Highmark, WPAHS merger draws support

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Speaker after speaker at Tuesday's hearing on the proposed Highmark-West Penn Allegheny Health System affiliation urged Pennsylvania Insurance Department Commissioner Michael F. Consedine to approve the agreement, and to do it quickly.

They cited the need for a healthy competitor to UPMC's vast health system, and the jobs that would be lost if West Penn Allegheny were cut adrift financially. Pittsburgh Mayor Luke Ravenstahl, a Democrat, echoing many of the 50 or so speakers, said, "The evidence is irrefutable" that a Highmark-WPAHS partnership would preserve jobs and be good for the city.

"The city of Pittsburgh applauds Highmark, and its willingness to advance its proposed alliance with West Penn Allegheny," the mayor said. "We see something good here, and are pulling together to see it through."

Later, two other speakers -- one Highmark employee and one WPAHS employee -- presented Mr. Consedine with two petitions bearing 9,500 signatures in all, signifying the rank-and-file commitment to the acquisition.

But Mr. Consedine said he needed answers to some fundamental questions:

Would Highmark's $475 million commitment to prop up West Penn Allegheny damage or jeopardize the local health insurance market? Will $475 million be enough to make WPAHS a viable competitor, and what happens if it isn't?

"We're very confident that the plan we have put in is an appropriate level of investment," Deborah L. Rice, executive vice president and division president for health services at Highmark, told him.

While $475 million is a significant investment, said Ms. Rice, it would be more expensive, long-term, to submit to UPMC's demands for higher reimbursements if it has no viable competitors. Highmark's primary goal, she said, is to offer Western Pennsylvania residents a choice, noting that West Penn Allegheny will continue to contract with competing insurers.

Mr. Consedine acknowledged the urgency of the situation and promised to "move with focus and purpose" but said his department needed to have a complete record of necessary information before he could make a decision. The U.S. Department of Justice gave its approval last week, saying the affiliation would increase, rather than impede, competition.

Mr. Consedine asked Highmark officials if competing health systems would only add to the area's extra capacity, resulting in higher costs. He cited the newly-constructed UPMC East hospital in Monroeville, located less than a mile from West Penn Allegheny's Forbes Regional Hospital, as one obvious example.

WPAHS and Highmark officials said over-capacity could be managed by mothballing underused areas, using more temporary staff and making semiprivate patient rooms private.

Monroeville Mayor Gregory H. Erosenko, who also addressed the panel, said he believes the competing hospitals will ultimately reduce health care costs. "I just think it's going to be good for the community."

While most speakers spoke to a desire to keep West Penn Allegheny viable, others warned about the implications of a local health care market controlled by UPMC.

Braddock Mayor John Fetterman, a Democrat, reminded the insurance department officials of UPMC's abrupt announcement in 2009 that it would close its hospital in that depressed borough, even as it planned to build a new hospital in more affluent Monroeville.

"This is what happens when there is a monopoly in health care in Allegheny County," he said. "Without this merger, we are all Braddock."

About 150 people attended the hearing at the Westin Hotel at the Convention Center, Downtown, and the list of speakers included physicians, competing insurers, labor union representatives, politicians, consumers and numerous WPAHS employees.

Notably missing was Kenneth Melani, the longtime face of Highmark as its president and CEO until board members fired him April 1 after he was criminally charged following a fight with the husband of his mistress, a Highmark employee.

Acting CEO and Highmark Board Chairman J. Robert Baum on Tuesday assured Mr. Consedine that Highmark "has been synonymous with integrity, and maintaining high standards in all aspects of our organization. As the Highmark's board's actions over the past few weeks have demonstrated, that commitment to integrity hasn't changed."

Highmark is currently undertaking a nationwide search for a permanent CEO, but Mr. Baum declined to discuss a timeline for making a selection, or what the board is looking for in a candidate other than to say hospital experience would be a plus.

Under the proposed affiliation, both Highmark and WPAHS would come under a new nonprofit organization -- now referred to by the temporary name, "Ultimate Parent Entity" -- which Highmark officials said would keep a wall between the insurance arm and the provider arms. Highmark would not be responsible for West Penn Allegheny's debt or pension obligations, they said, nor would Highmark steer its subscribers to West Penn Allegheny hospitals and clinics.

While asserting that prompt regulatory approval would allow Highmark to more quickly implement steps to improve the health system's bottom line, Highmark officials said West Penn Allegheny's financial situation has been steadily improving since late last year.

If the affiliation is not approved, WPAHS officials said the system would have to look for other financing partners to align with.

Highmark officials said they decided to pursue the affiliation with WPAHS after negotiations on a contract extension with UPMC broke down and West Penn Allegheny's financial situation deteriorated. Highmark says UPMC was demanding a 40 percent increase in reimbursement payments -- a claim UPMC has denied -- while UPMC said it would not negotiate a new contract with Highmark now that the insurer intends to compete in the health care provider market.

Terms of the current contract run through June 2013, after which Highmark insurance subscribers would face costly out-of-network fees for treatment by UPMC physicians or care at UPMC hospitals.

Only a few speakers said they were skeptical of the alliance.

David Fields, CEO of HealthAmerica Pennsylvania, said his insurance company is conditionally in favor of the acquisition but only if the deal "fosters provider competition," rather than creating another, vertically integrated UPMC-like organization that uses negotiating tactics that "others have found so objectionable."

Henry Miller, a Berkeley Research Group health expert now consulting for UPMC, said that while the Highmark-WPAHS alliance could bring substantial benefits to Pittsburgh, it would only do so if Highmark sinks hundreds of millions more into hospital upgrades.

"Highmark's financial support of the West Penn Allegheny Health System will require substantially more funding than has been proposed ... considerably more money [than $475 million] will be needed to make West Penn Allegheny competitive."

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


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