The University of Pennsylvania Health System announced yesterday that it would buy Graduate Hospital and convert it into a rehabilitation and long-term acute-care facility.

Penn officials said the deal would free about 40 acute-care beds at its other hospitals and expand research and training programs in rehabilitation medicine.

"This will expand our ability to offer the finest rehabilitative care to a greater number of patients," said Ralph W. Muller, chief executive officer of the Penn system.

The sale is expected to be completed March 30. Financial terms were not disclosed.

Once the sale is concluded, Graduate will be run by a joint venture between Penn and the Good Shepherd Rehabilitation Network, of Allentown. The two will spend 15 months and $35 million to install 58 rehabilitation beds and 38 long-term care beds at the hospital.

Graduate would then reopen in July 2008.

The conversion should let Penn use about 20 beds each at the Hospital of the University of Pennsylvania and Pennsylvania Hospital for patients who require more intense care.

"HUP is 100 percent full Monday through Friday these days," Muller said, "so this allows us to free up some acute-care beds."

Penn will own the buildings, but will have only a 30 percent share of the joint venture with Good Shepherd. Both are nonprofit organizations.

Graduate's current owner, the for-profit Tenet Healthcare Corp., of Dallas, said it would wind down operations at the hospital at 18th and Lombard Streets over the next two months.

Despite interest from several parties, Tenet spokesman Steven Campanini said none of those bidders wanted to maintain Graduate as an acute-care hospital.

Though licensed for 240 beds, Graduate fills only about a quarter of them a day.

Muller said it was important to Penn to maintain the Center City hospital as a health-care facility. He said that in conjunction with nearby Pennsylvania Hospital, the investment in Graduate should further spur economic development in the area.

But Alan D. Haber, a pulmonologist and president of the hospital's medical staff, lamented Graduate's demotion from a full-service hospital to one that will focus on rehab and caring for patients who are on ventilators and have other long-term medical needs.

"Losing Graduate as an acute-care hospital is a big loss for the community," he said. Patients have always had the choice to go to other hospitals, he said, but many remained loyal to Graduate even after it fell on hard times after its acquisition by the now-bankrupt Allegheny health system in 1996.

"This is a venerable institution with a rich legacy of patient care and physician education," Haber said. "I think it deserves better than what is going to happen."

The hospital will remain open until the sale is completed March 30, but new admissions will stop by the end of February.

At that time, a temporary urgent-care center will open in place of the emergency room. Campanini said these were all steps to prepare the hospital for the transition from acute care.

While the Philadelphia area has several prominent rehabilitation hospitals, local experts say they do not expect another to increase competition among the region's hospital networks.

"I don't see any aspect of this deal that doesn't make sense," said Alan M. Zuckerman, president of Health Strategies & Solutions Inc., of Philadelphia.

Tenet acquired Graduate along with seven other local hospitals from Allegheny in November 1998.

Yesterday, Graduate employees received an open letter from hospital chief executive Brian Finestein informing them they would have opportunities to transfer to other Tenet hospitals or apply for jobs in the Penn health system.

"Job fairs, employment counseling and appropriate severance will be provided by Tenet to those employees who do not receive offers of comparable employment," he wrote.

That is small solace to Henry Nicholas, president of the union that represents about 200 of Graduate's 400 employees.

"They don't intend to reopen with any of the former employees," Nicholas said. "It means that we lose about 400 jobs in South Philly, which is a big loss. Job fairs don't fill that capacity."

Good Shepherd Penn Partners, the new venture, should employ about 450 people by its second year, said Sally Gammon, president of the Good Shepherd Rehabilitation network.

History of Graduate Hospital

1889 Philadelphia Polyclinic begins to treat patients at the current Graduate Hospital site.

1916 The Graduate Hospital is established as the clinical teaching facility of the University of Pennsylvania Graduate School of Medicine.

1977 Penn spins off Graduate as an independent nonprofit hospital. From there, Graduate becomes the flagship facility for a five-hospital health system.

1996 Graduate and its affiliated hospitals become part of the Pittsburgh-based Allegheny health system.

July 1998 Allegheny files for bankruptcy protection.

Nov. 1998 Tenet acquires Graduate and seven other Allegheny hospitals.

June 2006 Tenet announces it will sell Graduate and two other local hospitals.

Jan. 2007 The University

of Pennsylvania Health System buys Graduate.

Penn and the Good Shepherd Rehabilitation announce a joint venture

to convert Graduate into a long-term acute care and rehabilitation hospital to be reopened in July 2008.


Contact staff writer Josh Goldstein at 215-854-4733 or