Judge grants Highmark request to block West Penn Allegheny's affiliation talks

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Allegheny County Common Pleas Judge Christine Ward today granted insurer Highmark Inc.'s request for a preliminary injunction blocking West Penn Allegheny Health System from talking to other possible affiliation partners.

In her ruling, Judge Ward said that granting the injunction "will prevent immediate and irreparable harm" to Highmark. She said the ruling "restores the status quo as it existed before [WPAHS's] wrongful conduct."

The court also put off the state of Pennsylvania's request to dismiss all of the claims between the parties.

The state stepped into the fray Oct. 31, filing its own complaint for injunctive relief and asking for a 90-day extension that would allow "the parties to work together to complete the Pennsylvania Insurance Department submission."

Highmark sued for the injunction after West Penn Allegheny's board declared that Highmark breached their year-old affiliation agreement by insisting that the region's second largest health system file bankruptcy in anticipation of the two regional health giants gaining approval to affiliate from the Pennsylvania Insurance Department.

In an emailed statement, Highmark's spokesman said the company was pleased with the ruling.

"We remain firmly committed to an affiliation between Highmark and WPAHS," Michael Weinstein said in the statement. "We believe that the proposed affiliation is in the best interests of both parties, and more importantly, the entire community."

He also noted that the ruling resets the clock to Sept. 27, before the breach announcement, meaning "the proposed affiliation agreement with WPAHS remains in place. We look forward to meeting with WPAHS immediately to develop an appropriate financial restructuring plan or an alternative proposal."

In her ruling, Judge Ward noted that the affiliation agreement required West Penn Allegheny to give Highmark 30 days to repair any perceived breach but instead "WPAHS made the unilateral decision that Highmark's anticipatory breach was incurable."

She added that based on testimony during the 3 1/2-day hearing "the breach was curable.

"This Court is convinced that it was improper for WPAHS to determine that Highmark's alleged anticipatory breach was incurable, thereby attempting to relieve WPAHS from its obligation to notify Highmark of the breach and allow it the thirty days to cure."

The potential "irreparable harm" inflicted by the would-be divorce is more than just a financial loss, Judge Ward wrote.

"While the money contributed towards the partnership by Highmark, some $230 million, could be returned to Highmark via an award of monetary damages, it is clear that the loss of the unique opportunity to partner with WPAHS is irreparable harm that cannot be assigned a dollar amount," the judge wrote. "Further, it is clear that the loss of necessary personnel, particularly specialty physicians needed to perform [patient] services, constitutes irreparable harm not compensable by money damages."

Judge Ward also wrote that West Penn Allegheny Health System, in compiling a list of possible financial suitors before the Sept. 28 "break-up" announcement, had likely committed a contractual violation of its own.

"Highmark is likely to be successful in proving that WPAHS has violated the Agreement's Exclusivity provision by admittedly shopping for alternative partners," she wrote.

Highmark hopes to acquire West Penn Allegheny and make it the crown jewel in a planned $1 billion regional integrated health care delivery system to compete with UPMC, a fact noted by Judge Ward.

In her ruling, she wrote that "the public interest is best served" by granting the injunction.

"The public has a strong interest in a stable, high-quality and high-value care system, and Western Pennsylvania specifically has a strong interest in a healthcare network that provides choices to the consumers and competition," the judge wrote.

WPAHS spokeswoman Kelly Sorice said the company would not comment on whether West Penn Allegheny might appeal the decision "until our Board has a chance to fully review the opinion with legal question and further discuss."

WPAHS chairman Jack Isherwood said in a statement today that WPAHS was "obviously disappointed" in the ruling.

"We are obviously disappointed with the Court's decision; however, as we have said from the beginning, we believe that Highmark is a good partner for WPAHS," he said in the statement. "We look forward to engaging in constructive dialogue with them as soon as possible regarding the best way to move forward. Importantly, we remain committed to preserving WPAHS as a viable community asset, which is in the best interest of our many patients, employees, physicians, community partners and other important constituents."

In contrast to Mr. Isherwood's disappointment, Allegheny General Hospital nurse Cathy Stoddart said nurses and service workers there are "excited." Ms. Stoddart is president of the AGH nurses' bargaining unit of the Service Employees International.

"We've always thought that Highmark is the best partner [for WPAHS] because they are invested in the community," she said. "We believe they are working toward the same values as the West Penn Allegheny Health System, and the nurses and caregivers at SEIU."

She added, however, that "we call on Highmark to protect the pensions" of WPAHS employees as it moves toward a likely restructuring.

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


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