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Highmark seeking $175 million infusion for Allegheny Health Network

| Thursday, March 12, 2015, 6:15 p.m.
The Highmark sign atop Fifth Avenue Place in Downtown Pittsburgh.
Tribune-Review
The Highmark sign atop Fifth Avenue Place in Downtown Pittsburgh.

Health insurer Highmark Inc. wants to infuse $175 million into its Allegheny Health Network, saying the region's second-largest hospital network needs cash to pay bills and make capital improvements.

In a March 9 letter to the Pennsylvania Insurance Department, Highmark said the newly formed network has experienced “lower volumes than previously anticipated.”

The insurer said it has revised the network's capital investment plan, and it requires increased funding. Highmark initially estimated it would cost about $1 billion to establish the network to compete with rival UPMC, the region's dominant health care provider.

“The level of cash flow at (AHN and West Penn Allegheny Health System) is not sufficient to adequately fund all of the capital expansion that is necessary while maintaining the desired days' cash on hand,” according to Highmark's request, posted Thursday on the state Insurance Department website.

A department spokesman said late Thursday that he did not have enough information to comment about the matter. Highmark requested approval of the grant by Sunday.

“If you've got a cash flow problem, you've got a bad business problem,” said Stephen Foreman, an associate professor of health care administration and economics at Robert Morris University.

Foreman said the filing is vague and fails to indicate whether cash flow from patient volume or a push for facility improvements is the primary concern. He expects the money would come from the roughly $4 billion in reserves at the nonprofit Highmark.

He said the Insurance Department should conduct public hearings as it considers the request.

“That's public money, in my view, and Highmark eight years ago said they needed those reserves for emergencies,” Foreman said.

Last year, West Penn Allegheny Health System — the core of Allegheny Health Network — turned its first profit from operations under Highmark Health ownership. The five-hospital system boosted revenue 12 percent in the fourth quarter, according to the company.

Allegheny Health officials have said West Penn Allegheny is poised to record in 2015 its first full-year operating profit under Highmark.

West Penn Allegheny, which includes flagship Allegheny General in the North Side and West Penn in Bloomfield, was nearly bankrupt when Highmark bought it in April 2013 and formed Allegheny Health. The network has grown to include seven hospitals.

Highmark's letter to the Insurance Department says some of its initial investment in the hospital system has been used “to fill gaps in patient care, as well as provide care closer to communities in which Highmark subscribers reside.” Some money was used to “cover operational cash flow needs,” according to the letter.

“Highmark Health remains focused on adapting and evolving with the evolution of the health care market through continued investment in our people and infrastructure while also expanding our clinical capabilities,” Highmark spokeswoman Lynn Seay said in a statement.

Improvements financed by the insurer include upgrades to West Penn's emergency department, a trauma center at Forbes Hospital in Monroeville and a hybrid operating room at Allegheny General that enables doctors to perform diagnostic imaging and surgery in the same location.

In its most recent financial filing, West Penn Allegheny said it spent $73 million on capital improvements in 2014.

West Penn Allegheny posted an operating loss of $13.3 million in 2014, a major improvement from the previous year's operating loss of $126 million.

Allegheny Health Network spokesman Dan Laurent said the network remains in a turnaround position despite the most recent financial improvement.

“Highmark has made substantial investments in the network over the past two years, and those investments have significantly strengthened our financial position,” Laurent said. “This additional investment will further ensure that we continue to remain a vital source of medical care for the people of this region.”

Luis Fábregas and Adam Smeltz are staff writers for Trib Total media. Reach Fábregas at 412-320-7998 or lfabregas@tribweb.com. Reach Smeltz at 412-380-5676 or amseltz@tribweb.com.

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