UPMC can sue over pension error

Judge OKs $100M civil suit against financial services firm

A federal judge has given the green light for a civil trial in which UPMC and UPMC Altoona are seeking more than $100 million in damages from a financial services company that allegedly erred in stating the amount of pension liability that UPMC was accepting when it acquired the former Altoona Regional Health System in 2013.

U.S. District Judge Kim R. Gibson earlier this month refused to dismiss the UPMC lawsuit against CBIZ Inc., its affiliates and a retired employee, Jon S. Ketzner of Cumberland, Md.

The federal court docket reports the trial is scheduled to begin May 4.

Ketzner prepared annual financial reports for the Altoona hospital starting in the mid-1990s. He retired in 2015. According to the lawsuit, he severely underestimated the amount of pension obligation that the hospital had through its two major pension funds, one for union workers and the second for non-union employees.

In acquiring Altoona, UPMC eventually incorporated the pension funds into its overall company pension program, but UPMC is contending it suffered financial losses in doing so and is now attempting to recoup the expenses in making Altoona pension program whole.

In its pretrial statement, UPMC contended Ketzner’s failure to provide accurate pension liability numbers over the years also affected Altoona’s board and its finance committee’s ability to deal with a problem it did not know it had.

The hospital was experiencing financial challenges from 2008 through 2012 because of its merger with the former Bon Secours-Holy Family Hospital, declining inpatient numbers due to a shift in health care delivery to outpatient and ambulatory facilities and an aging population resulting in more Medicare and Medicaid patients, according to a pretrial document.

The amount of cash on hand that the hospital had was dropping, and as a result, Altoona Hospital was seeking an affiliation with another hospital (UPMC, Geisinger, Highmark or Hershey) or with multiple area hospitals, according to one proposal.

During this period, the financial reports prepared by Ketzner, who Gibson noted was an employee of CBIZ, a national company with offices in Maryland, allegedly un­derreported the hospital’s pension liability — the difference between the amount in the fund and the amount owed.

This would have meant a dramatic increase in the amount the financially struggling hospital would have had to pay annually to its pension fund.

UPMC states that it will present expert testimony contending “this business would have run out of cash.”

The opinion issued by Judge Gibson also pointed out UPMC contends Altoona “missed at least eight quarterly pension contributions from 2009 to 2012 and was in funding deficit.”

In its lawsuit, UPMC contends that the underreporting of the pension liability deprived the local hospital of the opportunity to seek help through the Pension Benefit Guaranty Corp., a government insurance agency that could have helped stabilize the pension system.

Gibson stated, “UPMC alleges that had it known of its revised pension liability, it would not have purchased Altoona or would have completed the purchase on substantially different terms.”

UPMC is suing CBIZ on charges of professional negligence, breach of contract and negligent misrepresentations and is seeking between $135 million and $263 million on the professional negligence and breach of contract charges and between $124 million and $132 million on the negligent misrepresentation charge.

It also is seeking punitive damages.

CBIZ asked the federal judge to dismiss the lawsuit because UPMC’s claims were “speculative” and contended UPMC suffered no damages as a result of Ketzner’s errant calculations. It also contended Altoona had sufficient funds on hand to meet its increased funding obligations.

Gibson, however, stated that there are many questions that must be resolved and that task will fall to a jury.

He outlined some of those key questions:

CBIZ maintains Altoona could have made additional budget cuts to fund its pensions, but UPMC contends that was not possible under the state of the hospital’s finances.

CBIZ says Altoona had unrestricted cash to fund its pensions, but UPMC states whatever cash Altoona had was already earmarked.

“The court holds these facts are disputed and material, and that summary judgment (dismissal) is therefore improper,” Gibson stated in his 38-page opinion.

Hundreds of sealed documents have been filed in the case, and the trial is expected to last four to six weeks.