Public Health Management Corp. has agreed to acquire Wordsworth Academy Inc. – which operated a residential treatment facility where a teenager died last fall in a struggle with staffers – in a deal that will send the Philadelphia human-services agency through bankruptcy court, the two nonprofits announced Friday.
"Wordsworth has had its share of problems," said Lawrence G. McMichael, a Dilworth Paxson attorney hired to handle the bankruptcy, which was filed Friday. "They have litigation against them. They have litigation threatened. They have lost the license to operate the Ford Road facility."
That West Philadelphia facility is where David Hess, 17, of Lebanon, Pa., died last Oct. 13 in a fight over an iPod. Hess' death by suffocation was ruled a homicide in February, but charges have not been filed. His death capped a decade of allegations and charges of sexual and physical abuse at what was the city's only residential treatment center for troubled youth, as chronicled by the Inquirer and Daily News in April.
"They are not financially viable as a standalone at this point without some relief. Having shut down the Ford Road facility, they have a huge lease obligation there to a landlord, which they can't pay," McMichael said. "Even with all of that, this is an agency we have to save because they are still administering to the needs of 5,500 kids in Philadelphia."
An attorney representing three victims of Isaac Outten, a counselor who was charged in December with sexually assaulting three girls, said the bankruptcy and acquisition could be a good thing if it allows Wordsworth to continue its work serving children.
"The bad thing is if this bankruptcy and acquirement is used to rob the victims of compensation for the poor treatment that they've received through Wordsworth. That's a real bad thing," said Nadeem A. Bezar, a partner at Kline & Specter PC.
Public Health Management Corp. (PHMC), based in Philadelphia, had already taken over the management of Wordsworth's remaining programs under a contract that started Monday. Those programs include a school in Fort Washington, community behavioral-health services, and two community umbrella agencies that provide services for families and children in parts of West and Northwest Philadelphia under license from the city's Department of Human Services.
"We very much believe in the coming together of not-for-profits so that we can wrap services around people and serve people, their families, and their communities," PHMC president and chief executive Richard J. Cohen said.
PHMC had explored joining forces with Wordsworth several times over the years, Cohen said. This year, given Wordsworth's legal and financial woes, there was greater urgency when its interim CEO, Diana Ramsay, approached PHMC and other possible acquirers about a deal.
"They asked what we would do with them. We had very productive talks about [how] we would continue the legacy of Wordsworth," Cohen said. "We were chosen after they looked at several folks."
Community Behavioral Health, a city-related nonprofit that funnels Medicaid money to providers, said PHMC was already part of its network. "We support this acquisition enthusiastically and believe it's in the best interest of the youth in our community who are receiving behavioral health services," a spokesman said.
A DHS spokeswoman called the acquisition "a step in the right direction."
Bankruptcy is key to the deal because Wordsworth has little or no value as a going concern if it cannot be stripped of liabilities from leases it cannot afford and from anticipated legal settlements.
"PHMC would never do this if they were going to be exposed to potential unlimited liabilities," McMichael said. "They wouldn't touch it with a 10-foot pole. Nobody else would either. That's why a bankruptcy is necessary."
The initial Chapter 11 bankruptcy petition provides little financial detail, but lists the largest unsecured claims against Wordsworth, totaling $8.5 million, with most of the money owed to other child-welfare agencies. Listed as undetermined is a litigation claim by the Hess family. Stephen Marino, the family's attorney, could not be reached for comment Friday.
It is not clear how much money from liability insurance will be available to satisfy claims from the Hess family's anticipated lawsuit and others still pending. The goal of bankruptcy would be to allow for an orderly distribution of what money is available.
Bezar said he has looked at Wordsworth's insurance coverage for the period in which Outten is accused of assaulting the girls he represents.
"I would suggest that the coverage is inadequate for what these victims went through at the time, so the bankruptcy is of concern," he said.