Last updated: April 30. 2013 12:28AM - 866 Views

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Highmark can move forward with its $1.1 billion purchase of West Penn Allegheny Health System, the linchpin in the health insurer’s plan to convert itself into a competitor to UPMC, the largest hospital network in Western Pennsylvania.

The state Insurance Department, which has been reviewing Highmark’s plans since November 2011, on Monday announced approval of the deal, with conditions.

“Our safeguards, and the department’s continuing oversight, will continue to protect insurance consumers as this affiliation begins to reshape the healthcare marketplace in Western Pennsylvania,” Insurance Commissioner Michael Consedine said in a written statement.

Highmark officials said the new integrated delivered system will be called Allegheny Health Network. The hospital network will be led by John Paul, a former UPMC executive who for the past two years has been working for Highmark.

Some of the conditions on the deal are that West Penn Allegheny not share confidential information of competing insurers with Highmark; that Highmark not influence West Penn Allegheny’s negotiations with other health insurers, or limit its contracts with other insurers; that West Penn Allegheny executives have their compensation tied to the performance of the health system; and that Highmark create a transition plan if it cannot secure a new reimbursement contract with UPMC beyond 2014.

Consedine said his department had imposed conditions on the deal to protect “consumers, the public and community hospitals, as well as preserve fair competition and protect the financial stability of Highmark.”

Highmark CEO Dr. William Winkenwerder said at a press briefing the insurer is prepared to meet all the conditions.

“We’d like to have a relationship with UPMC,” Winkenwerder said.

The approval takes effect immediately. Highmark had asked for a decision by April 30, when agreements it has with West Penn Allegheny and the struggling health system’s bondholders expire.

To avoid a West Penn Allegheny bankruptcy, Highmark struck a deal to buy about $710 million in bonds from investors at a discounted price. The insurer announced Monday that it finalized agreements to purchase $604.2 million of the bonds, or about 85 percent of the outstanding principal amount.

Highmark also is giving West Penn Allegheny $475 million in grants and loans to help boost the system’s finances and operations.

Highmark is the state’s largest health insurance company, with about 5 million members, $15.2 billion in annual revenue and $4.1 billion in reserves.

West Penn Allegheny owns five hospitals in the Pittsburgh area and employs about 12,000 people. John Paul, a former UPMC executive who’s been in charge of Highmark’s integrated health care system since 2011, is expected to be named CEO of West Penn Allegheny.

Gov. Tom Corbett said Highmark’s acquisition of West Penn Allegheny “is an important step toward” improving health care access, quality and affordability in Western Pennsylvania.

“This affiliation also protects thousands of jobs of hardworking people who provide critical care in our local communities,” Corbett said.

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