Highmark and the West Penn Allegheny Health System have reached a provisional agreement that would see the health plan acquire the struggling hospital operator for $475 million.
Under terms of the initial agreement, Highmark will provide an immediate infusion of $50 million in the form of a grant to WPAHS, which will used to shore up the finances at its West Penn and Forbes Regional hospitals.
In all, Highmark has agreed to commit $475 million over the next four years to the hospital system, including $75 million earmarked to fund scholarships for students attending medical schools affiliated with WPAHS, as well as additional professional education programs.
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"West Penn Allegheny has been recognized nationally for its leading doctors and nurses who provide high-quality, personalized care; however, there is no doubt that we have lacked the capital necessary to deliver on our full potential," said David L. McClenahan, West Penn Allegheny's chairman of the board, in a press release. "We share a common goal with Highmark to focus on the patient experience, improve healthcare and ensure choice for both those seeking care and those seeking employment in the healthcare sector in our region."
The move toward owning the hospital network is likely a response to failed attempts earlier this year by Highmark to reach a provider agreement with WPAHS rival University of Pittsburgh Medical Center (UPMC). Highmark, which has more than 3.1 million members in western Pennsylvania, has a vested interest in keeping WPAHS strong, since UPMC will become an out-of-network provider for Highmark members once the contract between the insurer and the hospital group expires.
If the purchase of WPAHS is completed, the merged Highmark-WPAHS company would be in a battle for insured lives in the region. UPMC, which consists of 19 hospitals and also runs its own health plan, told the Wall Street Journal that it would not renew its contract with Highmark if the deal with WPAHS is completed.
"Today is an important first step to ensuring the continued viability of the West Penn Allegheny Health System and a choice of healthcare services in our region," said Kenneth R. Melani, MD, Highmark's president and CEO, in a statement. "For generations, the residents of our community and physicians have had broad choices in the healthcare marketplace. For consumers, we want to preserve their choices. For physicians and other healthcare providers, we want to ensure multiple patient referral options. This affiliation will help preserve those very options."
Highmark officials said the proposed purchase of the hospital system is a step toward creating new models of care that many health systems and insurers are already pursuing, aimed at improving the quality of care while also reducing costs.
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In April, the insurer launched a two-year patient-centered medical home pilot project with 13 physician practices, encompassing 29 locations that serve more than 45,000 of its health plan members.
Many of the new models of care being proposed to hold healthcare costs in check are dependent on sharing data between payer and providers to improve care delivery and as a means of creating new models of care that saves money and improves outcomes. If Highmark were to acquire WPAHS, the company would have immediate access to both claims data and outcomes data, which could help speed the adoption of new care models.
Related to the talks for the acquisition, McClenahan announced that current president and CEO Christopher Olivia, MD, has stepped down, but will stay on to work with the Highmark team through the conclusion of the transaction.
Dianne Dismukes was named the hospital operator's new president and CEO, just one month after joining the company as executive vice president of hospital operations. Prior to joining WPAHS, she was with PricewaterhouseCoopers and was consulting with WPAHS on the consolidation of Allegheny General Hospital and West Penn Hospital.