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CEO says West Penn hospital network 'healing'

Tom Fontaine
| Wednesday, Sept. 1, 2010

West Penn Allegheny Health System CEO Christopher Olivia compared his struggling hospital network to the arms he injured on the alpine slide at Seven Springs Mountain Resort.

"If I took this bandage off right now and you could see the second-degree abrasions I had, you'd say that looks horrible. Trust me, it looks a lot better than it did over the weekend," Olivia said Tuesday during a meeting with reporters.

"It's all part of the healing process," Olivia said before switching gears to the hospital network. "We're going through a healing process. It's going to be a tough year, but if we do it the right way we'll come out a much stronger organization on the back end."

Olivia discussed West Penn Allegheny's plans to lay off about 1,500 workers, consolidate services and deal with health care legislation. He predicted it could take the network a decade to become financially secure and took a few swipes at University of Pittsburgh Medical Center, the region's largest health care provider. West Penn Allegheny is No. 2.

"This is really the strongest we've been in many years. The next point is to get us where we are financially secure," Olivia said.

The system posted $80 million in net losses the past two years, and rating agencies this year downgraded its bond rating to a lower level of non-investment, or junk, status. Pension obligations include a $43 million payment due in September, which Olivia said the system will make.

Yet, Olivia said West Penn Allegheny made $140 million in cost-cutting moves the past two years, not including anticipated savings from the layoffs and consolidation plans announced in June.

"We need to have enough money so that we have a stable, investment grade-type (bond) rating in the long term," he said.

One benchmark is cash on hand. Last month, West Penn Allegheny officials said the network had $299.5 million on hand, enough to get by for 68 days without new cash. It had 50 days' worth two years ago. Olivia said the network wants to reach between 90 and 120 days.

UPMC ended last fiscal year with $3.1 billion, or 130 days, cash on hand, a spokesman said.

"We have told our board that we hope to be investment grade by the end of this (next) decade. We hope to be there much sooner than that," Olivia said.

Jan Jennings, president of the consulting firm American Healthcare Solutions, Downtown, said West Penn Allegheny's 10-year goal is realistic.

"It's going to take a decade of progressively smart decisions. You can't turn a hospital on a dime," Jennings said.

Health care attorney Andy Thurman called it a "conservative, reasonable prediction," citing consolidation-related costs and capital needs.

"I don't have the money my competitor (UPMC) has. Frankly, I don't want it," Olivia said. He said UPMC "hordes cash, invests it overseas and talks about it all the time."

"We're striving to become financially secure. We're not striving to become an investment fund or a bank here, (or) to invest in things that are extra to servicing health care in the community," Olivia said.

UPMC spokesman Paul Wood dismissed the criticism, saying 98 percent of the network's $8 billion in revenue is spent in the region. That includes spending more than $500 million a year on charity care and capital improvements providing work to contractors.

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