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West Penn Allegheny Health System loses $89.9 million

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Tuesday, Nov. 2, 2010

West Penn Allegheny Health System on Monday reported an operating loss of $89.9 million for the fiscal year that ended in June, but its top executive said he remains optimistic about the ailing hospital network.

"We are moving in the right direction," CEO Christopher T. Olivia said in a letter to investors. "However, doing so takes time, resources and unfortunately can be painful."

Hospital officials attributed much of the loss, which was expected, to a $70.7 million reduction in the estimated value of the West Penn Hospital property in Bloomfield and the former Suburban General in Bellevue. That write-down, known as an asset impairment charge, occurred because Suburban reduced services and closed its emergency room in August, and West Penn will close its emergency room Dec. 31.

West Penn is in the midst of a major consolidation plan that will shift many services to flagship Allegheny General Hospital in the North Side. Four hundred workers will be laid off as part of the plan, officials said last week.

Jeff Schaub, managing director of nonprofit health care at Fitch Ratings in New York, said registering a loss on the hospital properties is not a significant move and does not hurt West Penn Allegheny's cash flow.

"The consolidation plan represents a step in the right direction," Schaub said. "The layoffs are an unfortunate part of that. The write-down is of less significance than the layoffs because it's a non-cash expense."

Without it, the system would have posted a $19.2 million operating loss, compared with $38.4 million in fiscal 2009 and $88 million the year before. The system said it incurred $11.8 million in restructuring costs.

It reported investment income of $25 million, up from $12 million a year before.

West Penn Allegheny budgeted a $17 million gain in operations for 2010, according to a report by Moody's Investors Service. A Moody's analyst could not be reached. West Penn Allegheny spokeswoman Kelly Sorice said she could not comment about Moody's report, and the system does not release budget figures.

Schaub said Fitch plans no immediate action to alter its outlook on West Penn Allegheny, which is listed as negative.

One West Penn Allegheny roadblock is its declining number of inpatients, which dropped 7.4 percent to 70,790. Olivia attributed the drop to the nation's battered economy, the severe winter weather that prompted cancelation of tests and procedures, and a weak flu season that kept people out of the hospital. The number of surgeries dropped to 22,635 from 23,541 in 2009.

Other challenges await this fiscal year. West Penn Allegheny will need to make a $75.2 million contribution to its pension plan on top of capital spending for a $60 million renovation of Allegheny General.

"We have never missed a pension payment in our history, and we never intend to do so," Olivia told investors.

Olivia said West Penn Allegheny ended the fiscal year with $306 million in cash, or 71 days of cash on hand, which he called the system's best cash position since its inception.

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