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West Penn Allegheny Health System's turnaround tied to buy

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Friday, Feb. 3, 2012

West Penn Allegheny Health System will be profitable in two to three years if the financially troubled hospital network can be quickly acquired by health insurer Highmark Inc., Dr. Keith Ghezzi, the health system's interim CEO, said on Thursday.

Ghezzi, who has been head of Pittsburgh's No. 2 health system for three months, said he remains "very optimistic" about turning around West Penn Allegheny, which has posted more than $180 million in operating losses over its last three financial years. Two of three major rating agencies and the system's auditors have expressed skepticism on whether it can survive.

But financial support from Highmark to revamp its facilities, recruit new physicians and focus on providing high-quality care at lower cost will bring patients back, Ghezzi said during a briefing yesterday in the health system's North Side offices.

"We provide care at a lower cost," he said. Patients and insurers "are going to look for value."

West Penn Allegheny released Medicare data yesterday showing that the average cost per discharge from its five hospitals was less than the average for six of UPMC's hospitals. The data, from 2010, showed that the average cost at West Penn Allegheny was $5,879, compared with an average of $7,253 for UPMC.

Highmark, the state's largest health insurer, has committed to giving the health system $475 million in grants and loans. Highmark CEO Dr. Kenneth Melani said in November that West Penn Allegheny could be profitable in two years if state regulators approve the acquisition by June.

Ghezzi said he and top executives from Highmark have met with the state Insurance Department several times in the last four weeks to try to speed the approval process. The meetings have been "constructive," and he hopes the department will approve the transaction sometime between June and September.

Both Fitch Ratings and Moody's Investor Service downgraded West Penn Allegheny's credit rating last year. And its auditor, KPMG, said in December that there was "substantial doubt about West Penn Allegheny Health System's ability to continue as a going concern." Ghezzi said the system's debt service of about $50 million a year is manageable, and it has no plans to try to restructure its debt.

A local health care expert agreed that West Penn Allegheny can be returned to profitability, and even faster than officials are suggesting.

"I would be surprised if it took longer than a year" to make substantial progress in turning around West Penn Allegheny's finances, said Jan Jennings, a health care consultant and former CEO of Jefferson Regional Medical Center in Jefferson Hills.

Highmark has the management talent to make sure West Penn Allegheny is run efficiently, and its efforts to acquire primary care physician practices and affiliate with other hospitals should boost revenue at the health system, Jennings said.

"I have every confidence they can make it," he said.

Highmark announced in January that it had acquired Premier Medical Associates, a 60-doctor private practice in Monroeville. And the insurer has said it's talking about partnerships with other physician groups and hospitals throughout the state.

Ghezzi said West Penn Allegheny has hired 50 physicians since July and is close to announcing several more hires. It also is targeting the 800 physicians who practice at West Penn Allegheny hospitals but are not employed by the system.

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