CBIZ: UPMC faced no damages

A financial services company accused in the U.S. District Court in Johnstown by UPMC of malpractice stated in a pretrial document that the hospital suffered no financial damages despite a company report that allegedly understated UPMC’s pension liability.

The focus of the civil dispute between CBIZ Benefits & Insurance Services Inc. of Cumberland, Md., and UPMC, the Pittsburgh-based medical services corporation, is a period of time between 2008 and 2013 when the owner of the Altoona Hospital, Altoona Regional Health System, was experiencing financial difficulties and began seeking an affiliation with other hospitals.

The hospital, according to court documents, considered affiliation with smaller area hospitals but eventually agreed to a merger with the University of Pittsburgh Medical Center, creating a new local health services entity, UPMC Altoona.

Once UPMC acquired Altoona — the deal closed July 1, 2013 — it was discovered that CBIZ and one of its actuaries, Jon S. Ketzner of Cumberland, had substantially understated the amount of pension liability UPMC had acquired when it agreed to take over the Altoona hospital and its health services.

Since the mid-1990s, Ketzner prepared the local hospital’s pension reports required by the federal Employment Retirement Income Security Act of 1974 to assure workers their pension programs remain viable.

The alleged miscalculation by Ketzner, who retired in early 2015, was discovered by another CBIZ actuary, Al Winters, who was reviewing the pension funds for union and non-union Altoona hospital employees to determine UPMC’s

pension funding obligations from July 1, 2013, to June 30, 2014.

According to the CBIZ pretrial document filed Friday with the federal court, Winters’ calculations showed from 2008 through 2013, the contributions to the pension funds had been underestimated and indicated there would need to be increased funding required under federal rules

UPMC and UPMC Altoona initially contended that the mistake in calculations exposed them to fines, penalties and interest through the ERISA, the IRS and the Pension Benefit Guaranty Corp., a government-owned pension insurance agency, in excess of $100 million.

CBIZ contends such a large penalty “was never likely to be the case,” and it pointed out that the IRS in 2017 sent UPMC a letter stating no penalties would be levied against the new owner of the Altoona-based hospital.

Despite that letter, CBIZ states that UPMC continues to pursue its lawsuit for more than $100 million in damages, and it states in its pretrial summary, “(UPMC and UPMC Altoona) persist with this lawsuit in an opportunistic attempt to recover a windfall.”

The CBIZ document was filed by its attorneys Ernest E. Vargo of Cleveland and Vincent J. Barbera of Somerset.

UPMC, in its pretrial document filed by Cyril V. Smith of Baltimore and John A. Schwab of Pittsburgh, disagreed, stating the report by Ketzner and CBIZ was “riddled with errors,” and noted, “This work materially understated the true pension liabilities for the Altoona plans because it was based on inappropriate, undisclosed assumptions and methods.”

UPMC attorneys contend Ketzner’s miscalculations failed to alert Altoona that its pension obligations had increased by $85 million to $135 million more than Ketzner estimated.

This meant the Altoona hospital’s pre-UPMC board and financial committee missed a chance to address the problem by seeking help from the PBGC that could have assumed sponsorship of the pension funds, thereby alleviating the pension burden assumed by UPMC.

Earlier this month, U.S. District Judge Kim R. Gibson refused to dismiss the UPMC lawsuit and said the many questions of dispute between the two parties will be resolved by a jury.

The jury trial is set to begin May 4.

CBIZ in presenting its side of the story remained adamant that UPMC and UPMC Altoona, two separate corporations, have not suffered financially.

It pointed out Altoona before the merger did not take steps to implement a salary freeze or eliminate multiple personnel positions.

The hospital continued to acquire new businesses.

When Altoona sought an affiliation, UPMC, Highmark and Geisinger pursued the city’s health care network.

“Any one of these three entities would have purchased Altoona regardless of the increased pension obligation,” CBIZ stated.

The Altoona hospital’s “value to an integrated health insurer and provider is evident from the serious interest shown by the three sophisticated, integrated entities,” it maintained.

And it concluded, “UPMC Altoona has exceeded UPMC’s projections and expectations both from revenue from patient services as well as the accretive revenue from UPMC’s health plan.”

In fiscal year 2017, UPMC Altoona’s operating revenue was $36 million more than UPMC projections (total $586 million), with admissions and patient days increasing since the acquisition, CBIZ stated.

“The Altoona acquisition has been extraordinarily successful and UPMC knew of this value at the time of the deal,” it continued.

CBIZ pointed out that when UPMC took control of Altoona, it immediately transferred $96 million cash from the hospital.

The CBIZ pretrial statement also noted that while Ketzner stands by his assessment of pension liability, it also said that Ketzner was not aware that Altoona was seeking an affiliation with another hospital when preparing his reports.

It also stated that Ketzner did not know UPMC would rely on his pension calculations in its decision to purchase Altoona.

“Ketzner believed that UPMC would have its own actuaries determine Altoona’s pension liability,” CBIZ stated.

“UPMC argues that Ketzner should have disclosed his assumptions or explained his methods to UPMC … but Ketzner did not believe his calculations were incorrect and believed his numbers accurately stated Altoona’s future pension obligations. He could not have disclosed what he did not know,” CBIZ concluded.