Healthcare Business News

Latest loss shows depth of West Penn's pre-Highmark troubles

By Melanie Evans
Posted: April 25, 2014 - 3:30 pm ET

West Penn Allegheny Health System lost $386 million on operations in the months before and after its acquisition by Highmark, one of the largest U.S. insurers, according to financials released Thursday.

The sizable loss on revenue of $1.5 billion for the year that ended in June 2013 was amplified by an accounting charge of $214 million and largely reflects the Pittsburgh health system's operations prior to Highmark's May 2013 takeover, said Elizabeth Allen, interim chief financial officer of the Allegheny Health Network, which includes West Penn Allegheny. “It reflects nothing about the operations of the organization today,” she said.

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West Penn Allegheny, which flirted with bond default before Highmark's acquisition, grew increasingly weak in recent years in Pittsburgh's highly competitive market. The system struggled with leadership turnover and mounting operating losses.

In fiscal 2012, West Penn Allegheny lost $114.9 million on operations with revenue of $1.6 billion, more than double the prior year's $51.8 million operating loss on $1.6 million.

Losses have narrowed since Highmark took over West Penn Allegheny thanks to an extensive turnaround effort, Allen said. The Allegheny Health Network, which includes West Penn Allegheny's five hospitals and two others, has seen its annualized losses shrink to $80 million from $250 million.

Turnaround plans have targeted administrative and clinical departments, revenue cycle, labor and strategies to standardize operations, Allen said.

West Penn Allegheny also received a $100 million loan and a $30.6 million grant from Highmark during fiscal 2013, according to the financial statements. The insurer is also expected to loan West Penn Allegheny another $100 million this month.

Highmark's deal for West Penn Allegheny, first announced in 2011, has been closely watched nationally as one of numerous transactions that have merged payers and providers. It also escalated competition between the newly created integrated delivery system and rival health system UPMC, which also owns a health plan. The resulting clash has spilled over to courts, marketing campaigns and Pennsylvania's Legislature. It also has caused UPMC to walk away from Highmark. An agreement between Highmark and UPMC expires at the end of the year and UPMC continues to say it will not renew.

Follow Melanie Evans on Twitter: @MHmevans

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