West Penn CEO grilled about merger with Highmark

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It was West Penn Allegheny Health System, not Highmark Inc., that spent the last few months trying to scuttle the fraying partnership between the two Pittsburgh health institutions.

At least, that's the picture Highmark counsel Daniel Booker, a Reed Smith attorney, tried to paint Thursday afternoon as he questioned Keith Ghezzi, WPAHS's interim CEO, in the Allegheny County Court of Common Pleas.

Dr. Ghezzi -- who was named CEO shortly after Highmark and WPAHS signed the affiliation agreement, coming aboard via the New York-based Alvarez & Marsal consulting group -- testified in day three of a preliminary injunction hearing.

Highmark requested the injunction last month, hoping to block West Penn Allegheny from talking to other possible suitors after WPAHS walked away from the deal and suggested that Highmark had breached the affiliation pact that the two sides signed a year ago this week.

But Mr. Booker suggested otherwise, saying that WPAHS, in drafting a financial prospectus that could be circulated to potential buyers, had itself broken confidentiality covenants that were part of the November 2011 affiliation agreement.

Mr. Booker also argued that WPAHS -- in disclosing Highmark wanted the health system's bondholders to take a major haircut, shaving $600 million off the $1.4 billion price tag for acquiring the region's second largest health system -- had essentially revealed Highmark's negotiating goals with bondholders, another confidentiality breach.

Mr. Cooper spent the bulk of the afternoon session questioning WPAHS's performance under Dr. Ghezzi, saying the health system's bad debt, patient volume and overall financial performance had gotten worse under the Alvarez & Marsal stewardship, and would have been far worse without Highmark supplying cash and new physicians.

In morning questioning by West Penn Allegheny counsel Barbara Sicalides of Pepper Hamilton, Dr. Ghezzi described how the health system's relationship with Highmark deteriorated after the April 1 departure of Highmark CEO Kenneth Melani.

"Dr. Melani was the spirit and the energy behind this transaction. He had a devotion for the West Penn Allegheny Health System, and particularly West Penn Hospital," where Dr. Melani had done a medical residency. The two would talk often, and while they didn't always agree, he felt Dr. Melani was committed to the deal.

After Dr. Melani was fired, though, Dr. Ghezzi said calls from top Highmark officials were not returned as quickly and "the trust severely deteriorated," as the topic of a bankruptcy started coming up more frequently.

Dr. Ghezzi said that, in an early meeting, John Paul, head of Highmark's integrated provider division, told him, "I understand what you've been told about reporting to the [West Penn Allegheny] board, but you report to me and you do what I tell you to do."

Mr. Paul, who was present for part of Thursday's hearing, strongly denied making those statements to Dr. Ghezzi.

Despite the back and forth, Dr. Ghezzi said West Penn Allegheny still considers Highmark to be its ideal partner, and he hopes the two will resume negotiations. He also said Highmark officials first want WPAHS to drop the breach declaration.

Dr. Ghezzi also said the health system's relationship with his firm, Alvarez & Marsal, may be coming to a close. He said the firm's contract is up for renewal Nov. 7 and WPAHS board members have been "discussing what our engagement would look like."

He added, "It's possible there would be no engagement after a period of time."

The original contract was due to end in the spring, but delays in getting state approval resulted in Alvarez & Marsal and Dr. Ghezzi, staying on.

businessnews - health

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


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