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West Penn Allegheny posts first profit under Highmark

West Penn Allegheny Health System turned its first profit since Highmark Inc. acquired the hospital network, showing that its financial turnaround is on track as thousands of patients prepare to switch from UPMC at the end of the year.

The once-struggling system of five hospitals, the core of Highmark’s Allegheny Health Network, said it recorded net income of $4.5 million in the July-September quarter. It posted a $72,000 loss from operations, and investment gains produced the bottom line profit.

The results were encouraging, 18 months since Highmark acquired the nearly bankrupt hospitals with the goal of establishing a viable competitor to UPMC, the region’s biggest system of hospitals and doctors.

Prior to Highmark’s more than $1 billion purchase in April 2013, the hospital system logged years of huge financial losses as patients steadily left it for crosstown rival UPMC. With two months before many Highmark insurance subscribers lose in-network access to UPMC, the financial results suggest Highmark is fulfilling its goal.

“I think it’s a good signal for the market that the Allegheny Network has real possibilities,” said James McTiernan, a health consultant at Downtown benefits firm Triad Gallagher. “It’s good news for Highmark, and I think it’s good news for our community.”

Highmark had predicted it would return the system to profitability in 2014.

As revenue increased and the hospital system took steps to curtail expense growth, its net results improved sequentially in five of the last six quarters, leading up to its first quarterly profit in the most recent period under Highmark ownership.

For the first nine months of the year, it reported a net loss of $9.7 million.

Dan Laurent, a spokesman for the network, called the July-September quarterly results “terrific news.”

“These results also further underscore and validate the importance to our community of Highmark’s decision to build an integrated health care delivery system that preserves choice and improves access to high quality, affordable health care services,” Laurent said.

UPMC will report its finances for the quarter Wednesday. Spokesman Paul Wood declined to discuss its results but said patients have not been leaving UPMC for Allegheny Health Network.

In July 2013, Allegheny Health Network cut expenses by eliminating 200 open positions and laying off 262 workers. The move contributed to a 5 percent decline in expenses to $411 million for the July-September 2013 quarter. Since then, expenses have increased each quarter, rising by 5 percent to $432.2 million in the July-September quarter.

But revenue has increased at a faster rate over the same period.

It was $397.8 million a year ago and rose by 9 percent to $432.2 million.

Revenue was boosted by a 5 percent gain in outpatient visits in the most recent quarter. Inpatient volume at its hospitals was flat.

Many hospitals across Western Pennsylvania are reporting increases in outpatient volume and flat to declining hospital stays as more medical services shift to less-expensive and more convenient facilities such as doctors’ offices and outpatient centers, like the medical mall in Pine that Allegheny Health Network opened last month.

Investment income in the quarter was $4.5 million, more than double the $2.2 million the network gained from investments a year earlier.

Laurent said the network is treating more patients because it and Highmark have invested millions to add medical services, improve facilities and recruit physicians in many specialties.

Allegheny Health Network expects profitability to continue to improve, but Laurent declined to link that to the end of the UPMC contract, which could cause an influx of Highmark members to its doctors and hospitals.

“Our success will be predicated on sound management and our ability to provide patients with a superior experience,” he said.

Alex Nixon is a staff writer for Trib Total Media. He can be reached at 412-320-7928 or [email protected].


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