Excela leadership shakeup comes amid financial losses, worker outsourcing

Excela Health’s abrupt announcement Friday that two top executives were resigning immediately followed months of growing financial pressures on the Westmoreland County health system that said it is seeking “fresh perspectives.”

Recent developments suggest the health system that encompasses Latrobe, Westmoreland and Frick hospitals and is the county’s largest private employer has had to move to maintain its financial footing in a competitive market with health care giants UPMC and Allegheny Health Network encroaching upon its territory.

On March 17, less than three weeks before the departure of CEO Robert Rogalski and COO Mike Busch — a pair of executives with combined earnings in excess of $1 million a year — the health system closed a deal with Optum 360 to take over its patient accounting and billing operations, allowing Excela to jettison 350 employees. Those workers included patient registration and billing staff, medical records staff, coders, insurance verification staff, reimbursement analysts and clinical documentation improvement nurses. They now answer to Optum, a division of the Minnesota-based United Healthcare Group Inc.

Excela is the first medium-sized health system in the U.S. to enter into such a partnership with Optum 360, Excela spokeswoman Robin Jennings said.

Jennings did not disclose terms of the deal, which she cast as a win-win for Excela and the community. She said Excela is gaining access to cutting-edge technology and improved revenue performance, and all staffers previously working for the health system remain employed in Westmoreland County under the Optum umbrella.

The health system’s financial challenges are detailed in a disclosure to the U.S. municipal bond market filed last month. Excela reported a total net loss of $24.6 million, or 8.6 percent, in the final six months of 2018, compared to net income of $15.7 million for the same period the prior year.

In January, Moody’s Investors Service downgraded the outlook on $72 million in Excela Health bonds from stable to negative.

Moody’s analysts detailed positive and negative forces affecting Excela. They said the system’s position as the dominant player in Westmoreland County, its growing outpatient network, an expanding physician group, as well as relative liquidity and low debt levels all are pluses.

But they warned there also are troubling factors at work.

“Strong headwinds will persist and are noted in a trend of weakened and variable operating performance, the result of a highly competitive operating environment and recently flat utilization. Margins also will be suppressed by the costs of an expanded employed physician group and ambulatory expansion.”

Jennings acknowledged that Excela has made major investments in physicians and advanced practice providers over the past five years and noted the health system also invested in new ambulatory facilities, including Excela Square at Norwin, Excela Square at Ligonier, Excela Square at Latrobe, as well as the renovations to the entrance to Frick Hospital and the establishment of Excela Square at Frick.

“The delivery of health care has rapidly changed from acute settings to more ambulatory and home settings that are less expensive and more convenient for patients. These were necessary investments that have enabled Excela to continue to provide high-quality, affordable health care to our patients in Westmoreland County in more convenient settings,” Jennings wrote.