West Penn Allegheny Health Systems turnaround stumbled last week with news an audit wiped $73 million from its books, in yet another setback since its record-setting $750 million bond offering last year.
Since the deal closed roughly 14 months ago, West Penns financial performance has sagged, its chief executive and chief financial officers departed and its top management has been reshuffled. The latest news, which includes a $67 million overstatement of expected patient revenue for the accounting period ended June 30, prompted downgrades from two ratings agencies.
West Penn officials, announcing the adjustment, called the $73 million figurewhich includes a $6 million adjustment unrelated to patient revenue preliminary and said that its not known whether the system will adjust prior years financial statements.
Tom Chakurda, West Penn spokesman, declined to comment on the rating agencys actions. Clearly, this is indicative of the performance assessment process initiated after its C-suite turnover earlier this year, he said.
In a March financial filing, the system had announced plans to review its accounting methods to verify that growth in accounts receivable that has occurred over the past nine months is accurate, as well as to verify that the implementation of new technology that impacts how charges are captured has not caused inaccuracies in the revenue recognition process.
West Penn had reorganized its top leaders in May after hiring Christopher Olivia as president and CEO in March. Olivia succeeded Jerry Fedele, who resigned in 2007 over unresolved differences with West Penns governing board. David Samuel, senior vice president and CFO retired at the end of March. Roy Santarella was named acting CFO on July 1. Santarella, also the systems chief administrative officer, has launched a restructuring of the systems finance department, West Penn said in a written statement released to investors.
In May, West Penn hired consultants Wellspring Partners, a division of Huron Consulting Group. The system lost $15.6 million on operations off revenues of $1.1 billion for the nine months that ended in March, records show.
Meanwhile, Fitch Ratings and Moodys Investors Service downgraded the Pittsburgh system and put its management on notice for further action following the July 28 news that four-hospital West Penn overstated its unpaid bills.
Moodys report noted analysts awaited a significant amount of information still to be provided before calling whether to again downgrade the already below-investment credit for West Penns $759 million outstanding debt. Importantly, under a new and more conservative revenue recognition policy, future revenue will be recognized at a lower level, Moodys analysts wrote.