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SEC closes probe of West Penn Allegheny as losses mount

| Thursday, May 30, 2013, 7:12 p.m.

A Securities and Exchange Commission investigation of West Penn Allegheny Health System that dates to 2008 has been closed, the hospital network disclosed on Thursday in a report that showed worsening financial losses.

“On May 20, 2013, WPAHS was advised that the SEC investigation had been completed and the SEC staff has no intentions, at this time, to recommend any enforcement action,” the system said in its financial report for the quarter ended March 31.

West Penn Allegheny, which was acquired by health insurer Highmark Inc. last month, reported a net loss of $34.6 million for its fiscal third quarter. The loss was higher than in the same period a year ago when the system reported a net loss of $19.8 million.

The SEC started an informal investigation of West Penn Allegheny in August 2008 after the hospital system admitted to inflating revenue by $73 million. That led to a restatement of its financial results for the year ended June 30, 2008, and a net loss of $62.8 million for that year.

In 2009, the SEC opened a formal investigation of the hospital system. Then in November of last year, West Penn Allegheny disclosed that the SEC had sent it a so-called Wells Notice, in which SEC staff recommended the commission bring civil or administrative action against the hospital system for disclosures it made to bond investors in 2009.

Thursday's disclosure by the hospital network does not make it clear if the Wells Notice was resolved. Spokesman Dan Laurent declined to comment on the SEC action. The SEC previously had declined to comment on the matter.

In a written statement, Laurent addressed the hospital network's worsening financial results. “The report only further underscores why the affiliation between West Penn Allegheny and Highmark, and the establishment of the Allegheny Health Network, was so critical to the future of health care in our region,” he said.

Highmark, the state's largest health insurance company, completed its $1.1 billion purchase of West Penn Allegheny on April 29 after the state Insurance Department approved the deal.

With West Penn Allegheny, Jefferson Regional Medical Center, doctor groups and other medical services, Highmark created the Allegheny Health Network to compete with UPMC, the largest hospital network in Western Pennsylvania.

West Penn Allegheny said on Thursday that when the deal closed, Highmark loaned it $100 million and gave it $39.6 million in grants.

Highmark has said it will turn around the finances of West Penn Allegheny by convincing patients to choose its hospitals over those owned by UPMC.

But in the first three months of this year, West Penn Allegheny's revenue continued to fall as fewer patients chose to be treated at one of its five hospitals. Revenue dropped to $378 million, down from $388 million in the same period a year ago.

The led to a loss from operations of $37.7 million, compared with a loss from operations last year of $23.9 million.

Alex Nixon is a staff writer for Trib Total Media. He can be reached at 412-320-7928 or anixon@tribweb.com.

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