West Penn Allegheny losses rise 62%

| Tuesday, Oct. 29, 2013, 12:01 a.m.

The financial picture got bleaker at West Penn Allegheny Health System in its most recent fiscal year — with the hospital system reporting Monday that losses widened 62 percent to $137.6 million.

The report was released on the same day it was revealed that owner Highmark Inc. dropped a longtime West Penn Allegheny technology contractor and is spending $178.3 million to replace the electronic medical record system at the hospital system.

The additional outlay by Highmark, which purchased West Penn Allegheny in April, drew criticism from the state Insurance Department, which said it won't produce extra savings for the health insurer's ratepayers. The department said spending increases Highmark's financial commitments “from $1.834 billion to $2.012 billion” for developing an integrated health system with West Penn Allegheny as the centerpiece.

“Most of the projected savings and benefits attributed to the (electronic medical record) technology were included in the savings and benefits” previously described by Highmark as justification for buying West Penn Allegheny,” Deputy Insurance Commissioner Stephen Johnson wrote to Highmark on Oct. 24.

Despite the comments, Johnson didn't object to the spending.

Highmark spokesman Aaron Billger said the Insurance Department wasn't being critical of the spending. “Their authorization demonstrated that they saw the value in this investment,” he said.

Through an Insurance Department spokeswoman, Johnson declined to comment.

Allegheny Health Network has contracted with Epic Systems Corp. to develop a new medical record system, replacing longtime medical record vendor Allscripts Healthcare Solutions Inc., spokesman Dan Laurent said.

“We are transitioning to Epic to meet the changing nature of our broader enterprise,” Laurent said. “The requirements and potential vendor partners are different in this bigger program.”

In 2011, West Penn Allegheny renewed a contract with Allscripts to provide its record system through 2018 for an undisclosed price.

Billger said Highmark officials “reassessed” all West Penn Allegheny contracts after purchasing the hospital network.

In uncommon for health systems to switch technology vendors once a system is in place because a large amount of money and time will be lost, said Greg Bolan, an analyst for Sterne Agee in Nashville.

“If you think about the upfront costs that are required to not only purchase a new system but also the intangible costs, like retraining all your people on a new system ... You're talking about a very expensive endeavor,” Bolan said. “So you really need to feel that the current system you're using won't allow you to keep up with the Joneses, so to speak.”

Allscripts spokeswoman Claire Weingarden declined comment.

Billger said Highmark wants Epic to first establish an electronic medical record system at the five West Penn Allegheny hospitals and then connect it with other parts of the Allegheny Health Network, such as doctor offices, outpatient medical clinics, Jefferson Regional Medical Center and St. Vincent Health System.

Meanwhile, West Penn Allegheny had a net loss of $137.6 million in the fiscal year ended June 30, up from a net loss of $84.7 million in the prior year. Revenue was flat at $1.4 billion for the year as falling patient volume was offset by higher reimbursement rates.

With Highmark's financial assistance and management help, West Penn Allegheny is “pursuing an aggressive turnaround effort to strengthen our financial position and ensure that our hospitals and services remain vital and sustainable over the long run,” Laurent said.

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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