Tuesday, June 28, 2011

Highmark to Acquire West Penn Allegheny

The governing bodies of Pittsburgh-based health insurance provider Highmark and West Penn Allegheny Health System (WPAHS) have both given unanimous approval to a plan to allow the insurance provider to acquire the hospital system. The still unfinished deal calls for Highmark to pump as much as $475 million into the faltering health system.

The first infusion of cash will come in the form of a $50 million grant from Highmark to WPAHS. The WPAHS board approved an operating budget at the same meeting it approved the deal. “We had a backup budget that we would have passed had the Highmark transaction not gone forward and that budget would have included shutting down West Penn Hospital,” said WPAHS Board Chair David McClenahan. A portion of the grant will be used to shore up other aspects of the system in the short term.

WPAHS executives hoped to find a way to retain the independence of the system and ensure its financial viability but it became clear that was no longer possible. “Highmark was our only option,” said WPAHS CEO Christopher Olivia. Olivia will move over to Highmark as a consultant in the coming weeks. Highmark CEO Kenneth Melani said the viability of each hospital will be evaluated as the new organization moves forward.

West Penn Allegheny Health system has been struggling financially since it was formed out of the ashes of the failed Allegheny Health, Education and Research Foundation (AHERF) in 1999 and both the health system and Highmark have been in a feud with the University of Pittsburgh Medical Center and its insurance company in recent years. The Announcement of the Acquisition is just the latest step in that process.

“UPMC has attempted, for a little better than ten years, to put our health system out of business,” said McClenahan.

Melani said WPAHS will continue to offer to reach a deal with the UPMC Health Plan for its members to use its hospitals and doctors. UPMC Health Plan has not accepted that offer in the past.

Many Highmark customers have been worried about not having access to UPMC doctors and hospitals in the future and the deal has done nothing to quiet those fears. “As an insurer Highmark seeks to have contracts with all healthcare systems,” said Melani, “If for some reason UPMC continues to say they will not contract with Highmark… then we will have to deal with that through our products and services.”

The deal is pending regulatory approval at the state and federal levels.