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West Penn Allegheny's interim CEO says he may step down next week

| Thursday, Nov. 1, 2012, 1:28 p.m.
Dr. Keith Ghezzi, interim president and CEO of West Penn Allegheny Health System speaks at a press conference announcing the Highmark, West Penn Allegheny hospital revitalization plan Nov. 16, 2011 at West Penn Hospital in Bloomfield. James Knox | Pittsburgh Tribune-Review

West Penn Allegheny Health System's embattled interim chief executive could be gone next week.

Keith Ghezzi, who has led the troubled hospital system for one year, testified in court Thursday that he and the system's board of directors discussed the possibility of a change when his contract expires Tuesday.

Ghezzi said his relationship with executives at health insurer Highmark Inc. is “fractured,” and he admitted that some West Penn Allegheny doctors are unhappy with his leadership. Groups of physicians at several of West Penn Allegheny's five hospitals have called for Ghezzi to step down since Sept. 28 when the health system tried to walk away from Highmark's plan to acquire it in a $475 million deal.

Ghezzi said his relationship with Highmark was strained because the insurer expected him to run West Penn Allegheny as it ordered instead of the way the system's board of directors wanted. He also had difficulty in working with John Paul, Highmark's executive in charge of building a $1 billion provider network to compete with UPMC, the region's dominant hospital system.

“You report to me, and you do what I tell you,” Ghezzi said Paul told him.

The comments were made during the third day of testimony in Highmark's lawsuit against West Penn Allegheny in Allegheny County Common Pleas Court.

West Penn Allegheny expected to be the centerpiece of Highmark's new health system. But West Penn accused Highmark of breaking their year-old deal by demanding it enter bankruptcy to reduce nearly $1 billion in debt and pension obligations. Highmark sued Oct. 1 to keep the hospital system from talking with other potential buyers.

West Penn Allegheny spokeswoman Kelly Sorice said the system's contract with Alvarez & Marsal, a New York consulting firm that employs Ghezzi and other top managers at the hospital system, expires Tuesday. The board is considering whether to renew the contract and whether Ghezzi should continue as interim CEO if the system extends the Alvarez contract, she said.

In Ghezzi's daylong testimony, he described the breakdown in trust between the two organizations after the April 1 firing of former Highmark CEO Ken Melani, whom police charged with assault in connection with a fight with the husband of his girlfriend. The charges were dropped.

Ghezzi said Highmark's actions led to trust being “severely eroded during the summer and fall of this year.”

West Penn Allegheny is open to returning to discussions with Highmark on a new merger, but only under preconditions, he said. The hospital system needs certainty that Highmark is committed to seeing their deal through the state approval process and that Highmark will close the deal.

Under cross-examination by a Highmark attorney, Ghezzi said it was likely that its auditors this year would issue a second “going concern” opinion, meaning that they believe there's a good chance West Penn Allegheny won't survive another year.

West Penn Allegheny released its unaudited financial statements this week, which showed an operating loss of $112.5 million for the year ended June 30, more than double the loss from the previous year.

Audited statements are expected to come out before the end of December.

A Highmark attorney also questioned Ghezzi about a plan that he and his Alvarez & Marsal managers implemented that consolidated billing staff and outsourced some of their work. While the system saved about $1.5 million a year, “it did not work out in practice,” Ghezzi said.

Bad debt, or money the system is unable to collect from patients, increased during the year to $80.8 million, up from $69.1 million in the previous year.

The hearing, which started Oct. 25, continues on Friday.

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

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