Highmark takes on West Penn
Insurer aims to turn around struggling system
Pennsylvania insurer Highmark last week advanced $100 million to executives who say they can turn around a faltering turnaround at West Penn Allegheny Health System. The five-hospital Pittsburgh system, burdened with debt, has struggled and failed to earn a profit on operations in recent years, with its most recent annual operating loss totaling $51.8 million. Now Highmark, which already poured $50 million into West Penn Allegheny in June, is gambling that new leadership and a new turnaround strategy backed by the insurers’ cash can reverse the system’s slide.
The latest cash infusion came as the organizations said they had reached a definitive agreement and urged regulators to quickly approve the deal so that restructuring plans would not be delayed and uncertainty among doctors and patients would not be prolonged. The plans call for a new not-for-profit named Highmark that would operate the insurer and the health system.
“We know that these reviews will be thorough, but we also feel that we have a compelling story and there are more reasons we can list to go forward with this as soon as possible,” Robert Baum, chairman of Highmark, told reporters.
The plans outlined last week would reverse some restructuring moves adopted under Dr. Christopher Olivia, the health system’s chief executive who stepped down in June when the deal with Highmark was announced.
The emergency room at 500-bed Western Pennsylvania Hospital, which closed at the beginning of the year, will reopen and some services will be restored, said Dr. Keith Ghezzi, a managing director with the turnaround firm Alvarez & Marsal, who was named interim chief executive for the system.
West Penn Allegheny launched a turnaround effort in July 2008 after the system closed its books on the prior fiscal year with an $88.8 million operating loss. Improvement the next year did not leave the system profitable but shrank operating losses to $38.5 million (See chart).
Speaking at the news conference announcing the deal, Melani, far left, said the organization is seeking contracts, joint ventures or mergers with other providers.