Dominant regional insurer Highmark last week asked a judge to stop West Penn Allegheny Health System from "starting affiliation/acquisition discussions with other organizations," as it looks to preserve its crumbling $475 million deal to acquire the struggling health system.
Pittsburgh-based Highmark filed a lawsuit in Allegheny County's Court of Common Pleas last Monday – one business day after West Penn said it was walking away from the pending $475 million affiliation deal. West Penn officials contend that Highmark was demanding increasingly harsher financial conditions and was pushing for a structured bankruptcy as condition of the deal, to address the health system's estimated $1 billion debt.
[See also: West Penn Allegheny walks away from Highmark affiliation]
Highmark said in a media statement that it has sought "a mutually agreed upon restructuring of WPAHS' obligations that significantly improves the health system's financial condition." While bankruptcy is one option, the statement read, it wasn't a demand. "Highmark is open to considering alternative WPAHS proposals that would sustain the system's long-term financial soundness."
Highmark said in the lawsuit that their agreements required West Penn to give the insurer 30 days notice to address alleged breaches of contract.
West Penn officials, meanwhile, told the Pittsburgh Tribune-Review they "want to continue to move as quickly as possible," whether in talks with Highmark or other companies.
Deeply in debt, the six hospital West Penn system has recorded operating losses for the last five years. Partly due to some $400 million in loans and grants from Highmark, West Penn recently reopened an ER at its main hospital and started redeveloping a medical center in the east Pittsburgh suburbs. The deal has been pending approval from the Pennsylvania Insurance Department, which regardless of the latest feud might not rule on it for a few months.
[See also: Low mark for Highmark]
Highmark, Pennsylvania's largest insurer, is trying to grow its provider portfolio in what some see as a challenge to western Pennsylvania's dominant and still-growing health system, UPMC. In tandem with its West Penn buy, Highmark has plans to build its own health centers and spent some $32 million in the last year buying property in Pittsburgh's suburbs.
West Penn, meanwhile, hired a Los Angeles-based investment bank Houlihan Lokey for advise on the Highmark deal.
As the Pittsburgh Tribune-Review reported, there is some speculation that the bank may steer West Penn towards Tennessee-based Community Health Systems, a company that bought another indebted network in Youngtown, Ohio and owns 16 hospitals in Pennsylvania
"West Penn alone has no hope of paying its debts if it continues to operate as a going concern," University of Pennsylvania management professor Mark Pauly told the Tribune-Review.
A Pittsburgh-based bankruptcy lawyer, Dave Rudov, hypothesized that West Penn wants to avoid the stigma of bankruptcy, and he doesn't quite understand it. "People are still buying GM cars. People are still buying Chryslers and Jeeps," he told the Tribune Review.
Hearings on the Highmark lawsuit are set for October 25 and 26.