West Penn Allegheny Health System Makes Substantial Restructuring Progress, Posts Financial Results

West Penn Allegheny Health System (WPAHS) today reported its financial results for the second quarter and first six months of the fiscal year 2011, both of which ended December 31, 2010. WPAHS continued to aggressively restructure its operations during this time period, taking meaningful steps toward redesigning the region's only physician-led health system.

WPAHS recorded a net profit of $2.1 million in the first half of the fiscal year, despite an operating loss of $26.8 million. Charges related to restructuring the System's city hospitals - such as severance packages, consulting fees and other integration expenses - contributed $12 million to the operating loss. In addition to restructuring expenses, the System's financial results were impacted by lower inpatient volumes versus the year-ago period, which were anticipated due to the declining inpatient market and the WPAHS urban consolidation.

"We are in a transitional period where we are seeing lower inpatient-associated revenues, yet the higher expenses of running a bricks-and-mortar-based system structured around a greater number of inpatient beds," said Christopher T. Olivia, M.D., president and CEO, West Penn Allegheny Health System. "We are continuing to execute a restructuring plan to address this. We expect our results to improve when we have fully implemented our new, more efficient model of health care delivery."

According to Dr. Olivia, WPAHS built its cash reserves in the prior two fiscal years in order to complete this restructuring and meet its other financial obligations during the current fiscal year. As a result, WPAHS days cash on hand declined as anticipated while the System undertook many important initiatives to restructure its healthcare delivery model in the first half of its current fiscal year:

  • Allegheny General Hospital (AGH) made improvements as the System's only advanced quaternary care facility. The hospital constructed two new units during the first half of the fiscal year, which opened in January. First, 24 private patient rooms opened as a step-down unit, to help ease bottlenecks in the hospital by freeing up beds in AGH's Intensive Care Units. In addition, a new surgical intensive care unit for cardiovascular, cardiothoracic and transplantation opened with 24 private rooms. AGH has seen a substantial increase in its number of transplant cases, with heart transplants up 267 percent in the first half of the fiscal year versus the year-ago period.
  • WPAHS also opened two new outpatient care centers in Vandergrift and Peters Township. The System continues to experience growth in outpatient visits, and understands that its patients expect high quality services closer to their homes. WPAHS is making the necessary investments in its community hospitals and the suburban markets in order to meet these needs. This should enable the System to treat a growing number of patients more effectively and efficiently.
  • WPAHS also renovated and expanded the emergency departments at Forbes Regional Hospital in Monroeville and the Alle-Kiski Medical Center in Natrona Heights. Both completed construction during the second quarter of the System's current fiscal year.
  • The System closed emergency services at The Western Pennsylvania Hospital, and announced a plan to transition many inpatient services to AGH to eliminate redundancy in the city. Despite initially high job loss estimates, only 131 employees lost jobs as result of this urban consolidation.

WPAHS made $46.8 million of capital expenditures in the six month period ended December 31, 2010, to further move toward a new delivery model. WPAHS also contributed $58.9 million to its cash balance retirement plans during this same time period, fulfilling its obligations.

"There are many great things happening within West Penn Allegheny," said Dr. Olivia. "It is a challenging time, but we are making the necessary changes to secure our future."