Highmark to Acquire WPAHS

A Pittsburgh-based health plan says it will acquire a struggling Pittsburgh-based health system in a move that could have a significant impact on the western Pennsylvania healthcare market.

Highmark Inc. announced Tuesday morning that it is in the process of acquiring the financially troubled West Penn Allegheny Health System. The move was unanimously approved by the boards of both companies.

While a definitive agreement is still being developed, Highmark is expected to commit $475 million over four years to WPAHS. That includes an immediate $50 million grant to be used for infrastructure improvements to West Penn Hospital in Bloomfield and Forbes Regional Hospital in Monroeville. In addition, Highmark is expected to contribute $75 million to fund scholarships of students attending medical schools affiliated with WPAHS, and to support other education programs for health professionals.

The acquisition could challenge the dominance of the University of Pittsburgh Medical Center in the Pittsburgh-area market. UPMC has been in a protracted contracting dispute with Highmark. Unless it is renewed, the current contract between Highmark and UPMC will end on June 30, 2012, but members will still be able to access UPMC hospital services through mid-year 2013.

In making the announcement, Kenneth R. Melani, M.D., Highmark's president and CEO, said the acquisition is the first step in a provider strategy that includes a network of independent community hospitals, an alignment of physicians and outpatient services.

The announcement ends months of speculation surrounding the future of the financially ailing not-for-profit WPAHS, which posted a $38.4 million operating loss in FY 2009 and $49 million loss through the first nine months of FY 2011.

The health system, which employs 13,000, includes five hospitals that admit about 79,000 patients annually, and a physician group. It has a deal with Temple University School of Medicine in Philadelphia to open a four-year medical school in Pittsburgh.

Highmark is an independent licensee of the Blue Cross and Blue Shield Association. It serves 4.8 million members in Pennsylvania and West Virginia.

The deal with WPAHS must still receive approval from state and federal agencies, including the federal Department of Justice. Officials hope the acquisition will be fast-tracked and completed within six months.

During his comments at the announcement, David L. McClenahan, West Penn Allegheny's chairman said that without the acquisition the health system was looking at shutting down West Penn Hospital by September of this year.

McClenahan said the hospital system had been looking for a partner for some time and that although there were for-profit suitors, the system "takes it non-profit mission seriously and preferred to remain a nonprofit."

He said the board was attracted to Highmark because it is a nonprofit and its mission and values match the hospital system's. He added, "Highmark is well-capitalized, it's local, like us,  and it understands the western Pennsylvania insurance market."

While terming the acquisition as a "win for everyone," both sides were cautious regarding future job losses. Melani said no decisions would be made until company officials look at the health system's efficiencies and resources.  It was announced, however, that WPAHS president and CEO, Chris Olivia, M.D., left that position effective Monday. He will consult with Highmark.

In December Olivia voiced his concern about the potential lack of competition healthcare in the region under the specter of consolidation. "To not have a second health system in a city this size, Pittsburgh will descend into the Dark Ages of monopolization from which it will not emerge for a long, long time," he told the Pittsburgh Tribune Review.

Dianne Dismukes will replace Olivia. She was previously executive vice president for hospital operations at the health system.

Although Cleveland Clinic was rumored to be in-line to manage the health system for Highmark, it is not part of the acquisition. In a telephone conversation a Highmark spokesperson said that "although Highmark has been in discussions about partnering opportunities with Cleveland Clinic, it is not part of this arrangement."