West Penn Allegheny Health System—the distressed partner in a contentious and closely watched healthcare acquisition deal—posted another operating loss for the first three months of its fiscal year.
West Penn Allegheny, a Pittsburgh hospital operator with deteriorating finances, reported an operating loss of $28.3 million on revenue of $378.2 million for the three months that ended in September. That's more than the system lost during the same period the prior year ($27.1 million on revenue of $370.5 million).
The health system's poor financial health has strained talks (nearly to the breaking point) between West Penn Allegheny and Highmark, the Pittsburgh insurer that agreed more than a year ago to acquire the system. A dispute over how to address West Penn Allegheny's finances landed in court in September. A judge sided with Highmark after West Penn Allegheny balked at a proposed debt restructuring by trying to break off the deal.
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The three major players in Pittsburgh's healthcare market—West Penn Allegheny Health System, Highmark and the University of Pittsburgh Medical Center—have a combative and litigious history (for a review, see here). Now, the possible breakup of an alliance between West Penn Allegheny and Highmark, an insurer, has landed two of those players back in court.
Highmark said in court filings this week that West Penn Allegheny had no grounds to exit the deal the partners signed almost a year ago. (“It is truly sad that Highmark has taken this step,” West Penn Allegheny responded.)
Under the deal in dispute, Highmark would acquire the health system and West Penn Allegheny would receive desperately needed cash.
Highmark began immediately to pour cash into the struggling system, which has continued to see its operations deteriorate since the deal was announced. West Penn Allegheny lost $87.8 million on operations between June 2011 and March 31, the most recent financial information available. That's compared with a $35.1 million loss for the same nine months the prior year.
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West Penn Allegheny Health System, with help from insurer Highmark, saw its B+ credit upheld by Fitch Ratings. The New York rating agency, which downgraded the Pittsburgh health system in December, also changed its credit outlook to stable from evolving.
Fitch analysts said its rating depends on Highmark's plans to acquire West Penn Allegheny and the insurers' financial support for the struggling system. The health system's operating losses also shrank in the third quarter to $22.6 million from $32 million the prior three months, if you don't count additional losses from West Penn Allegheny's turnaround efforts, said Fitch.
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Analysts with Moody's Investors Service did not change the Caa1 bond rating for West Penn Allegheny Health System, the distressed Pittsburgh health system in line to be acquired by insurer Highmark.
That deal with Highmark—which includes $400 million in grants and loans for West Penn Allegheny and $75 million for medical education— likely saved the health system from restructuring and a possible default, said analysts.
It may also not be enough, apparently.
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