By Guian McKee

Visitors to this year’s OAH conference in Philadelphia will likely spend much of their time amidst the revitalized restaurants, bars, arts venues, and office towers of Center City. All this is one part of post-industrial Philadelphia, but historians seeking to understand the actual core of the city’s new economy would do well to skip a conference session or two (really, it’s ok!) and head a few blocks west to the banks of Schuylkill River along Civic Center Boulevard. There, you will pass the Hospital of the University of Pennsylvania and the glass façade of Children’s Hospital of Philadelphia (or CHOP). Moving farther down the boulevard, you will pass Children’s Seashore House Hospital and reach Osler Circle, coming upon large medical research towers associated with Penn and CHOP.

Fifteen years ago, looking across Civic Center Boulevard you would have seen the gray concrete buildings of the Philadelphia Civic Center and Convention Hall, the site of Franklin Delano Roosevelt’s re-nomination for President at the 1936 Democratic National Convention (along with the 1940 Republican National Convention and the 1948 conventions for both parties). Those buildings are now gone, replaced by Penn’s Perelman Center for Advanced Medicine, Smilow Research Center, and Jordan Medical Education Building, as well as CHOP’s Colket Translational Research Building and Buerger Center for Advanced Pediatric Care, and a large parking garage built to accommodate the automobiles of staff and patients driving in from the suburbs and beyond. If you peer past those buildings, you might be able to glimpse the east bank of the Schuylkill River, where CHOP is constructing a series of medical research towers (and more parking garages). If you perambulate down the boulevard to University Avenue, you will also pass a Veterans Administration nursing home, which connects via a pedestrian bridge to the main VA hospital.

During this half mile walk, you will have seen the core elements of Philadelphia’s post-industrial economy: According to the U.S. Economic Census, hospitals are the largest employment sector in the city; by 2013 they accounted for nine of the city’s sixteen largest private employers, and as of 2016, hospital employment in the city totaled just under 59,000 people.[1] Although most of Philadelphia’s hospitals are nominal not-for-profits, together they generate more than $9 billion in patient revenues. These statistics, along with the walking tour, suggest that we need to think of Philadelphia, and cities like it, not only as deindustrialized cities, but as medicalized cities. Philadelphia’s medical institutions are emblematic of the political economy of the twenty-first century U.S. city: not-for-profit (but decidedly not non-profit), quasi-public institutions, neither government agencies nor market organizations, that now play a critical part in the tentative and problematic revitalization of American cities such as Philadelphia.

Where did this massive complex in West Philadelphia come from? What are these institutions, and how should we understand their role in our cities? One clue emerges in our walk down Civic Center Boulevard. Passing CHOP’s Abramson Pediatric Research building, the sidewalk is separated from the research complex by a slightly anomalous fence of wrought iron interspersed with brick and masonry columns. The fence is one of the few surviving remnants of the site’s previous occupant, Philadelphia General Hospital (PGH), which served as the city’s public hospital prior to its 1977 closing by Mayor Frank Rizzo. PGH had struggled for years with an outmoded physical plant and a teaching relationship with Penn and CHOP that allowed the nearby academic medical centers to pull in patients who would generate third-party insurance payments. Faced with these problems, along with a pressing municipal budget crisis, Rizzo made the controversial decision to close the hospital. Despite the angry opposition of PGH supporters, Rizzo went ahead with the plans to shutter the public hospital. Less known is that his administration replaced it with a system of free primary health care provided by neighborhood clinics and supplemented with subsidized care at private hospitals when needed. The Philadelphia Daily News summarized the implications in January 1978: “for all practical purposes, Philadelphia now has socialized medicine.”[2] The new system ultimately failed to live up to this promise, and by the 1990s the city was struggling to fund the program, with costs for hospitalization causing particular strain. At many of the clinics, patients faced lengthy waiting lists for an appointment.

The closing of PGH itself is a complex story, the full extent and implications of which lies beyond the short summary above. This blog post focuses instead on one consequence of the decision: the ensuing redevelopment of the PGH site, and how it relates to the larger social and economic transformation of Philadelphia in recent decades.

