West Penn Allegheny narrows losses
By Alex Nixon
Published: Tuesday, Feb. 4, 2014, 12:36 p.m.
West Penn Allegheny Health System narrowed its operating loss in the October-December quarter as it boosted revenue and trimmed expenses, according to a quarterly financial statement released on Tuesday.
But the five-hospital system, which was purchased on the brink of bankruptcy last year by health insurer Highmark Inc. , treated fewer patients and lost money in December after posting profits in October and November.
The system forms the core of the Allegheny Health Network of hospitals and doctors that Highmark established to compete against UPMC. Highmark purchased West Penn Allegheny for $1.6 billion last year and pledged to improve its finances during several years by increasing the number of patients. It has said much of the patient volume would come from UPMC, the largest hospital system in Western Pennsylvania.
“Significant progress continues to be made in efforts to strengthen the financial performance of those hospitals and ensure that they are able to fulfill their mission of serving the community with comprehensive, high quality health care services for the long-term,” Elizabeth Allen, interim chief financial officer for Allegheny Health Network, said in a statement.
UPMC has refused to renew a reimbursement contract with Highmark, which sets less-costly in-network rates for Highmark members, because the insurer intends to steer patients away from UPMC. The contract expires at the end of this year.
Despite Highmark's pledge, discharges at West Penn Allegheny hospitals continued to decline in the quarter, dipping to 13,244, compared with 13,686 in the same quarter the year before.
“We believe that much of the improvement is based on the efficiencies they've created,” said Highmark spokesman Aaron Billger. He added that the insurer's reimbursement rates to West Penn Allegheny have not changed.
West Penn Allegheny reported an operating loss of $2.1 million in the October-December quarter, the second quarter in the system's July-June fiscal year. In the same quarter the year before, the system had an operating loss of $33.1 million.
Revenue rose to $406.4 million, compared with $385.8 million the year before. Expenses declined to $408.5 million, compared with $413.8 million.
While the operating loss was improved, the result suggests the system lost at least $6.6 million from operations in December. It had posted a monthly profit of $4.5 million in October — its first monthly profit in more than 30 months, according to a November memo to employees from Allegheny Health Network CEO John Paul. In November, Paul said in a later memo, the hospitals posted a second monthly profit, though he did not provide an amount.
“In October, we are especially pleased to note that we posted a profit from operations of $4.5 million. It's the first month in more than two and half years that West Penn Allegheny has experienced an operating profit,” Paul wrote. “While we still have a lot of work ahead of us, we should be proud of our accomplishments so far.”
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