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Highmark's $1B Acquisition of West Penn Approved by PA

 |  By John Commins  
   April 30, 2013

State regulators in Pennsylvania on Monday approved Highmark Inc.'s $1 billion acquisition of West Penn Allegheny Health System, clear ing the way for the creation of what its backers says will be one of the nation's largest integrated healthcare systems.

Approval from the Pennsylvania Insurance Department came laden with conditions, but Highmark President/CEO William Winkenwerder, Jr., MD, said leadership at the newly named Allegheny Health Network was 'comfortable that we will be able to well comply with all the conditions that have been outlined in the commissioner's order.'

'Let me just say that many of these conditions were things that we would have done in any event,' Winkenwerder told reporters at a Monday afternoon teleconference. 'We also believe that certain of the conditions are very positive in that they set forth certain behaviors and characteristics of a more competitive marketplace in healthcare and are really meant to assure that monopoly-like behavior doesn't occur. That is very consistent with our own thoughts.'

The Allegheny Health Network will employ about 1,200 physicians and will include the five hospitals in the West Penn Allegheny system, Saint Vincent Health System in Erie, pending court approval, and Jefferson Regional Medical Center in suburban Pittsburgh, Winkenwerder said.

'In our case, what we have created with this establishment of Allegheny Health Network with Highmark is arguable the second- or third-largest integrated delivery system in the United States. We quickly move up to the top of the list in terms of size and scope,' Winkenwerder said.

'What that creates, that integration, is an opportunity for clinicians and clinical leaders to work hand in glove with those that finance care for the population when planning things so that there is less duplication and there is better placement of services for the entire population that it serves. Right off the bat you have the opportunity to plan things more efficiently and effectively and with less redundancy.'

'At the patient care level when you have these cooperative entities working together, and that is the key, a cooperative relationship and attitude, there is the opportunity to make the patient care experience better and take some of the hassle and redundancy out of what people typically experience today.'

Highmark's provider division leader John Paul, who was named president/CEO of the new network, said the integrated care model is needed because 'obviously the current system hasn't worked very well.'

'The core of the problems we have as a country is the fact that care is so fragmented,' Paul told reporters. 'Care traditionally has been physician- and facility-focused. With modern technology and information technology, our focus is going to be on prevention and wellness as well as bringing people together to the extent that we can in one location to receive all their care, and when they can't receive it in that location to connect those clinicians and a record of their clinical services through an information technology backbone that can be transmitted internationally, not just locally.'

'Coupled with that we are very unique,' Paul says. 'This is the first time in this country where a very large insurer is entering into the provider business to the extent that we are here at Highmark. So our incentive is to be sure we keep care in the most affordable setting, keep care local, [and] make it very convenient for our enrollees. Thus we can keep that membership.'

The deal is the latest twist in the battle for market share in Western Pennsylvania with rival University of Pittsburgh Medical Center. Winkenwerder said Monday Highmark hopes to have a relationship with UPMC going forward, even though their current contract will expire at the end of the 2014.

UPMC appeared less enthusiastic and issued a statement following the commissioner's approval noting that 'Highmark's ownership of a provider network introduces more complicated insurance choices for employers and consumers.'

'We urge Highmark to immediately join with UPMC in preparing its subscribers for the transition that will take place on Dec. 31, 2014, when the UPMC-Highmark contract expires,' UPMC's statement read. 'It is important that consumers understand these changes so they can take the steps needed to continue accessing their preferred doctors and hospitals. We urge Highmark to work with UPMC now as there will be no new UPMC contract or extension when the current one expires in just 19 months.'

Monday's approval by Pennsylvania Insurance Commissioner Michael Consedine caps a process that began with Highmark's initial filing in November 2011 through its nonprofit corporation, UPE. Consedine called the review of the deal the most complex and extensive in his agency's history, with a record that includes more than 64,000 pages of reports and analytical data, more than 10,000 pages of public comments and more than six hours of public testimony.  

'This is a landmark transaction,' Consedine said in prepared remarks. 'We were cognizant that our review and the order we issued today may serve as a model for similar transactions across the state and country going forward.'

Healthcare economist Adam Powell, president of Boston-based consultants Payer+Provider Syndicate, said in an email exchange with HealthLeaders Media that western Pennsylvania now has two major integrated healthcare systems with products that bundle healthcare financing and delivery.

'Highmark has some nascent experience in operating an integrated delivery system, as it previously acquired Jefferson Regional Medical Center in March 2013 and announced the creation of a medical mall in Wexford, PA. Highmark's ownership of multiple sites of service will enable it to more effectively control the cost of care that its health plan members receive,' Powell says.

'The formation of integrated delivery systems is rapidly occurring across the United States. In Massachusetts, Tufts Medical Center is in the process of founding the insurer Minuteman Health Initiative, Partners HealthCare acquired Neighborhood Health Plan in 2012, and Boston Medical Center has offered coverage through its BMC HealthNet Plan since 1997. We also saw somewhat similar activity last year in Texas, with the merger of Baylor and Scott & White. I foresee that we will continue to see vertical integration between the financing and delivery of care.'

The $1 billion deal includes the $475 million in the initial purchase, along with the acquisition of $528 million in outstanding bonds, about $100 million less than initial estimates. Highmark officials said they anticipate refinancing the debt in the coming months.  

John Commins is a content specialist and online news editor for HealthLeaders, a Simplify Compliance brand.

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