Penn and CHOP dominated the PGH redevelopment. As the current and recent construction along the Schuylkill suggests, this is a process that is still ongoing. The actions of Penn and CHOP in relation to the city and federal government and to the wider health care industry generate significant questions about whether a distinct “not-for-profit” space can actually be carved out between government and market, at least in the case of these massive and only nominally not-for-profit health care institutions. While in one sense these institutions clearly operate within the sphere of neoliberalism, they are also representative of much older, and much more deeply rooted associational models of interaction between the state and the private sector in pursuit of development and other putative public ends. Relying on voluntary associations with for-profit and not-for-profit corporations has allowed the American state to wield considerable power, despite its decentralized character. This has been particularly common where the public goals involve the development of infrastructure and economic capacity. Private, voluntary organizations – such as not-for-profit hospitals – typically act as crucial intermediary institutions in such relationships.[3]

In the years after the PGH closure, two broad options emerged for redeveloping the site. The first consisted of a proposal for a mixed-use development from a politically connected suburban developer. Along with an office tower that would be leased to CHOP, the plan included a parking garage, a shopping center, a nursing home, and a 700-unit housing development, with the latter to include approximately 150 Section 8 units. The Section 8 allotment was intended to induce HUD to release $21 million in Community Development Block Grants that had been frozen after Mayor Rizzo blocked the Whitman Park housing project in a white South Philadelphia neighborhood.[4] Along with the provision of some low-income housing, this plan would have generated property, wage, and commercial tax revenues for the city. It quickly foundered, though, because of opposition from Penn, which wanted the site for hospital expansion. Additionally, the weak economy and soaring interest rates of the early 1980s prevented the developer from securing financing.

The second option – the one that was actually chosen – consisted of the reuse of the site for medical and scientific purposes. Since the PGH closure announcement, both Penn and CHOP had eyed the property for expansion. Constrained by lack of space and outmoded research buildings, Penn in particular found it increasingly difficult to attract leading medical researchers and win external grants. Medicare reforms and the emergence of managed care among private insurers had set off a decline in patient revenues, making it imperative for both institutions to increase their access to outside research support – and to do so, they needed new research facilities capable of attracting top-flight scientific talent.

Penn and CHOP found allies in City Hall. During the 1980s, Mayors William Green and Wilson Goode, who followed the Rizzo administration, prioritized the health care sector as a potential source of economic development that might replace jobs lost through deindustrialization. Viewing the city’s major health care institutions as an economic development engine, Green and then Goode welcomed the possibility that Penn and CHOP – both major employers – might lead the redevelopment project. For all the sector’s potential, though, relying on health care as a source of economic growth came at a significant cost, as it still does today. As not-for-profit institutions, hospitals are generally exempt from paying property taxes to the city. In a few cities, such as Boston, major institutions provided a “payment-in-lieu-of-taxes” (or PILOT) to reimburse the city for the provision of municipal services. Philadelphia’s “eds and meds” made no such payment. Devoting the PGH site to HUP and CHOP expansion would thus prevent it from being added to the city’s tax rolls. In addition, the jobs created would be of mixed quality. Hospitals provide employment over a wide range of skill and educational levels, often in close proximity to poor and minority neighborhoods, but they feature a starkly bifurcated wage structure with a feminized, minority work force at its service-intensive lower end. Hospital unionization has long been a contentious issue as well. CHOP has been unionized for many decades, but Penn remains unorganized.[5]

Putting such concerns aside, Penn and CHOP announced the formation of the PGH Development Corporation in the spring of 1983. They were joined in the project by Children’s Seashore House, an Atlantic City children’s rehabilitation hospital with a predominantly Philadelphian patient base; it would move from its aging facility (located literally on the New Jersey shore) to a new building on the PGH site. Penn and CHOP also invited the Philadelphia VA hospital to join the consortium, displacing yet another early plan that would have given it most of the site’s twenty-one acres. In June 1984, the development corporation announced plans for a $250 million, seven-building development. “When this project is complete,” Penn vice president of health affairs Thomas Langfitt told the Philadelphia Inquirer, “Philadelphia will have the premier academic health center in the country.”[6] The economic benefits, Langfitt promised, would include 2,000 construction jobs, 2,100 permanent jobs, and over $1.5 million in local wage tax revenues.

Although private institutions had taken the lead in planning the Philadelphia Center for the Health Sciences, as the project soon became known, they still required substantial public involvement to bring the redevelopment effort to completion. This involved direct and indirect public support, across multiple levels of the U.S. state. After initially demanding that the city donate the PGH land, the development corporation agreed to purchase the site for the still relatively nominal fee of $2.5 million. In November 1985, the City Planning Commission approved the sale of the first parcel of land to Penn for the construction of a clinical research building.[7] Later in the project, the city Hospital Authority issued tax-exempt bonds that provided critical financing for both the new Children’s Seashore House facility and CHOP’s Abramson Pediatric Research Building. (Such financing by tax-exempt public authorities had become a common pattern for hospital capital projects beginning in the late 1960s and early 1970s). During the 1990s, the city’s industrial development authority issued additional bonds to finance a 1,300-space parking garage.[8] Despite the hospitals’ non-profit status, these quasi-public financing devices made them actors in expansive financial markets.

