The fall of the house of AHERF: The Allegheny bankruptcy

The $1.3 billion bankruptcy of the Allegheny Health, Education, and Researc h Foundation (AHERF) in July 1998 was the nation's largest nonprofit health care failure. Many actors and factors were responsible for AHERF's demise. The system embarked on an ambitious strategy of horizontal and vertical in tegration just as reimbursement from major payers dramatically contracted, leaving AHERF overly exposed. Hospital and physician acquisitions increased the system's debt and competed for capital, which sapped the stronger inst itutions and led to massive internal cash transfers. Management failed to e xercise due diligence in many of these acquisitions, Several external overs ight mechanisms, ranging from AHERF's board to its accountants and auditors to the bond market, also failed to protect these community assets.