Pittsburgh's Highmark Health and West Penn Allegheny Health System affiliated in 2013 to create the integrated delivery and financing system now known as Allegheny Health Network. Through the affiliation, Highmark aimed to put AHN on a solid financial path and help it become competitive with Pittsburgh-based UPMC. Overall, AHN reports Highmark has invested more than $1 billion toward that effort.
"Healthcare systems are evolving all across the country to meet the needs of their respective markets and western Pennsylvania is a particularly competitive environment with UPMC having a very large market share position. I think Highmark, in looking at its long-term strategic plan, realized it had to transition to a value-based model and this was an opportunity to accelerate that transition with a partner that was a good fit in this market," says AHN CFO Jeff Crudele.
AHN spokesperson Dan Laurent says Highmark, the state's largest insurer, saw a clear need to preserve choice in western Pennsylvania for high-quality healthcare by aligning itself with WPAHS. He added WPAHS "was providing great clinical care but was really starved from a capital resource perspective."
AHN has seen substantial progress since the affiliation. Some of this progress includes reopening the West Penn Hospital emergency department, which had previously closed due to declining volumes; establishing a new cancer institute, women's center and other services at Jefferson Hospital; opening a trauma center at Forbes Hospital; breaking ground on a new ED and operating room suite at Saint Vincent Hospital in Erie, Pa.; adding more than 500 employed physicians systemwide; and opening four health and wellness pavilions with ambulatory surgery center sites. As a result, AHN went from virtually no ASC volumes to tracking toward 18,000 outpatient surgical procedures in those settings this year. Additionally, West Penn Hospital has recaptured a large portion of the market share, including in the ED.
"So it's been a combination of building out the geographic footprint to be more comprehensive, to provide the services that are most desired in the market from a consumer and patient experience perspective and also do those things which help manage the cost of care in a way that really creates value for our customers," says Mr. Crudele.
AHN has also made substantial progress financially. The system posted an operating loss of $36.5 million in fiscal year 2015, down from the $78.7 million operating loss posted the prior fiscal year. AHN recorded a net loss of $39 million both fiscal years. In fiscal year 2016, AHN recorded a net loss of $40 million and an operating loss of $39 million. But AHN recorded operating income of $16.45 million in the second quarter of fiscal year 2017, an improvement of $22.45 million over what the seven-hospital nonprofit system anticipated.
In its recently released unaudited financial statements, AHN attributed its strong second-quarter financial performance to various factors, such as "stable patient volumes; greater operational efficiencies and more effective business and clinical processes, such as our revenue cycle operations and care coordination through our integrated electronic health record (EPIC); improvement in the quality of our clinical programs, which has allowed us to reduce costly readmissions and hospital LOS [length of stay] and benefit from quality-related payer incentives; and more favorable contracting with payers overall."
Year-to-date, the system expected an operating loss of $20 million. However, AHN ultimately posted an operating gain of $12.61 million for the six months that ended June 30.
Mr. Crudele calls it "steady progress."
"We have had steady growth in both volume and revenue and we've used much of that revenue to reinvest in the system's operational infrastructure, people and overall capabilities in the market. Highmark has continued to help recapitalize the business," he says.
Still, the success has not come without challenges. For instance, Mr. Crudele noted that Highmark needed to navigate some uncharted waters to achieve its substantial goals for AHN.
"I think when Highmark embarked on this initially with AHN, it was clear the strategy being deployed was going to be, if reasonably executed, a long-term positive for the community. But even with a high degree of probability that it could succeed, there clearly was a lot of hard work to do and significant time and resources needed to go from where it was to where it is today," he says. "But I think it's created a tremendous value for the community in preserving healthcare competition and providing an outstanding, alternative choice for care not only on a local and regional level, but nationally as well."
Another challenge, he says, involved perception. He noted that the $1.3 billion bankruptcy of the Allegheny Health, Education, and Research Foundation nearly 20 years ago included the core West Penn Allegheny hospitals. Therefore, he says changing long-held perceptions about those hospitals was an obstacle. However, "over the past two years the network has made good progress in enhancing the public's awareness and understanding of the organization and the quality and value it brings to the community," he adds.
Moving forward, AHN's goal is "further synchronization" as an integrated delivery and financing system, according to Mr. Crudele. In June, for example, AHN and Highmark announced they will invest $200 million in cancer care initiatives, and further enhance a cancer collaboration with Baltimore-based Johns Hopkins Medicine. As a result of AHN's success, the Pennsylvania Insurance Department announced in July it will ease guidelines for the monitoring and approval Highmark's investments in AHN.
"We continue to focus on improving the quality of care and better managing the cost of care for our patients, customers and businesses in the local market," Mr. Crudele says. "And we're doing just that. Every day we are working more collaboratively with Highmark to further evolve and enhance our care management strategy to deliver a high-quality high-value product that that is transforming healthcare in the market."