Posted on Fri, Aug. 30, 2002

By Karl Stark

Inquirer Staff Writer

Sherif S. Abdelhak, former chief executive officer of the Allegheny health system, pleaded no contest yesterday to one misdemeanor for spending $30 million in restricted medical endowments, and will spend several months in a work-release facility.

Abdelhak, who once led the state's largest health system, including nine Philadelphia-area hospitals, showed no emotion as he received a sentence of 111/2 to 23 months in a minimum-security facility for the "misapplication of entrusted property." Authorities said he would likely spend less than 111/2 months if he abided by all the rules.

"I hope this sentence sends a strong message to business leaders across Pennsylvania," said Attorney General Mike Fisher, who prosecuted Abdelhak in Allegheny County Court. He is also the GOP candidate for governor.

Abdelhak, 56, released a rare public statement yesterday that sought to portray his actions in a positive light. "My intent was to keep the hospitals in operation for the patients and the 20,000 persons employed there," he said, explaining why medical endowments were spent. "I will always regret that I was not around to prevent the bankruptcy that followed my departure."

Many of his former employees were not impressed. "Given the havoc his dishonesty reaped on not only the finances but on the careers and lives of the scientists and physicians at the university, I think this is a minimal sentence," said Vincent J. Cristofalo, a former vice provost for research at Allegheny and now president of the Lankenau Institute for Medical Research.

"He did bad things, he did illegal things, he did dishonest things... . It was not merely about getting caught with his fingers in the cash register. It was the real destruction of an institution."

The sentence draws to an end a chaotic chapter in Philadelphia health-care history.

Abdelhak was an Egyptian immigrant who worked his way up from the hospital cafeteria to the executive suite and a salary of $1.2 million a year. He once ruled over a nonprofit empire that boasted of two medical schools and hundreds of physician practices in the Philadelphia region along with the once-mighty Allegheny General Hospital in Pittsburgh.

Abdelhak's fall was equally spectacular. He was fired in June 1998, and his system filed for bankruptcy one month later with more than $1.5 billion in debts. Federal regulators later found that his staff had exaggerated hospital income by more than $100 million.

Abdelhak fueled resentment by promising to take pay cuts after laying off 1,700 Allegheny workers in 1997. But records showed that he and his staff later received pay raises. They also received millions in low-interest loans and took expensive trips to Paris and the Cayman Islands to discuss the system's malpractice cases.

In 1996 and 1997, employees began noticing that Allegheny was running short of basic medical supplies such as bandages and needles. Suppliers were clamoring to be paid. As the end neared, Abdelhak ordered that executives begin spending restricted endowments to save what he had built. At Abdelhak's direction, executives spent more than $52 million of restricted funds. Money was taken from the ladies' auxiliary at Graduate Hospital and from research funds into Parkinson's and other diseases.

A meltdown was averted when Allegheny's Philadelphia hospitals were bought at a fire-sale price by the for-profit Tenet Healthcare Corp., which continues to own them.

The state Attorney General's Office arrested Abdelhak in March 2000 along with two other deposed executives, general counsel Nancy Wynstra and chief financial officer David McConnell, saying they had taken $30 million from endowments. After a grueling, yearlong preliminary hearing, Wynstra, who died in January, was cleared while McConnell received probation on a separate charge of renovating Allegheny's luxury box in Pittsburgh's former Three Rivers Stadium.

Abdelhak was also slated to stand trial for improperly giving $50,000 from Allegheny's coffers to his son's high school so it could upgrade its football facilities.

That charge was dropped yesterday as part of Abdelhak's deal with prosecutors to plead no contest to the misdemeanor. The high school, which has been holding the money in escrow, was ordered to return it to the bankruptcy trustee so it could be distributed to creditors.

So far, creditors have received 12 cents for each dollar owed, while the endowments have received 28 cents for every missing dollar.

Abdelhak has one more weekend of freedom. His next step will be to report to the courthouse in Pittsburgh at 9 a.m. Tuesday. He will first be taken to the county jail for processing. Then it's off to Penn Pavilion, a 180-bed facility in New Brighton that houses drug dealers and nonviolent offenders.

Deputy Attorney General Anthony J. Krastek said the judge would determine how many months Abdelhak serves. "The judge told him: 'Don't come to me with an early parole petition at least until three months,' " Krastek said.

Abdelhak will have to spend every night there. He may work or do community service during the day, but Krastek said the former CEO has no job.

"We're not going to be able to replenish the money that was taken," Krastek said. "He's never going to suffer the way a lot of people want him."