Consultants' reports: Highmark-West Penn affiliation would be positive

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While raising doubts about Highmark's ability to direct enough patients to West Penn Allegheny Health System physicians and facilities, two consultants' reports say the insurer's planned acquisition of the West Penn Allegheny Health System presents "a reasonable economic basis for substantial benefits to the public in the form of improved delivery of care, reduced rate of increase in health care costs, and enhanced competition particularly in the hospital sector with an invigorated WPAHS."

The reports by Blackstone Advisory Partners of New York and Compass Lexecon of Chicago, take an exhaustive look at the implication of the region's largest insurer buying the region's second largest health system. The reports are now available on the insurance department website, www.ins.state.pa.us.

Pennsylvania Insurance Department officials had been awaiting the reports as they consider whether to approve the affiliation. While not decisive to the insurance department's final finding, the reports are considered a key factor to the department's deliberations.

The consultants note that the parent organization for the proposed Highmark-WPAHS partnership is projected to have $327 million of total assets and $80.1 million of capital when the transaction occurs "and, as such, appears well capitalized and is unlikely to jeopardize Highmark's financial stability," according to Blackstone.

But Blackstone also states that Highmark policyholders "will bear the primary cost of the Transaction and the potential [savings] are uncertain." The report suggests that the insurance department may want to tie executive compensation to how much the deal benefits policyholders.

The Blackstone report notes that "the manner in which Highmark pursued the affiliation may have resulted in significant expenditures for which Highmark's policyholders may receive limited value."

In the Compass Lexecon report, compiled by Margaret E. Guerin-Calvert, the author notes that "Highmark has put forth a reasonable economic basis to support the conclusion that the Affiliation will benefit its policyholders and is in the public interest, although there is significant uncertainty associated with achieving the projected results."

Highmark spokesman Aaron Billger said that "based on our initial reading of this morning's [Insurance Department] postings, we are pleased with the overall conclusions of the reports because they affirm our judgment that an affiliation with WPAHS and our integrated delivery network strategy are good for our community. The reports recognize the need for a strong WPAHS to preserve health care choice and contain health care costs in the marketplace."

Highmark and WPAHS signed an affiliation agreement in 2011 which is due to expire April 30. Possibly in deference to that deadline, the insurance department has set an April 19 deadline for public comment on the planned affiliation.

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Bill Toland: btoland@post-gazette.com or 412-263-2625.


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