve the indigent. I am outraged, and I am angry at a system that would allow people's lives to be left into the hands of profiteers and careless, reckless people like Joel Freedman.”