The larger purpose of the PGH Development Corporation, though, was to partner with the city in applying for a federal Urban Development Action Grant (UDAG) that would pay for much of the necessary infrastructure. This approach formalized the public-private development partnership and tied it to the associational tradition of state-led economic development in the United States. After an initial rejection by HUD, in 1986 the city received a $5.4 million UDAG covering “a parking facility, roadways, and utilities.”[9] The following year, HUD approved a second UDAG of $4 million, including infrastructure costs. Federal participation also came from the National Cancer Institute, which provided $2.5 million for Penn’s Clinical Research Building, and from the VA, which provided $16 million for a veterans’ nursing home. On February 14, 1986, the VA broke ground on its new facility, marking the start of the actual redevelopment of Philadelphia’s former public hospital site.

With public sector action and support, the identity of Philadelphia’s medical institutions as constitutive of a neutral, not-for-profit sector collapsed into conceptual incoherence. Instead, these institutions are better thought of as part of the long-standing U.S. associational state, through which government pursues ostensibly public ends (in this case, economic development and expanded medical services and research) by subsidizing private development. This is a tradition that can be traced to (at least) the early republic.

Construction on Penn’s clinical research building, CHOP’s administrative and ambulatory care facility, and the new Seashore House followed shortly thereafter.[10] By the time those buildings approached completion in 1989, CHOP had begun planning a $75 million pediatric research building while Penn was planning a $100 million life sciences research building. With the additional facilities the total cost of the project reached $457 million and created approximately 2,500 new jobs. Over the last decade, the Center has expanded beyond the old boundaries of PGH, as Penn and CHOP purchased and demolished the Civic Center to the south and built the new research buildings mentioned during our virtual walk. More recently, CHOP acquired former industrial properties on the east bank of the Schuylkill River. These purchases, with their attendant transition to the institutions’ tax exempt status, removed $112,307 from the city’s annual tax rolls.[11] Nonetheless, CHOP today employs more than 10,000 people, while the overall Penn Medicine system employs nearly 22,000. Within the scope of its stated goals, the redevelopment of the Philadelphia General Hospital site has clearly succeeded. The hospital city has been created.

Acknowledging the success of the project in terms of its stated goals, though, is insufficient. The redevelopment of the PGH site took place in the context of the decentralization of population and the shift away from a manufacturing-based economy. It also coincided with technologically-driven changes in medicine, as well as shifts in health care financing and the funding of medical research. Not least, the PGH redevelopment occurred in conjunction with the wider shift to a market-oriented approach to public policy. All this contributed to conditions of austerity in federal urban policy as well as to the ongoing fiscal crisis of the local state. The overall result should not be seen as the rise of an autonomous non-profit sector, but instead the expansion of associational arrangements that assign potential governmental functions to the private sector – specifically, economic development and health care provision. Much of this activity, whether through UDAGs or through Medicare and Medicaid payments, has been publicly funded. With their intertwining of public and private functions, of market and state, these massive health care institutions exist as components of both. As such, they form part of a multi-layered, associational model that incorporates features of market organizations including private control, revenue-generation through competition, and participation in financial markets, but that also undertakes tasks associated with or assigned by the government such as provision of health services, medical research, and economic development. All of this takes place under the banner of a not-for-profit status that justifies tax-exemption.

It is true that the key institutional actors in question are technically not-for-profits. But not-for-profit status as such means relatively little when the institutions involved generate billions in revenue and millions in net income – as both Penn and CHOP do – and when they are deeply intertwined both with financial markets through their bond issues and with the private health insurance industry. We should also note that with the exception of a five-year period during the 1990s, Philadelphia’s hospitals have continually used their non-profit exemption to avoid paying property taxes despite the city’s persistent fiscal crisis and, especially, that of its school system.

While it may have taken on new forms during this period, the complex associational model deployed in the PGH redevelopment has deep roots in the history of the U.S. state. The results of such public-private action are often problematic, as the assertion of public purpose does not prevent the pursuit of private interest – as has happened in the case of Philadelphia’s emergent hospital city. It may be true, as an analysis of neoliberalism suggests, that recent patterns reflect an intensification of such relationships, or perhaps even a significant rearrangement of their constituent parts. The deep involvement of massive not-for-profit institutions characterized by both governmental and market organization may even reflect a new stage in the associational model. But the underlying structures are not new, and they need to be assessed within such broader contexts of state development, as well as in the context of deep structural changes both in the U.S. city and in the wider political economy.

