WPAHS posts $112 million loss

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Operating losses at the financially ailing West Penn Allegheny Health System climbed to $112.5 million in the fiscal year ending June 30, more than double the previous year's total. Although funds provided by insurer Highmark Inc. helped the health system produce a $40.7 million profit for the fourth quarter, WPAHS lost $37.8 million overall for the year.

The unaudited numbers were released by the health system Monday.

The $112.5 million operating loss compares with a $51.8 million operating loss reported in fiscal 2011, which followed a $63.1 million loss in 2010. Operating losses represent the amount that the cost of running the health system exceeded revenues.

Spokeswoman Kelly Sorice acknowledged that losses increased from last year, but pointed out that the results were "better than the WPAHS results that Highmark projected to the Pennsylvania Insurance Department" in the insurer's filing for a planned affiliation with West Penn Allegheny.

The two operations had agreed to a merger until last month, when disagreements over whether WPAHS should go through bankruptcy to clean up its books led to the health system's announcement that the deal was off.

On Monday, Ms. Sorice said the WPAHS losses were predominately due to "much higher bad debt and lower revenue based on lower volume," particularly at West Penn Hospital, where costs have increased as the hospital has reopened its emergency department and made other improvements.

The annual report includes worrisome numbers and trends for the region's second-largest health system -- inpatient discharges declined 6.4 percent from fiscal 2011 and inpatient revenue declined 1.9 percent, or $29.3 million.

Part of that drop can be attributed to the West Penn emergency department being closed for the first 7 1/2 months of the fiscal year, but the report acknowledges that "additional [patient] volume anticipated from physician recruitment by Highmark did not materialize in fiscal year 2012."

Highmark was supposed to sign up more doctors to be part of the West Penn system, and those doctors were then expected to send more patients to the hospital.

The system reported that it has 62.2 days of cash on hand, compared with 62 days a year ago and 70.8 days in fiscal 2010. Its projected pension obligation is $278.7 million, up from $196.3 million a year ago.

The numbers illustrate why West Penn Allegheny board members decided they could not wait until the Highmark affiliation agreement expires April 30 before testing the market to find other partners, a move they hope would avoid the bankruptcy filing that they say Highmark is trying to force on them.

Highmark has challenged that move in court proceedings due to resume later this week, contending that West Penn Allegheny must abide by the affiliation agreement signed a year ago that includes a "no shop" clause blocking WPAHS from discussing possible affiliation with third parties. WPAHS officials say Highmark has breached the agreement, freeing them to try to attract other suitors.

Stephen Foreman, associate professor of health care administration at Robert Morris University and a former hospital administrator, is skeptical that WPAHS would find buyers.

"What's the market for a health system that's a billion dollars in debt and losing $100 million a year?" he said. "I wouldn't take it if they gave it to me."

Highmark has committed to spend $475 million overall to support and upgrade the West Penn Allegheny system, which includes Allegheny General Hospital on the North Side, West Penn Hospital in Bloomfield, Forbes Regional in Monroeville, Canonsburg General Hospital in Canonsburg and Alle-Kiski Medical Center in Natrona Heights. The health system has about 12,000 full- and part-time employees.

The region's largest insurer hopes to eventually feature WPAHS atop its planned $1 billion integrated health care delivery system meant to compete with the region's largest health system, UPMC.

Highmark spokesman Aaron Billger said Monday that the insurer would not comment on the specifics of West Penn Allegheny's financial disclosure, but added, "Highmark has met all of the affiliation funding requirements and has funded more than $200 million of our commitment as outlined in the affiliation agreement. We also provided an additional $33 million in funding outside the commitment that was not required."

Mr. Foreman said it's crucial the two sides reopen negotiations and come to an agreement.

"Highmark needs West Penn Allegheny in this community, and I think everyone in the community needs West Penn Allegheny. Everyone in the community needs to pitch in and solve this."

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


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