Nearly 18 months in the making and with more twists and turns than a Formula 1 race track, Highmark and West Penn Allegheny Health System received conditional approval from the Pennsylvania Department of Insurance to move forward with its affiliation and plans to create an integrated delivery network.
With the green light from the state, Highmark and West Penn quickly closed on the deal, valued at more than $1 billion, and will now work to bring the region's number 2 hospital network out of the red to be a viable competitor with dominant health network University of Pittsburgh Medical Center (UPMC).
Insurance Commissioner Michael Consedine said the review process for the transaction was the most complex in the agency's history. Of key consideration was the current market dynamic in Pittsburgh and western Pennsylvania, where UPMC dominates the market.
Consedine told the Pittsburgh Post-Gazette that without the proposed affiliation, the health market in the area would be in worse condition. "Having a viable West Penn [will] be a benefit to consumers," he told the newspaper.
Officials with Highmark and West Penn were enthusiastic in Monday press conference that the long wait is now over and the two can move forward with their plans to create a second viable IDN for the region.
"Today will be remembered, I have no doubt, as one of the most important and most notable in our 75-year journey," said William Winkenwerder, Jr., Highmark CEO, while also acknowledging the impact for the people of Pittsburgh. "The community knew what was at stake if West Penn did not survive."
With the closing of the deal, WPAHS has been renamed the Allegheny Health System and will also include an array of smaller practices set up by Highmark along with two other hospital groups acquired by Highmark – Jefferson Regional Medical Center and St. Vincent Health System in Erie, Pa.
The approval was also a welcome relief to the workers of WPAHS who have been living with the uncertainty of whether a deal could be struck with Highmark or any other suitor to save the floundering health system.
These concerns came to a head late last year when WPAHS management announced it was seeking other suitors based on what it said was a breach of the original affiliation deal by Highmark.
At issue was the WPAHS' bond debt, which Highmark officials insisted needed to be restructured in order to make the deal financially viable for the region's largest insurer. After a judge enjoined WPAHS from seeking other investors in November, the parties returned to the bargaining table to hammer out a deal, which allowed Highmark to negotiate a reduced payout for the health system's bondholders.
That payout was also completed yesterday, with West Penn bondholders receiving 87.5 cents per dollar.
Also announced yesterday was a new leader of the Allegheny Health System, former UPMC executive John Paul, who has led Highmark's efforts to broaden its provider network for the past two years. Paul replaces Keith Ghezzi, MD, who has served as UPMC's interim CEO for the past two years.
Highmark and UPMC's contract squabbles of the past are one of the major reasons the insurer sought to affiliate with WPAHS. Originally set to expire this year, their contract was extended through the end of 2014 at the insistence of the insurance commissioner.
While UPMC officials have remained steadfast for nearly two years that it will not renew its contract with Highmark, in Monday's press conference Winkenwerder reiterated the insurer's desire to return to the bargaining table and to establish a long-term contract with the health system so that its members can continue to have access to UPMC doctors.
[See also: Highmark continues pouring money into embattled West Penn Allegheny]