Highmark reaches out to save West Penn Allegheny Health System deal

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Highmark Inc.'s top executives Friday renewed their plea to West Penn Allegheny Health System officials to drop the claim that Highmark had breached their affiliation agreement, saying the declaration "came as a surprise and great disappointment to us."

In a letter delivered to WPAHS board chairman Jack Isherwood, Highmark CEO William Winkenwerder Jr. and board chairman J. Robert Baum said West Penn Allegheny officials had apparently "completely misconstrued" the presentation Highmark made Sept. 27.

The next day, WPAHS announced that the marriage had been called off.

"What we intended and presented was a plea and a plan to jointly approach your major creditors about a debt restructuring. The proposals we discussed would fully protect the pensions of all WPAHS employees," the Highmark letter said.

"That you would not agree to this eminently reasonable approach to attempt to insure [Pennsylvania Insurance Department] approval -- as well as the long-term survival of WPAHS -- shocked us."

WPAHS board members told the Post-Gazette this week that Highmark wants the West Penn Allegheny Health System to file for bankruptcy so it can shave $600 million off the $1.4 billion price tag for rebuilding the region's second-largest health system.

Highmark, on the other hand, characterizes those discussions as preliminary, and says there is no pinpoint dollar figure. Rather, Highmark was expressing that the state Insurance Department, which must review and approve the deal, is sending "clear signals" that approval may not happen unless WPAHS takes steps to address its operating losses and debt.

In response to the Highmark letter, Mr. Isherwood wrote back late Friday that while WPAHS remains open to discussions, "we doubt our 18 directors misconstrued your words, 'The original Affiliation is history,' and subsequently, 'The Affiliation is dead.' "

He added: "As we have continued to state, WPAHS remains hopeful that Highmark can come to the table with an alternative option to bankruptcy."

Mr. Isherwood also sent a letter to West Penn Allegheny employees Friday afternoon: "We believe that Highmark's actions leave us with little choice but to explore other options," he said, adding that "there is no doubt that Highmark would be a valuable partner to WPAHS, and we would be pleased to meet with them to discuss constructive ways to move forward together."

Highmark has sued West Penn Allegheny to secure a temporary restraining order that prevents WPAHS from marketing itself to other possible suitors.

Mr. Isherwood also acknowledged the receipt of letters from WPAHS physician leaders expressing displeasure with the WPAHS board and the interim management team from Alvarez & Marsal.

He said he and other board members "have always made ourselves available to meet with physicians and employees" and that "A&M is doing the job that the Board hired them to do and is doing it well."

"A&M is executing the plan that Highmark created and fully supported. In addition, a management change at this critical juncture would not only be extremely disruptive, but could also set WPAHS back. We need to keep moving forward."

A&M is making between $1 million and $2 million a month in fees for its interim management of WPAHS, leading some WPAHS employees and physicians to speculate that the firm is disrupting the Highmark-WPAHS affiliation process so it can continue to run WPAHS on an interim basis -- and continue collecting its monthly pay.

Other physicians worry that a WPAHS divorce from Highmark would mean cuts at some of the system's hospitals. Last week, a handful of physicians contemplated pushing for a "no-confidence" vote in WPAHS's board.

In his letter, Mr. Isherwood also told employees and staff that he has had "cordial" conversations with Highmark officials, "and I remain hopeful that we will establish a path forward very soon."

But the tone of the letters exchanged by Highmark and WPAHS leaders Friday do not appear to point to any end to their dispute.

"We have had conversations with you in the past few days in which you have indicated that you are unwilling to drop your claim of a breach," the Highmark letter to Mr. Isherwood said. "This is unfortunate. We urge you to disavow this claim so that we can dismiss our lawsuit and take the steps necessary to move forward with our affiliation."

businessnews

Bill Toland: btoland@post-gazette.com or 412-263-2625. Steve Twedt: stwedt@post-gazette.com or 412-263-1963.


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