Patient volume continues slide at West Penn Allegheny Health System

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West Penn Allegheny Health System posted a $28.3 million operating loss for the first quarter of its fiscal year, which ends June 30, slightly more than the $27.1 million loss reported for the same period a year ago.

The first-quarter results, posted this afternoon, also show a $24.7 million loss overall after accounting for investment income and donations.

During the same period, inpatient discharges declined 2 percent, continuing a troubling downward trend in patient volume in the region's second-largest health system.

In a letter to WPAHS employees, board chairman Jack Isherwood said while the health system is doing "an outstanding job of reducing costs, we are seeing higher salary expenses as we employ more physicians and hire more staff for our new programs. This is a strategic decision, which we believe will yield benefits in the future."

Mr. Isherwood also noted that the U.S. Securities and Exchange Commission had recently issued a "Wells Notice" regarding "disclosures made by the WPAHS in 2009."

The memo does not elaborate, although in 2008 the health system took a $73 million writedown because it overestimated expected patient revenue.

"A Wells Notice by the SEC is neither a formal allegation of wrongdoing nor a determination of wrongdoing," Mr. Isherwood wrote. "A Wells Notice indicates that the SEC may bring a civil action or institute an administrative proceeding. It also provides WPAHS with an opportunity to provide the SEC with information as to why such action should not be brought. We intend to file such a submission with the SEC, setting forth the bases for the System's belief that action is not warranted."

West Penn Allegheny and insurer Highmark, Inc. are in discussions to finalize their affiliation, which is also under review by the Pennsylvania Insurance Department.

Highmark plans to make WPAHS the centerpiece of a planned $1 billion integrated health-care delivery network to compete with UPMC.

In his letter to the health system's employees, Mr. Isherwood wrote: "WPAHS continues to meet with Highmark on a very frequent basis. Several meetings have occurred over the past two weeks where we have had in-depth discussions about our proposed affiliation and the importance of physician retention and recruitment. We agree that there are significant issues that must be addressed, and we are working diligently to address them."

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Steve Twedt: or 412-263-1963.


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