Amid mounting losses, West Penn wrangles with Highmark in court

Just days after West Penn Allegheny Health System released its fiscal year 2012 annual report that showed operating losses of more than $112 million, interim CEO Keith Ghezzi, MD, took to the witness stand yesterday to defend the health system’s decision to declare a breach in its $475 million affiliation agreement with insurer Highmark Inc.

When it announced it would terminate the affiliation with Highmark in late September, the health system maintained the insurer had breached the agreement by demanding that WPAHS enter bankruptcy proceedings in order to close the deal.

According to published reports, Ghezzi testified yesterday in the Allegheny County Court of Common Pleas that his relationship with Highmark management had deteriorated since the April departure of former Highmark CEO Kenneth Melani, who was the architect of the original deal.

“Dr. Melani was the spirit and the energy behind this transaction. He had a devotion for the West Penn Allegheny Health System, and particularly West Penn Hospital,” Ghezzi said in testimony yesterday during a third day of hearings on a request by Highmark to gain a preliminary injunction against WPAHS’ breach declaration.

According to Ghezzi, who was named interim CEO of WPAHS last year under a contract with New York consulting firm Alvarez & Marsal, just days after the Highmark affiliation deal was inked, tension with Highmark were the result of the insurer trying to dictate how he should run the health system.

Specifically, Ghezzi noted in questioning by the WPAHS attorney that Highmark’s Tim Paul, who is charged with building the insurer's delivery network, said Ghezzi should be answerable to him and not the WPAHS Board of Directors.

The picture Highmark’s lawyers wanted to present to the court was one of a deteriorating financial situation at West Penn under Ghezzi’s leadership and that it was the health system that had actively sought to terminate the agreement.

But in a late September interview with Healthcare Finance News, Ghezzi maintained that the health system’s financial performance over the past year was in line with financial targets outlined in the deal.

“They knew of the health system’s debt burden, they knew of the health system’s operating challenges and they knew of the health system’s pension liability,” Ghezzi said at the time. “None of this is new information.”

Despite Ghezzi’s contention WPAHS’ performance was well within the targets set forth by Highmark, it is hard to ignore that its performance over the past year has put the ailing system even further in the hole. Its operating losses of $112 million for FY 2012 more than doubled the previous year’s losses of $51 million. In addition, West Penn has seen patient admissions decrease in the last year as well.