Highmark Inc. to give $21 million to Jefferson Regional Medical Center

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When Highmark Inc. and Jefferson Regional Medical Center close the deal that will give the insurer a controlling stake in the South Hills health network -- an event that is expected to happen in the next three weeks, according to Highmark's CEO -- Jefferson will receive an "unrestricted" $21 million, according to documents filed with the state.

The cash is part of Highmark's promised capital improvement allocation to Jefferson, which could total up to $100 million in grants.

Those details and others regarding the acquisition were included in the affiliation agreement between Highmark and Jefferson, which was signed in August. A copy was submitted to the state Insurance Department last week and was posted to the Web this week.

Highmark submitted the Jefferson affiliation agreement as part of the Insurance Department's vetting of the would-be merger between Highmark and West Penn Allegheny Health System. The submission was informational only, since the Jefferson deal does not have to be approved by the state, said Highmark spokesman Aaron Billger.

At a news conference in June, Highmark and Jefferson officials announced that the insurer would be getting a controlling stake on Jefferson's board in exchange for up to $200 million in long-term obligation debt and pension guarantees, "undetermined" capital expansion costs and $75 million for the Jefferson Regional Medical Center Foundation.

The foundation will get $15 million as soon as the deal closes, plus $30 million "on the first business day of 2013" and another $30 million in 2014.

Other details:

• Jefferson's capital improvements are to be completed within three years of the closing of the deal. First priorities are the hospital's emergency room and an ambulatory surgery suite in Bethel Park.

• Jefferson will get the initial $21 million off the bat, but the rest of the $100 million will be made available only to the degree that the medical center cannot pay for the capital improvements through its own "enhanced" cash flow. Highmark, in the agreement, said Jefferson's operating cash flow should be improved through "Highmark's [tiered] health insurance product design and the creation of additional service lines" at Jefferson.

• Highmark would have to pay a $150 million break-up fee and Jefferson a $5 million fee, if the deal collapsed for a reason other than "good cause."

Highmark, a non-profit Blue Cross Blue Shield insurer, is attempting to build its own in-house hospital and provider network to compete with, or at least provide an alternative to, UPMC. So far, it has inked tentative deals with WPAHS, Jefferson, Saint Vincent Health System in Erie and a variety of clinics and practices, at a cost of at least $1.6 billion, according to the Insurance Department.

Asked last week when the deal between Highmark and Jefferson will be officially completed, Highmark CEO William Winkenwerder Jr. said by mid-February.

Read the full affiliation agreement at http://pgne.ws/heWjz.

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


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