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.
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