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Allegheny Health Network posts 5th straight quarter of positive earnings

August 4, 2018
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Allegheny Health Network opened of a new full-service outpatient care center at The Waterworks, near Fox Chapel, Wednesday, July 18, 2018.

Allegheny Health Network reported a net income of $17.1 million in the second quarter of 2018, signaling the fifth straight quarter of positive operating earnings as the health care provider continues to expand its footprint across Western Pennsylvania.

The figure reported Tuesday to state regulators is $19 million more than the network planned for the three months ending June 30 and about $11.2 million less than what it generated this time last year, documents filed with the Pennsylvania Insurance Department show.

Chief Financial Officer Jeff Crudele lauded the second-quarter results as a strong indicator of the system’s sustained growth and profitability following years of net operating losses.

The eight-hospital system’s net assets now top $1 billion, up from $279.5 million at this time last year.

Since July 2017, AHN has grown by the equivalent of more than 1,600 full-time employees -- up to nearly 19,000.

“We are very pleased with not only how (2017) ended up, but the continued strong results from the first six months in 2018,” Crudele said.

“We continue to be very successful at attracting additional business and patient volume to our ambulatory surgery centers and expanding access, itself.”

The system’s total operating revenue from Jan. 1 through June 30 was $1.61 billion, up from $1.52 billion from the same time last year.

Crudele said he expects a consolidation and refinancing of existing bond debts underway to further strengthen the system’s financial position.

Last week, credit rating agency Standard & Poor’s gave AHN a “stable” outlook and an “A” long-term rating.

In its assessment, S&P cited AHN’s integration with Highmark insurance company through parent company Highmark Health -- which the rating agency credited with having a “leading competitive position” in regional insurance markets as well as “good product diversification.”

“We consider AHN core to the Highmark Health group credit profile because it is an essential component, along with Highmark, of an integrated delivery and financing system located in Western Pennsylvania,” S&P said Friday in a statement.

“That’s the beauty of being part of a value-based, integrated delivery and financing system: About half our revenues come from Highmark and, obviously, that’s an important factor of support for AHN,” Crudele said. “We have this opportunity to work together and to synchronize our activities and to be very well coordinated in how we collectively approach all of the changes that are going on.”

AHN made it into the black through a combination of increased revenue and cost-cutting moves, including improving collection success rates, increasing the efficiency of financial processes and reducing unnecessary hospital readmissions, Crudele said.

“We also did some of the more mundane things, like negotiated a lock on better prices on some of our utility costs, and we negotiated certain supply chain contracts,” Crudele said.

AHN will continue to work on reaching more patients in more neighborhoods, Crudele said.

Patient volumes in some areas have fallen below 2017 levels. The number of emergency room visits for the quarter was 6,400 fewer than anticipated and the number of doctor visits were about 4,400 fewer than planned, AHN’s self-reported figures show.

Like its largest Western Pennsylvania rival, UPMC, Highmark Health is confronting additional challenges such as a 30 percent cut in federal reimbursements for prescription drugs, a congressional move that cost AHN about $9 million in revenue this year, Crudele said.

Despite laying off 75 employees at its Downtown Pittsburgh corporate office in the spring, AHN still plans to hire 800 to 1,000 people over the next three years as several new facilities and expansions advance.

“At the end of the day, we continue to grow,” Crudele said.

Among new facilities and renovations in the works: four new neighborhood hospitals, five community cancer centers, an Academic Cancer Center at Allegheny General Hospital in Pittsburgh’s North Side and an emergency department expansion at Jefferson Hospital in Jefferson Hills.

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