Highmark's infusion of cash might not be enough, report says
Saturday, December 31, 2011
By Steve Twedt, Pittsburgh Post-Gazette
Continued operating and patient volume losses at the West Penn Allegheny Health System "raise substantial doubt about WPAHS' ability to continue as a going concern," said accounting firm KPMG in an audited financial statement released Friday.
The 47-page report showed West Penn Allegheny had $51.8 million in operating revenue losses in the fiscal year ending June 30, which, combined with continuing unaudited losses since July, prompted auditor KPMG to raise doubts about the ailing health system's future.
While acknowledging insurer Highmark Inc.'s plans to acquire and enhance WPAHS, the KPMG report said "there is no assurance that management's plans, as described, can be effectively implemented."
The KPMG report underscores West Penn Allegheny's dire financial straits, as the health system reported $1.35 billion in liabilities and deficits, against $1.25 billion in total assets.
The string of losses in recent years, plus the declining number of patients it's treating, "provide uncertainties about WPAHS's operational and financial viability, including its ability to meet its debt covenants at the end of the fiscal year 2012" on June 30, the KPMG report said.
On Friday, Highmark spokesman Aaron Billger said the audit opinion "was unfortunate but is consistent with the assessment performed by Highmark prior to our decision to affiliate earlier this year."
While reiterating Highmark's commitment to revitalizing West Penn Allegheny, Mr. Billger said the KPMG report "reinforces the need for the Pennsylvania Insurance Department, Pennsylvania attorney general, and the IRS to swiftly and fully approve the transaction giving Highmark full ability to make the decisions and investments necessary to help transform WPAHS into a thriving health care system."
In recent weeks, both Fitch Ratings and Moody's have downgraded West Penn Allegheny's bonds, while Standard & Poor's kept its rating at B+ after a downgrade in May.
In an accompanying release, West Penn Allegheny Interim President and CEO Keith T. Ghezzi said the system will delay opening the West Penn-affiliated Pittsburgh campus of Temple University's School of Medicine until the Highmark-WPAHS agreement is approved.
The planned medical school was announced amid much fanfare June 9 by WPAHS President and CEO Christopher Olivia, who stepped down later that month after Highmark and WPAHS board members approved a "capital partnership" in which Highmark agreed to invest up to $475 million in West Penn Allegheny.
Without that agreement, WPAHS board members later said, West Penn Hospital in Bloomfield would have closed this past fall. Instead, Highmark President and CEO Kenneth Melani said last month that West Penn's emergency department would reopen in early 2012.
Dr. Ghezzi said that Highmark's financial support "is enabling immediate improvements in our facilities," adding that "early efforts to streamline operations and to increase accountability are beginning to yield measurable improvements."
On Friday, Highmark and West Penn Allegheny officials jointly announced they will be revealing their plans for enhancements at Forbes Regional Hospital in Monroeville at a press briefing Wednesday. The Pittsburgh suburb has become a focal point of the ongoing disagreement with UPMC since UPMC said it will open its own hospital, UPMC East, about 1 mile from Forbes. The UPMC hospital is scheduled to open in July.
The WPAHS health system includes Allegheny General Hospital on North Side, West Penn Hospital in Bloomfield, West Penn Hospital's Forbes Regional Hospital in Monroeville, Alle-Kiski Medical Center in Natrona Heights and Canonsburg General Hospital in Canonsburg.
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