Up to $30-Million for Charity in Pennsylvania Hospital Settlement

Federal judges in Pittsburgh have approved a settlement in the bankruptcy case of the Allegheny Health, Education, and Research Foundation that could eventually provide up to $30-million for charity. Allegheny was the nonprofit parent of a chain of hospitals in Philadelphia and Pittsburgh that filed for bankruptcy in 1998.

In 1999, Pennsylvania Attorney General Mike Fisher filed a court claim contending that, in the year before Allegheny’s bankruptcy, money was improperly taken from the hospital system’s restricted funds and transferred to its general operating account. There, Mr. Fisher said, the restricted funds were commingled with other funds and used for various purposes, primarily the operating costs of Allegheny’s hospitals.

In 2000, Mr. Fisher and others filed a court complaint seeking the return of nearly $79-million in charitable assets. He said that funds from individual restricted endowments had been withdrawn and improperly used to keep the struggling health system afloat.

As part of the settlement, more than $20-million will be reimbursed to endowments that are now controlled by three nonprofit groups — the Philadelphia Health and Education Corporation, Franklin Health Trust, and the West Penn Allegheny Health System — to pay for medical research and other programs. Mr. Fisher said that as much as $10-million more could later be recovered for charity as other claims are settled.

The overall court agreement with creditors and charities totals $93.7-million and will be paid by insurers, a bank, and a hospital, and from Allegheny assets.