As Philadelphia searches for a place to house its growing number of coronavirus patients, a millionaire health care and private equity executive is effectively holding a hospital he owns hostage — and is in line for a massive tax break under the coronavirus stimulus plan signed into law last week.
Joel Freedman bought Philadelphia’s Hahnemann University Hospital, which primarily served low-income residents, along with St. Christopher Children Hospital, in 2018 for a total of $170 million. Despite community protests that captured national attention, he shuttered it in September, hoping to turn a profit by selling the building, possibly to turn it into luxury condos. Amid the coronavirus pandemic, city officials said they could not afford Freedman’s offer for the building, which he said was a fraction of market value. They were negotiating its use until last week, when they said Freedman’s offer to rent the building to the city for just under $1 million a month, including necessary improvements and expenses was “unreasonable.”
Meanwhile, the Los Angeles-based Freedman could benefit from the $2 trillion stimulus, which temporarily and retroactively lifts a cap on the property-related depreciation real estate investors are allowed to use to lessen their tax bill. Depreciation is a paper cost that real estate investors can use to factor in losses to offset other income and reduce what they pay in taxes. In Freedman’s case, that means he can use recent “losses” from the hospital as it depreciates to offset his overall taxable income and, as a result, what he owes in taxes. A spokesperson for Freedman did not respond to requests for comment.
“Depreciation on the real estate from Hahnemann from the last two years plus this year can be used to offset any tax liabilities for his household, to the extent that he’s got profit from other things that he’s done” said Eileen Appelbaum, co-director of the Center for Economic and Policy Research in Washington, D.C.
Under the stimulus, Freedman would no longer be limited in the amount of business losses he could use to offset wages or investment income, according to a professor at the University of Pennsylvania Law School.
Other hospitals are benefiting from the 800-page stimulus, which includes a $100 billion allocation for hospitals, in part to help fight the coronavirus. Easton hospital, another private equity-owned hospital in Pennsylvania, got one of the first payouts of the coronavirus stimulus plan for $8 million after threatening to shut down on Friday at midnight. “They’re just shameless,” said Appelbaum. “The very first payment out of that stimulus package went to a hospital owned by private equity that was blackmailing the governor of Pennsylvania.”
Hahnemann, which had served the city’s poorest and most critically ill residents since 1848, was acquired in 2018 by a subsidiary of American Academic Health System LLC, of which Freedman is the founder and chief executive officer. That subsidiary, Philadelphia Academic Health Systems, filed for bankruptcy in June. Freedman said Hahnemann had been losing millions of dollars a month, but the hospital’s real estate was not included in the bankruptcy filing. Rather, it was redistributed to another of Freedman’s companies, Broad Street Health Care Properties.
Under the federal stimulus, which passed unanimously in the Senate and by a voice vote in the House, corporations and businesses will still see the bulk of dollars allocated, while workers get modest increases in unemployment benefits and a one-time check of up to $1,200 per individual. At least one provision benefitting real estate investors, which increases the amount of nonbusiness income and capital gains they can protect from taxation, could result in tax breaks up to $170 billion over 10 years.
“That group comprises the top 1 percent of taxpayers, according to Internal Revenue Service data,” the New York Times reported. “The result is that people can enjoy big tax breaks stemming from only-on-paper losses, even if they enjoy big cash profits in the real world.”
Philadelphia’s St. Christopher Hospital, which Freedman acquired along with Hahnemann in 2018, was purchased earlier this year. Affiliates of Freedman’s company, a number of which he also owns, have run facilities across the country including the Howard University Hospital in Washington, D.C. After Hahnemann’s closing last year, Freedman listed his Rittenhouse Square home for $3.5 million.
“We’d have to know more about his personal situation to know if he will personally benefit,” Appelbaum said. “But if he owns businesses that have made a profit anywhere in the last two years or this year, he can use the paper losses from depreciation on real estate to offset that profit and reduce any taxes he would have to pay.”
Since it’s retroactive, Freedman could be in for a substantial rebate if the paper losses can offset taxes he paid in previous years.
Hahnemann’s parent company is an LLC, which are treated as partnerships for tax purposes. That means income from the company is partially Freedman’s own and would qualify for the new stimulus tax break. Freedman is also the president and founder of Paladin Healthcare, AAHS’s parent company.
Pennsylvania so far has 4,843 confirmed Covid-19 cases, and 63 deaths, including 1,315 cases and 14 deaths in Philadelphia. The city is preparing to face a rapid increase in cases and deaths already seen in New York City, the epicenter of the pandemic, where health care workers have already begun to face the impacts of shortages in hospital space and supplies, and are bracing to run out of space in city morgues.
City officials last week said Freedman was using his position to profit while the city was trying to deal with a public health crisis. “I think he’s looking at this as a business transaction rather than providing an imminent and important aid to the city and our residents,” City Managing Director Brian Abernathy told reporters. A representative for Freedman has cited having an interested buyer as one reason he can’t allow the city to use the hospital. Freedman also said he offered the city a rate at a fraction of market cost.
Officials seeking additional space to treat patients said last week that they had scrapped attempts to negotiate with Freedman to use the 496-bed facility because they couldn’t accept his offer. Philadelphia Mayor Jim Kenney said during a press conference last week that the city needed “to find facilities that could contain several hundred hospital beds.” Kenney said the city had offered to pay a smaller amount in rent and to cover costs of what would be time-consuming repair and upkeep to make the hospital usable again, which Freedman refused.
The next day, the city announced that Temple University would allow use of its Liacouras Center as an overflow hospital, free of charge. In Philadelphia, which has the highest poverty rate of the nation’s 10 most populous cities, experts have expressed concern that the coronavirus could disproportionately impact poor residents.
Gov. Tom Wolf has the authority to seize the hospital immediately, Neil Makhija, lecturer at the University of Pennsylvania School, told The Intercept. “This is no time to negotiate with Joel Freedman, and no time to wait for the long process of eminent domain. Governor Wolf has the legal authority under his emergency declaration to ‘commandeer or utilize’ private property as needed. The state should invoke that authority and prepare for the worst, so we aren’t caught off guard when we need it.”
Philadelphia City Council Member Helen Gym, who has been an outspoken voice in efforts to save Hahnemann and prevent similar financial mismanagement in the future, called last week for the city to acquire Hahnemann through eminent domain. “We cannot allow unconscionable greed to get in the way of saving lives,” Gym tweeted last week. Kenney said the city had determined that proposal to be too costly and time consuming.
“It is outrageous that a Philadelphia real estate investor who closed a hospital is now trying to gouge the city to re-open it,” Democratic presidential candidate Bernie Sanders tweeted Monday. “@HelenGymPHL is right: the city should reopen Hahnemann hospital immediately.” In July, Sanders joined a demonstration protesting Hahnemann’s closing.
Former Vice President Joe Biden, a Pennsylvania native whose campaign headquarters is in Philadelphia, has not taken a position on the issue. Biden’s campaign did not respond to a request for comment.
Days after Kenney announced the city was ending attempts to use the hospital, Freedman’s Rittenhouse Square-area residence was vandalized with the phrases “JOEL KILLS,” and “FREE HAHNEMANN.”
At least “many of the hospitals owned by private equity are in very bad shape,” Appelbaum said. “I imagine we’re gonna see a lot more of what just happened with Hahnemann, and what just happened at Easton.”