Guian McKee is an associate professor in Presidential Studies at the University of Virginia’s Miller Center of Public Affairs. He received a PhD in American history at the University of California, Berkeley in May 2002, and he is the author of The Problem of Jobs: Liberalism, Race, and Deindustrialization in Philadelphia, published in 2008 by the University of Chicago Press. McKee’s research focuses on how federal policy, especially in the executive branch, plays out at the local level in American communities. He is currently working on a book project that examines the rise of the health care economy in American cities after World War II, focusing on the development of hospitals and academic medical centers as critical but problematic urban economic anchors as well as drivers of cost in the larger health care system. This project builds on his earlier work by connecting social, political, and economic developments in specific places (Baltimore provides a core case study for the book) with larger policy structures. As part of the Miller Center’s Presidential Recordings Program, McKee edited Volumes 6 and 7 of The Presidential Recordings of Lyndon B. Johnson (published originally by W.W. Norton and in a digital edition by the University of Virginia Press). He is also the editor of a thematic volume that will include all of Johnson’s recorded conversations about the War on Poverty. This project is published digitally by the University of Virginia Press through its Rotunda electronic imprint.

Featured image (at top): “Panorama aerial view of Philadelphia, Pennsylvania,” Carol M. Highsmith, between 1980 and 2006, Prints and Photographs Division, Library of Congress

[1] U.S. Census Bureau, 2012 Economic Census of the United States, “Table: EC1200A1: All sectors: Geographic Area Series: Economy-Wide Key Statistics: 2012, Philadelphia County, Pennsylvania”; Pew Charitable Trusts, Philadelphia 2013: The State of the City, (Philadelphia: The Pew Charitable Trusts, 2013), 16-17, 20; Pennsylvania Department of Labor and Industry, Center for Workforce Information and Analysis, “Industry Employment 2016-2026 Long-Term Projections,” 4.

[2] Kit Konolige, “Socialized Medicine in Philadelphia; PGH Replacement an Improvement,” Philadelphia Daily News, January 24, 1978.

[3] William J. Novak, “The Myth of the ‘Weak’ American State,” American Historical Review 113:3 (June 2008): 752-772; Brian Balogh, The Associational State: American Governance in the Twentieth Century (Philadelphia: University of Pennsylvania Press, 2015); James Sparrow, William Novak, and Stephen Sawyer, eds., Boundaries of the State in US History (Chicago: University of Chicago Press, 2015); Brent Cebul, Lily Geismer, and Mason B. Williams, Shaped by the State: Toward a New Political History of the Twentieth Century (Chicago: University of Chicago Press, 2019).

[4] For the wider context of race and housing policy under Rizzo, See Timothy Lombardo, Blue-Collar Conservatism: Frank Rizzo’s Philadelphia and Populist Politics (Philadelphia: University of Pennsylvania Press, 2018).

[5] For a preliminary discussion of hospital labor issues in Philadelphia, see my essay “Hospitals (Economic Development),” The Encyclopedia of Greater Philadelphia (Rutgers University, 2017).

[6] Trustees of the University of Pennsylvania, “Minutes of the Stated Meeting,” 18 June 1993, Minutes of the Trustees of the University of Pennsylvania, UPA 1.1 1990 – 1999, Penn Archives, 16-18; Gregory Byrnes, “$250 Million Health Center Proposed For PGH Site,” Philadelphia Inquirer, 5 June 1984; Byrnes, “Group is United on Plan for PGH Site,” Philadelphia Inquirer, 10 June 1984.

[7] Roger Cohn, “Sale of land For Health Center OKD,” Philadelphia Inquirer, 22 November 1985; “Minutes of the Stated Meeting of the Trustees of the University of Pennsylvania,” 25 October 1985, Minutes of the Trustees of the University of Pennsylvania, UPA 1.1 1980 – 1989, Penn Archives, 191-192.

[8] As this post incidentally suggests, parking is a perpetual priority in urban hospital development, and as such forms a component of the wider problem of cost in the U.S. health care system; health care analysts, who as a rule see the health care system as ungrounded in place or space, have not noticed this relationship.

[9] “News From Senator John Heinz: Heinz Announces $5.9 million in UDAG’s For Philadelphia; 642 Permanent New Jobs,” 27 June 1986, Senator John H. Heinz III Collection, “Press Releases-May 27-September 17, 1986,” Carnegie Mellon University Digital Collection; Kurt Logsdon, “Heinz, Specter Announce $12 Million in PA Economic Development Grants; 846 New Permanent Jobs Across the State,” 31 March 1987, Senator John H. Heinz III Collection, “Press Releases-May 27-September 17, 1986,” Carnegie Mellon University Digital Collection; Gregory Byrnes, “Phila. Snares More Than $6 Million in Federal Grants for Three Projects,” Philadelphia Inquirer, 10 June 1985.

[10] “Minutes of the Stated Meeting of the Executive Committee of the Trustees of the University of Pennsylvania,” 12 September 1986, Minutes of the Trustees of the University of Pennsylvania, UPA 1.1 1980 – 1989, Penn Archives, 382.

[11] Patrick Kerkstra, “Exempt Sites Complicate Tax Fixes,” Philadelphia Inquirer, 17 September 2012; Inga Saffron, “Board Demands Changes in Waterfront Hospital Design,” Philadelphia Inquirer, 2 April 2014.