West Penn Allegheny charts a course for financial sustainability

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Fresh off its first profitable month in nearly three years, the five-hospital West Penn Allegheny Health System that anchors Highmark’s Allegheny Health Network is “trying to cautiously celebrate,” says Elizabeth Allen, interim chief financial officer for the network.

The system is, she noted, just a few months removed from posting a $138 operational million loss for the fiscal year that ended June 30 — and just a short year away from the next major disruption, the apparent end of parent Highmark’s current contract with Pittsburgh’s largest health system UPMC.

For all the turbulence West Penn Allegheny has weathered in recent years — mounting losses, falling patient volumes, the closing and reopening of West Penn Hospital’s emergency department, a rocky start to its marriage with insurer Highmark — the biggest challenge may be facing the health system this time next year.

The AHN executives say they are ready, that they have a three-year plan that considers “all possibilities,” said Ms. Allen. “We’re trying to get things in place, whether we are with or without increased volume.”

Her comments came in a briefing last week with Allegheny Health Network executives Tony Farah, chief medical officer, and Pat Liebman, chief operating officer. The three executives said they are in the process of “right-sizing” West Penn Allegheny, a process that has included laying off 270 workers and eliminating 200 vacant positions last summer, leaving the operation with just over 10,000 employees.

“Do we turn [the losses] off like you do a light switch? No,” said Ms. Allen. “Do we have a plan that can turn it around? Yes. There’s no question this can be turned around.”

They are scouring the entire operation, looking for ways to cut unnecessary costs and to boost revenues by looking at bringing previously outsourced courier and some financial management support services back in-house, and re-examining real estate leases and holdings.

“I think it’s important to say that it’s just been a health system that hasn’t had the disciplined leadership in the past couple of decades,” said Ms. Liebman.

What patients are more likely to notice is what Dr. Farah calls “a patient-centered environment” that brings services to them — whether in the community or within each hospital — with “standardization” the new watchword. “We want our patients who come into the organization, whether it is ambulatory or inpatient, to feel they are getting the exact same care no matter where they go.”

If, as things currently stand, there is no renewal or extension of the contract with UPMC that expires Dec. 31, 2014, most non-Medicare Highmark subscribers would face higher out-of-network costs to see UPMC physicians and get treatment at UPMC hospitals.

If there is a contract — and state Reps. Dan Frankel, D-Squirrel Hill, and Jim Christiana, R-Beaver, have co-sponsored legislation that would require UPMC and other health systems to accept all willing insurance in-network — the Allegheny Health facilities would have a more difficult time maintaining the numbers of patients and revenue needed to stay in the black because more Highmark members would be treated at UPMC hospitals.

But, said Dr. Farah, “Our primary goal is not necessarily volume driven.”

Besides, he added, with an emphasis on quality, lower cost and service, “I think the volume will follow.”

Last fiscal year, WPAHS hospitals had a total of 72,894 patients who were treated either on an inpatient or observation basis; by comparison, UPMC reported nearly 264,281 admissions and observations for fiscal 2013.

The re-imagining of the West Penn Allegheny Health System — a name that eventually will disappear once certain financial reporting obligations end — comes at a time when America’s health system as a whole is undergoing re-engineering.

“This is clearly a time nationally when people are looking for different approaches to health care and trying to deliver it at a lower cost and higher quality,” said health policy expert Harold D. Miller, president of Pittsburgh-based Future Strategies LLC and adjunct professor of public policy and management at Carnegie Mellon University.

Hospitals such as the AHN flagships Allegheny General on North Side and West Penn in Bloomfield could hold an advantage in that transition, he said.

“My perception has been that both AGH and West Penn deliver high-quality care at a pretty reasonable cost. I think that is one of the things that is not appreciated locally and it hasn’t been given enough attention,” Mr. Miller said.

It could get more attention, he said, if Highmark went public with what would be a wellspring of quality information such as infection rates, readmission rates, mortality rates and more that’s contained in the claims data, said Mr. Miller, who writes a monthly column for the Post-Gazette.

“But they’re not making that data available to people, at least not publicly,” he said. “They need to be showing what they offer, what health care quality they offer, not just what insurance plans they offer.”

Steve Twedt: stwedt@post-gazette.com or 412-263-1963.

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