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Over 5 years, Highmark's $1.3 billion support has fueled growth at Allegheny Health Network

Post-Gazette

Over 5 years, Highmark's $1.3 billion support has fueled growth at Allegheny Health Network

Allegheny Health Network has received $1.3 billion since 2018 from Highmark Inc. to build five hospitals, cancer treatment centers and improve existing medical facilities, according to a new report.

The 160-bed AHN Wexford Hospital in Pine and four mini-hospitals in the Pittsburgh area — Brentwood, Harmar, Hempfield and McCandless — were built with Highmark funding, along with new cancer treatment centers in Butler, Beaver and elsewhere. Hospital emergency department renovations, expansion of women’s health services and medical imaging equipment were other expenditures Highmark helped underwrite for AHN, a 14-hospital health system.

Highmark Inc. does business as Highmark Blue Cross Blue Shield in Western Pennsylvania and it has operations in Delaware and West Virginia. Proceeds from the operations are segregated to each state and not commingled, Highmark Health CFO Saurabh Tripathi said.

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The report was part of a Highmark presentation to bondholders, which detailed financial operations of the health system.

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Highmark acquired then-ailing West Penn Allegheny Health System in 2013 for $1 billion, which included $475 million in an initial payment and $528 million in outstanding bonds. In fiscal 2012, the health system lost $114.9 million on operations with revenue of $1.6 billion amid questions whether the system could ever compete with its much larger crosstown rival, UPMC.

The insurance company continues to give financial support to its health system, the report shows.

As of the end of August, Highmark Inc., a subsidiary of corporate parent Highmark Health, transferred $124 million to AHN for capital expenditures, with plans to spend $250 million on facilities, information technology and other items by the end of the year. That is down from $281 million that was spent in 2021.

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“AHN success is essential to Highmark Health’s overall strategy,” the report noted.

Highmark’s health insurance plans generated an operating gain of $600 million for the first nine months of 2022, mostly driven by strong performance in the commercial and government business and fewer medical claims.

Total operating revenue at AHN rose 9% for the nine months ending Sept. 30 to $3.3 billion, while operating losses more than doubled to $116.2 million from $42 million a year ago, according to financials released Wednesday. Expenditures for the period exceeded revenue by $198 million, which compared to losses of $14 million a year ago, driving down its operating loss to negative 3.6% from a loss of negative 1.4% in 2021.

The health system is facing the same financial headwinds that have been dogging health systems nationwide. This year is on pace to be the worst financially of the COVID-19 pandemic for hospitals and health systems, according to Kaufman Hall, a Chicago-based consultant.

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Labor shortages, particularly in nursing, continue to pressure the industry with higher costs. Inflation and labor costs at AHN drove up expenditures by 9.6% through the end of August.

“Hospitals are nearing the end of the year with negative margins, with expenses, staff shortages, and fewer patient discharges driving poor performance,” Kaufman Hall wrote in a survey of 900 hospitals that was released Wednesday.

While total patient admissions at AHN were essentially flat through Sept. 30, emergency department admissions rose 10% to 248,290 while the total number of surgical cases slipped 4% to 79,351.

At the same time, services at some of the new AHN facilities started to get traction.

AHN Wexford Hospital, for example, which opened late last year, had an operating loss of $5.4 million in May, followed by three consecutive months of operating gains of $3.5 million as the number of patient admissions and births rose. By Sept. 30, AHN Wexford generated $104.5 million in patient revenue.

The financial support for the health network was part of a five-year clinical affiliation agreement between Highmark and AHN that is expected to be renewed for another five years before the end of the year. For accounting purposes, the Highmark funding for AHN is treated as net asset transfers because the parties are related, according to the report.

Kris B. Mamula: kmamula@post-gazette.com or 412-263-1699

First Published: November 30, 2022, 1:20 p.m.
Updated: November 30, 2022, 2:54 p.m.

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