The Definitive Blog

2013-04-30 – West Penn Allegheny Health Names John Paul CEO

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John Paul, the man who helped build UPMC into the titan that is today, is now the man charged with rebuilding West Penn Allegheny Health System as its new CEO and president.

Mr. Paul, a longtime UPMC executive, has been heading Highmark Inc.’s upstart hospital and provider wing for the past two years, and will replace interim chief executive Keith Ghezzi as the top man at WPAHS,

Mr. Paul will remain in charge of Highmark’s billion-dollar hospital and health provider venture, as of Monday known as the Allegheny Health Network.

The WPAHS leadership swap is set into motion now that the state Department of Insurance has approved Highmark’s takeover of the financially ailing West Penn Allegheny Health System. Dr. Ghezzi has been in place since autumn of 2011, and came to WPAHS by way of the New York-based Alvarez & Marsal consulting group.

On Monday, speaking to media and an audience of 400 or so Highmark and WPAHS employees regarding the consummation of the WPAHS deal, Mr. Paul said that he marveled at the courage of his bosses, colleagues and the employees at both organizations, especially as the marriage between the two hit several rough patches.

“It took courage for the West Penn Allegheny board to choose Highmark as a partner,” he said. “It took courage for Highmark’s board and management to make the type of investment” to keep WPAHS alive and out of bankruptcy while the state was vetting the acquisition.

WPAHS’s and Highmark’s contractual relationship with Alvarez & Marsal may remain in place for several months following Monday’s closing of the deal. But the new WPAHS leadership appointments will happen in short order, Highmark Inc. CEO William Winkenwerder Jr. said Monday.

The other hospitals in Highmark’s Allegheny Health Network — Jefferson Regional Medical Center in the South Hills and Saint Vincent Health System in Erie — will not see CEO or executive-level changes as a result of Monday’s approval, said Highmark spokesman Aaron Billger.

Mr. Paul will be WPAHS’s sixth CEO in the 14 years since the merger of West Penn and AGH. Charles M. O’Brien Jr. served as CEO from 1999 to 2003; Jerry Fedele followed him, leaving in 2007; interim CEO Keith Smith came next; and Christopher Olivia was hired in 2008. Mr. Olivia’s tenure came to an end in 2011, when he was replaced by Dr. Ghezzi, after Highmark struck its deal to buy WPAHS.

Has WPAHS finally found the right man? And can he run a fledgling health confederation, as well as a flagging hospital system that recorded a $61.4 million operating loss in the first six months of its current fiscal year?

“That sounds like a lot,” said Jim McTiernan, benefits analyst with Pittsburgh-based Triad USA, a division of Arthur J. Gallagher & Co., speaking of Mr. Paul’s double duty. “But I know him to be a really capable guy. And he was obviously highly placed in the UPMC health system. From a resume standpoint, he would certainly have the professional experience.”

This is, in some ways, a self-appointment. In documents filed with the Insurance Department last year, Highmark said that Mr. Paul was in charge of the recruiting and executive search for WPAHS.

Dr. Ghezzi’s tenure at the top of WPAHS was a somewhat rocky one, although the same could be said every CEO since West Penn Allegheny’s formation in 1999 following the spectacular collapse and bankruptcy of the Allegheny Health, Education and Research Foundation, or AHERF.

In court testimony last autumn, Dr. Ghezzi said his relationships with health insurer Highmark Inc. and Mr. Paul were “fractured,” and acknowledged that physicians within the health system were, at times, frustrated with his leadership.

That frustration came to a head when WPAHS announced, on Sept. 28, that it was pulling out of the Highmark merger. The divorce was aborted, however, in November, when a judge granted Highmark’s request for a preliminary injunction that prevented West Penn Allegheny Health System from talking to other possible investment partners.

The rest of the new WPAHS executive team is going to have a familiar look to it, populated by current Highmark and former UPMC executives:

• Patricia Liebman, an executive vice president with Highmark’s Allegheny Health Network and onetime CEO of UPMC Health Plan, will be the delivery system’s new chief operating officer and is expected to have the same role at WPAHS.

• Daniel Lebish, also an executive vice president within the Highmark delivery system, will be the chief financial officer. He replaces interim CFO Douglas Womer.

• Jacqueline Dailey, chief information officer of Highmark’s provider division and formerly the vice president for IT solutions at UPMC, will be WPAHS’s new CIO.

WPAHS chief medical officer Tony Farah and chief human resources officer Bart Metzger will remain in their positions.

Highmark had no comment on Mr. Paul’s new role, but one local health expert said he was concerned that the “firewall” between Highmark’s insurance arm and its provider wing wouldn’t be strong enough.

“My worry is that they’re going to emphasize one over the other,” said Steve Foreman, associate professor of health administration and economics at Robert Morris University. “It’s this conflict of interest that’s been out there from the beginning.”

Mr. Paul came to Highmark in 2011, brought on board by friend and former Highmark CEO Ken Melani. He has been mentioned as a potential WPAHS CEO since 2007, the year that his non-compete clause with UPMC expired and the same year that Mr. Fedele left the hospital network abruptly.

Mr. Paul left UPMC in 2003, after spending years as that health system’s No. 2 man, building what was then called the University of Pittsburgh Medical Center into the region’s top health network.

He joined the Pitt health network in the 1970s, first as a financial executive at Western Psychiatric Institute and Clinic, and soon developed a reputation as a “fixer” who could negotiate a contract with an insurer or a buyout of another hospital with a soft touch. His friendly relationship with Dr. Melani was often cited as one of the reasons Highmark and UPMC were able to broker a landmark 10-year reimbursement contract in 2002.

In July 2003, Mr. Paul began what was to be a six-month “sabbatical” from UPMC, but by September, UPMC announced that he would not be returning.

UPMC CEO Jeffrey Romoff said in a letter that after discussing the matter with Mr. Paul and UPMC’s governing board, “We have arrived at the conclusion that John’s return from his leave of absence would not serve his best interests or those of the UPMC.”

Mr. Romoff told the Post-Gazette, “Clearly, the concentration of duties in a single individual could potentially be detrimental to both the UPMC and the individual.”

West Penn Allegheny Health System has 11,000 employees and five hospitals — West Penn in Bloomfield, Allegheny General on the North Side and community hospitals in Natrona Heights, Canonsburg and Monroeville, as well as a hospice center.

The Highmark provider network, meanwhile, includes the entire WPAHS network, controlling interests in Jefferson and Saint Vincent, a physicians organization and new standalone health centers.

The job of running both, Mr. Foreman said, may be too big for any man.

“Turning around that health system is a herculean job for anybody. Pulling off the new delivery system [concept] is also a herculean task,” he said. “There’s a difference between buying them and running them.”

May 7, 2013