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Health

West Penn chief upbeat

Luis Fábregas
| Thursday, Sept. 18, 2008

The new head of West Penn Allegheny Health System said Wednesday the region's second-largest hospital network will survive and thrive, even though his prescription for success involves shrinking its 13,000-member work force by 400 to 500.

In his first public remarks since taking the job of CEO in March, Dr. Christopher T. Olivia said the job cuts involve mostly unfilled positions. Although some people will be laid off, theirs are not bedside jobs. Fewer than 1 percent of the system's workers -- or 76 people -- will be laid off, all holding what he described as back-office staff and managerial positions.

During an hourlong interview at flagship Allegheny General Hospital, Olivia appeared unruffled about West Penn Allegheny's financial woes and expressed confidence about a turnaround that, contrary to rumors, does not involve shutting down any of the network's six hospitals.

"We're solvent today," he said, noting the organization has 55 days of cash on hand. "We're meeting all of our covenants, and our bond issue. We're meeting our pension funding obligation, and we have every year. The question is, when do we return to operating profit, and I don't have an answer for you right now. I think we're going to make progress this year."

West Penn Allegheny, whose institutions include Allegheny General Hospital in the North Side and West Penn Hospital in Bloomfield, is expected to post significant losses for the fiscal year that ended June 30. The network posted $15.6 million in losses during the first nine months of the fiscal year. He expects to disclose audited financials in a few weeks.

Olivia, 45, declined to talk specifics about the anticipated losses and acknowledged the auditing process has been delayed by a well-publicized accounting fiasco that led officials to overstate how much it was owed by a staggering $73 million.

That mistake prompted investment rating agencies to downgrade West Penn Allegheny's credit rating. Then came word the Securities and Exchange Commission is conducting an "informal inquiry" of the problem. Last month, tax-exempt bonds backed by West Penn reached a record low.

Olivia said he didn't know about the accounting mistake when he arrived from Cooper Health System, a New Jersey hospital network that lost $40 million over four years. Olivia is credited with helping it move toward profit-making.

"It's nothing I haven't seen before," he said. "It's not unusual in this business, and we've taken steps to correct it so it won't occur again."

He would not say who might have been responsible.

"I'm a doctor, not a prosecutor," Olivia said. "My job is to help prescribe the problem and help prescribe a cure for it."

Restless battle

For five months, Olivia's life has been a restless battle to do what two other executives couldn't do: save one of the region's most venerable health care institutions.

Tall, thin and wearing a pale gray suit and tie, Olivia quoted Shakespeare when he spoke about West Penn Allegheny's troubled past, which includes its ties to the former Allegheny Health, Education and Research Foundation -- whose $1.3 billion bankruptcy 10 years ago made it the country's largest nonprofit failure.

"What's past is prologue," Olivia said, taking a line from "The Tempest." "It's part of our history, as is everything else. I can't change that. What I can do is help the organization into the future. We know what has to be done and what has to be accomplished, and we've made some significant progress since I've been here -- and I'm heartened by that progress."

Olivia has hired about 60 consultants of varying backgrounds to examine everything from revenue to medications.

One company, Chicago-based Wellspring Partners, has identified about $66 million in operational cuts, a figure that is higher than a previously disclosed $50 million.

The work force reduction, expected to save about $12 million, represents about a fifth of those cuts. Olivia emphasized the cuts are being made through attrition and do not involve about 9,000 employees who work in direct patient care areas such as nursing. The system is hiring nurses and doctors, he said, and has added 160 physicians to its medical staff since March.

Other operational savings will come from purchasing and billing improvements, and renegotiated contracts with third-party payors, Olivia said. West Penn Allegheny, for example, recently negotiated a five-year contract with insurance giant Highmark Inc.

No hospital closings

Olivia acknowledged that West Penn has been stagnant at best, with a dwindling number of surgeries, but said: "We have no intention of closing a hospital. All of our facilities are vital and an important part of the system."

He had sharp words for UPMC, the ever-expanding network that recently revealed plans to open 25 cancer centers in Europe and the Middle East over 10 years. He said West Penn Allegheny's strategy for the future will not necessarily mimic UPMC's.

"We don't have operations in Ireland, Dubai and Sicily," Olivia said. "We're here in Western Pennsylvania. This is our home, and this is where we'll remain. So we need to look at what's in the best interest of the Western Pennsylvania community."

He believes people should have an alternative when it comes to health care.

"If you have one provider in a city this size, this city will descend into the Dark Age of high prices, poor service and monopolization of care that's not good for anybody," he said. "You have an organization here that tends to monopolize services and that is not good for the community. It's not good for Pittsburgh. It's not good for anybody other than people who own the monopoly."

UPMC spokesman Paul Wood said in response: "West Penn Allegheny's financial distress is entirely of their own doing and unrelated to anything to do with UPMC."

Olivia, who holds a medical degree and master's in business administration, said he wants to involve more physicians in leadership roles. He created six vice president-level physician positions throughout the system that he intends to fill soon. They include chief medical officer, executive vice president of medical affairs, and vice president for graduate and undergraduate education.

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