Judge puts freeze on sale of Hahnemann residency program — for now

A federal judge has temporarily stopped the sale of more than 550 slots for doctors in training, cutting off a potential infusion of funds to the troubled hospital.

Hahnemann University Hospital. (Emma Lee/WHYY)

Hahnemann University Hospital. (Emma Lee/WHYY)

A federal judge has temporarily halted the sale of Hahnemann University Hospital’s residency programs. The move puts into limbo the hospital owners’ hopes for an infusion of funds to satisfy creditors and maintain minimal operations as the institution winds down.

The Centers for Medicare and Medicaid Services, the federal agency that funds the residencies, had objected to the residency sale. After some back and forth in court, CMS has won a temporary stay.

Plans to close the hospital in Center City Philadelphia were announced at the end of June, and ownership promptly filed for Chapter 11 bankruptcy. As a part of their reorganization, the owners tried to sell off their more than 550 residency slots to a group of six local health systems led by Jefferson University Hospitals.

Justice Department lawyers for CMS filed objections to the sale during initial court proceedings, but bankruptcy Judge Kevin Gross overruled them. He gave them seven days to win a stay on the sale order, which would temporarily block the sale from going through and allow the government to appeal the decision in Delaware District Court.

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That stay was granted Monday afternoon.

Lawyers for CMS have argued that the residency programs are not an asset of the estate eligible to be sold, but simply a contract that each hospital enters into with CMS. They say those contracts are only transferable to another hospital if there is a change of ownership, which they argue is not happening because Hahnemann is closing.

Lawyers for Hahnemann have argued that the sale of the programs do count as an asset, and can constitute a “transfer” in ownership because Hahnemann is still not technically closed.

The slots were sold at auction in August for a winning bid of $55 million, a far higher price than originally anticipated. If CMS’s appeal is ultimately granted, the hospital’s creditors would stand to lose that amount.

Lawyers for Hahnemann’s owners said they need the money promised from the residency sale to continue what’s left of operations at Hahnemann, and to keep St. Christopher’s Children’s Hospital running, which they also own and is set to be auctioned off on Thursday.

“A failure of these cases would be devastating, given, among other things, ongoing operations at St. Christopher’s Hospital for Children,” wrote Mark Minuti in his response to the government’s objection.

The residents who were orphaned by Hahnemann’s closure are not affected by these decisions, as most of them have found other jobs already.

The slots at issue are the permanent residency positions allocated to teaching hospitals by CMS. It is essentially the ability for a hospital to recoup roughly $100,000 per resident per year in federal funding. In their court filings, CMS points to an existing public process for redistributing residency slots when a hospital closes, which prioritizes local hospitals and charges nothing for the positions.

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