Highmark faces new hurdle

Insurance department raises concern over finances in proposed affiliation with WPAHS

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The Pennsylvania Insurance Department told Highmark Inc. officials it has become concerned that financial projections in recent filings related to the Pittsburgh health insurer's proposed affiliation with West Penn Allegheny Health System "are inconsistent with Highmark's stated intention and actions."

Specifically, the insurance department said Highmark's amendment to its merger application, known as a Form A filing, assumes its contract with the UPMC health system will not be extended beyond Dec. 31, 2014.

"However, Highmark is actively seeking to have the Highmark/UPMC contract extended," wrote deputy insurance commissioner Stephen J. Johnson.

"Neither the department nor the public can assess adequately the Form A filing under the circumstances where Highmark is actively pursuing an extension of its contract with UPMC, while not disclosing any financial projections showing what would happen if Highmark is successful in those efforts," he wrote.

Mr. Johnson asked Highmark to provide those projections before March 8: "No decision will be made with regard to the filing until the requested information is filed, the public has a chance to review it and submit comments, and the department and its consultants have time to adequately review the transaction in light of the requested information."

The letter, posted on the Insurance Department website Friday, marks the latest speed bump in the planned Highmark-West Penn Allegheny affiliation.

The two parties announced plans for Highmark to acquire WPAHS nearly two years ago, and signed an affiliation agreement Oct. 31, 2011. Since then, they have faced a number of hurdles, including an unexpected change in Highmark's leadership and an attempt by West Penn Allegheny to seek other partners.

While those issues have been settled, the partnership still must gain Insurance Department approval.

Highmark spokesman Aaron Billger said Friday that the insurer received notification of the Insurance Department's request earlier this week. "We are compiling a response and we will provide follow up information to the PID upon request."

He said Highmark also will respond privately to a letter from state Sen. Don White, R-Indiana, to Highmark CEO William Winkenwerder Jr. that was posted on the Insurance Department website Friday.

In the letter, Mr. White asks for clarification on Highmark's plans regarding the UPMC contract and for an analysis "which demonstrates the impact a long-term contract between Highmark and UPMC will have on the efforts to revive WPAHS."

While the Insurance Department waits for Highmark's analysis, UPMC officials have been quietly circulating their own analysis of Highmark's plans for building its own integrated delivery system. UPMC has concluded that the Highmark system will be much more expensive than previously stated and that its efforts to stabilize the West Penn Allegheny Health System will ultimately fail.

In a four-page analysis, UPMC says Highmark's filings with the state show that the insurer will have to steer patients away from UPMC hospitals and providers once the current contract expires in 2015 in order to pump up patient volumes at West Penn Allegheny Health System and other Highmark affiliates.

"Highmark's plan requires 25,000 additional admissions to WPAHS annually -- representing a 45 percent increase over its current volume -- and cannot permit referrals to UPMC," the document states.

It also says that Highmark, which has committed $475 million to support the financially ailing West Penn Allegheny Health System as the crown jewel in a $1 billion health care system, will actually end up spending $2.4 billion to $4 billion. UPMC argues that could compromise Highmark's financial integrity by spending down reserve accounts.

UPMC spokesman Paul Wood said Friday that the document was prepared after "several elected officials and others" had asked UPMC for its take on Highmark's plans. He emphasized that while UPMC does not oppose Highmark's plans to build a provider network, UPMC believes "WPAHS is destined to fail."

"WPAHS has lost 21 percent of its admissions in just the past two years," Mr. Wood said. "How realistic is it that Highmark can even stabilize WPAHS's precipitous decline in admissions, let alone reverse and grow them by 45 percent?"

In response, Highmark's Mr. Billger said Friday, "Clearly, UPMC continues to act as the self-proclaimed monopoly that they are."

He said Highmark wants to review the UPMC analysis before commenting further.

"We want to ensure that, unlike UPMC's analysis that is devoid of accuracy, that we are factually correct before responding to the document."

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Steve Twedt: stwedt@post-gazette.com or 412-263-1963.


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