Allegheny Health Network ramps up spending on new construction

Buoyed by eight back-to-back quarters of positive earnings, Highmark’s Allegheny Health Network is ramping up spending this year on new constructions and upgrades to hospitals and neighborhood health care centers across Western Pennsylvania, its chief financial officer said Friday.

Between Jan. 1 and March 31 alone, the Pittsburgh-based provider network spent $90 million on capital investments, documents filed this week with state insurance regulators show.

“And that number will continue to escalate in the remainder of this year’s quarters,” said Jeff Crudele, AHN’s chief financial officer. “We continue to fully execute on our construction and our expansion and renovation strategy, and obviously 2019 will be a year in which the investment is substantially up from the the prior year.”

Among projects that advanced this year: AHN opened a new nursing school location near Allegheny Valley Hospital in Harrison; a new neonatal intensive care unit at West Penn Hospital in Pittsburgh; and a 50,000-square-foot perioperative center upgrade at Forbes Hospital in Monroeville. In Erie, Saint Vincent Hospital opened a new center for women and infants.

Operating income down, patient revenue up

AHN reported $1.2 million in operating income during the first three months of 2019 — a $300,000 decrease from the system’s operating income during the same period last year, documents filed this week with state insurance regulators show.

Crudele shrugged off the drop as relatively insignificant when compared to AHN’s overall size.

“This (AHN) is a $3.3 billion business, so the difference between last year’s quarter and this year’s quarter on the operating income at about $300,000, is not a significant difference,” Crudele said. At the same time last year, the system reported an operating income of $1.5 million in the first quarter, which was about $5.3 million better than the previous year.

AHN made gains on the patient revenue side, however, and executives maintain the system is on solid financial footing and positioned for growth.

Year-over-year net patient service revenue increased by $60.5 million — attributed to increased contract rates with payors and efforts to improve the quality and timing of care to reduce unnecessary hospital stays.

Emergency Department visits totaled about 68,263, down from a projected more than 53,000, which officials attribute to efforts to focus on preventative care. Total discharges and observations, surgery center cases and births increased compared to last year.

The system’s number of same-day patient appointments climbed 34 percent in 2018, from 155,000 in 2017 to more than 207,000 last year. Over the same period, emergency room visits dropped by 2.6 percent.

More favorable investment market conditions have padded the bottom line, Crudele said. Investment earnings averaged $26.9 million for the first three months of this year, compared to just $7.6 million the same time last year.

“Broadly speaking, the U.S. and international financial markets were significantly better in Quarter 1 of this year, after having a weak end of Quarter 4 last year,” Crudele said.

Long-term debt dropped by $53.1 million, down to $1.016 billion, thanks in part to purchasing a medical office building and two garages that previously were leased, the documents show. Management reduced its unfunded pension obligations and stopped allowing new participants to enroll in certain defined benefits plans.

AHN was formed in 2013 when Highmark acquired the former West Penn Allegheny Health System.

After years of losing money, the rapidly growing system posted its first full year of positive earnings in January 2018.

Last year, AHN took in $3.3 billion in revenue, up 6.9 percent from 2017.

In fall 2017, AHN and parent company Highmark Health announced a $700 million regional expansion plan that includes construction of four neighborhood hospitals as well cancer centers and major upgrades to existing facilities.The expansion was expected to create 800 health care jobs.

Last year, AHN broke ground on a 150-bed community hospital in Pine Township expected to open in June 2021, and a neighborhood hospital in McCandless expected to open in December. It also opened an outpatient center in O’Hara and a medical center in Downtown Pittsburgh.

The provider system employs more than 20,000, and full-time equivalent workers are up by more than 4 percent from last year, the filings show.