Insurer Highmark Inc. has filed suit in Allegheny County's Court of Common Pleas asking for a temporary "restraining order to prevent West Penn Allegheny Health System from starting affiliation or acquisition discussions with other organizations."
Highmark said it wants to protect the sizable monetary investment, $400 million in loans and grants, that it has already made in the financially ailing health system, and to do that it must keep intact its exclusivity agreement with West Penn Allegheny.
In the request for injunctive relief, Highmark says the leadership at West Penn Allegheny has taken "a flight from reality" in trying to pocket $200 million in loans, rejecting the "expectations of an entire community" and "[running] from its obligations to negotiate in good faith and exclusively with Highmark."
In response, West Penn Allegheny officials released a statement late Monday saying, "It is truly sad that Highmark has taken this step. In a nutshell, they are asking a court to help Highmark stand in our way as we try to find an alternative option to bankruptcy. To date, Highmark has not seriously considered any alternatives proposed by WPAHS."
The statement added that Highmark president and CEO William Winkenwerder Jr. "was very clear that Highmark would not close the current Affiliation Agreement," even it were approved by the state Insurance Department.
"Rather, Highmark proposes a new deal that WPAHS undergoes a bankruptcy process," even though the insurance department has not required it.
"We are shocked and disturbed that a nonprofit organization would take this action against another nonprofit community asset," the WPAHS statement concludes.
The Highmark legal filing came three days -- just one business day -- after West Penn Allegheny caught Highmark off guard with the Friday morning announcement that it would be trying to break off its affiliation agreement with Highmark, and would be exploring other potential business partnerships.
Highmark hopes to acquire WPAHS as part of a larger plan to build up a provider portfolio, which would allow it to compete with the region's No. 1 health system, UPMC.
In its statement, Highmark said it "categorically denies the WPAHS claim that Highmark has breached the affiliation agreement. Highmark urges WPAHS to change its position and work cooperatively to move forward with the proposed affiliation."
West Penn Allegheny, meanwhile, said Friday that it was being pressured by Highmark and Dr. Winkenwerder to file for bankruptcy restructuring, something WPAHS had hoped to avoid and something that the health system claims amounts to a breach of the affiliation.
In the press release accompanying Monday's court filing, Highmark said it wasn't forcing WPAHS into bankruptcy: "Although a financial restructuring is one option that must be considered to meet these objectives, Highmark is open to considering alternative WPAHS proposals that would sustain the system's long-term financial soundness."
The complaint -- unrelated to the ongoing federal court entanglements involving Highmark, WPAHS and UPMC -- was filed by Reed Smith attorneys.
In a WPAHS bondholders' phone conference made hours after Friday's announcement, the moderator noted that "the fact that the affiliation agreement is terminated from the perspective of West Penn Allegheny does not mean it's terminated from Highmark's perspective."
During the call, the moderator said WPAHS had contracted the services of an international investment bank, Houlihan Lokey, to help to look for new partners. "Our expectation is that there will be an active effort in the near term on the part of West Penn to seek alternative strategic or financial partners."
The bondholder moderator also said there was no indication at present that West Penn Allegheny is in default or that it would be unable to meet its financial and covenant obligations.
"Every bit of information indicates that West Penn Allegheny is fully capable of paying its bonds on time."