A little more than four months after Highmark, western Pennsylvania's largest insurer, provided a $50 million cash infusion to help prop up struggling provider West Penn Allegheny Health System, the boards of both companies on Tuesday approved a definitive affiliation agreement.
The agreement now goes to the Pennsylvania Department of Insurance, the office of the Pennsylvania Attorney General and the Internal Revenue Service for approval.
In addition to the $50 million from earlier this year, Highmark has committed to invest a total of $475 million in the health system, which includes $75 million in funds aimed at providing scholarships for students attending medical schools affiliated with WPAHS.
"This transaction is critical to ensuring the continued vitality of the West Penn Allegheny Health System and maintaining provider choice in our community," said Kenneth R. Melani, MD, Highmark's president and CEO in announcing the boards' approval. "For the benefit of the community, we hope the review and approval process is thorough and timely."
The affiliation of the health system with the largest insurer in the region comes amid a growing feud between Highmark and the dominant provider in the region, University of Pittsburgh Medical Center (UPMC).
[See also: Highmark lawsuit against UPMC alleges false advertising; Highmark seeks to acquire cash-strapped West Penn Allegheny Health System]
Talks on a new contract between Highmark and UPMC broke down in April and many viewed the move to acquire and revitalize the West Penn Allegheny system as a means by Highmark of ensuring in-network providers to many of its more than 3.1 million subscribers.
Published reports indicated that UPMC was seeking reimbursement rate increases as high as 40 percent under a new contract – a contention UPMC officials flatly denied.
"Because of (Highmark's) announced intention to become a payer-provider, we made the decision that we would not have a contract," said Paul Wood, UPMC's vice president of public relations. The current contract between the insurer and provider expire June 20, 2012.
The result of this will cut two ways: first, UPMC will, in essence, be turning its back on the estimated 30 percent of its patients who are currently insured by Highmark; second, it will cause a broad swath of Highmark beneficiaries to either switch doctors from UPMC to WPAHS or another provider group or stay with UPMC as an out-of-network provider.
By failing to renew with Highmark, UPMC is gambling that it can keep many of these patients by enticing them to enroll in its own health plan, which counts more than 1.5 million members.
As a further hedge, UPMC has been actively signing new contracts with health insurers looking to get a foothold in the western Pennsylvania market. Since February, it has signed deals with Aetna, Cigna, United HealthCare and Healthcare America.
In related news, WPAHS on Monday filed a motion with the U.S. District Court asking to drop Highmark from a lawsuit that contends predatory business practices by both Highmark and UPMC were aimed at putting it out of business. Under the amended complaint, WPAHS intends to move forward with its legal action against UPMC.