Assault arrest, affair with employee lead to firing of CEO Ken Melani
PITTSBURGH – For a company in need of strong leadership at the top as it looks to complete the acquisition of West Penn Allegheny Health System, reopen negotiations with recalcitrant provider UPMC and battle rival health insurers entering the market, now is not a good time to be looking for a new CEO.
But that is the situation Highmark’s Board of Directors finds itself in, after it fired Kenneth Melani, its CEO since 2003, after his arrest on assault charges stemming from a scuffle with the estranged husband of a 28-year-old Highmark employee who also happens to be Melani’s alleged mistress.
“This could not have happened at a worse time,” said Jan Jennings, president and CEO of Pittsburgh-based healthcare consulting company American Health Solutions. “UPMC’s position publicly has been that they do not wish to contract with Highmark and now insurers like Aetna and United have been moving into town to try to pick up market share they hope Highmark will lose.”
In addition, Highmark is knee-deep in its planned acquisition of struggling health system, West Penn Allegheny, a move that when announced last year, seemed inspired considering Highmark’s potential loss of access to the UPMC network, the dominant health system in western Pennsylvania.
Now, with the plan’s architect cashiered and UPMC refusing to budge, the $475 million Highmark commitment to turnaround the long-ailing health system may seem more like an albatross than a diamond in the rough.
In early April the company received clearance from the Federal Trade Commission, which approved the proposed deal. The Pennsylvania Insurance Board was also scheduled to hold a public hearing about the acquisition after press time.
At Highmark headquarters, the ship continues to steam toward the West Penn marriage. Company spokesman Michael Weinstein said the company remains committed to moving ahead with its deal with West Penn. Weinstein declined to comment, on whether it will look from within to replace Melani or look outside the company or about what the timeline might be for bringing a new CEO on board.
Dennis Kain, president of Atlanta-based healthcare executive search firm Tyler & Co., noted that the entire healthcare industry has been watching the Pittsburgh market and the battle between Highmark and UPMC, which he dubbed the “Hatfields and the McCoys.”
Beyond the implications of finding a new CEO, Kain said the movement by health system UPMC to build its own health plan and Highmark to buy a health system could have implications in the broader industry. “If you have two dominant companies, each with its own ACO and each not accepting the patients of the other, is this what the future of healthcare could look like in other markets?” he asked.
Highmark has named Board Chairman J. Robert Baum, a professor at the University of Maryland, as acting CEO. In the interim, Jennings noted, the company is adrift with senior mangers likely stymied from taking significant action that may not be in line with whoever Highmark hires into the top spot. “This throws sand in the gears of the company,” he said.
Perhaps lost in the tabloid saga is the tragedy of Melani himself, who by all accounts was a high-functioning CEO and well respected in the industry.
“My experience with him was nothing but first-class,” Jennings added. “He was an extremely effective and well thought of CEO. How this could happen is just breathtaking.”