Testimony ends in WPAHS case; judge to rule on Highmark affiliation
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After testimony concluded in the Highmark-West Penn Allegheny Health System hearing Friday, Highmark president and CEO William Winkenwerder Jr. acknowledged that "it might well have" made a difference if he'd known ahead of time that the WPAHS board would declare Sept. 28 that Highmark had breached their affiliation agreement.
His remarks followed testimony by longtime WPAHS board member and former board chair David McClenahan, who suggested that the $100 million "hole" that concerned the Pennsylvania Insurance Department -- the shortfall in updated financial projections for West Penn Allegheny -- might have been addressed by using the $75 million set aside, at least temporarily, for a new medical school.
The remaining $25 million could easily be found between two entities the size of Highmark and West Penn Allegheny, said Mr. McClenahan, an attorney and partner at K&L Gates, Downtown.
Sprinkled throughout 3 1/2 days of testimony rife with accusations, denials, misinterpretations and charges of broken trust were hints of what might have been.
Would Highmark have backed away from insisting on a bankruptcy filing had it known how the WPAHS board would respond? Should West Penn Allegheny have sent a clear signal of its intent before going public?
Instead, Mr. McClenahan and his fellow board members thought they had been handed an ultimatum. "I believed that Highmark was not going to do this deal without a bankruptcy," Mr. McClenahan told the court -- and even then, he said, Highmark officials would only complete the deal if they liked the terms of the bankruptcy.
And once WPAHS threw down the gauntlet and stated its intent to test the market for other suitors, Dr. Winkenwerder said Highmark had to go to court to protect its investment of more than $200 million and "thousands of hours" to stabilize and improve WPAHS finances and facilities so that it could be the crown jewel in Highmark's $1 billion plan for a regional integrated health care delivery system to compete with UPMC.
The hearing before Allegheny County Common Pleas Judge Christine Ward centered on whether Highmark can prevent West Penn Allegheny from opening talks with other possible suitors.
Highmark wants WPAHS to abide by the affiliation agreement signed last year and due to expire April 30, which includes a "no shop" clause. West Penn Allegheny believes that Highmark breached that agreement when it fundamentally changed the terms by insisting the health system file for bankruptcy first.
The battle includes a third combatant -- the state attorney general's office, which asked the court to suspend the litigation and force Highmark and West Penn Allegheny to finish their submission for insurance department approval within 90 days.
"Of greatest concern and importance to the Commonwealth," the filing reads, "is the negative effect that the continued deterioration in West Penn's financial condition will have on the quality and future viability of its health care services in the community."
All parties will be making additional filings next week.
What became clear throughout the hearing was that the final breakdown of the affiliation -- an affiliation that both sides say they still want -- began just a few months after they signed the Oct. 31, 2011, agreement. Last January, Mr. McClenahan said, West Penn Allegheny officials learned that Highmark attempted to contact WPAHS bondholders "and we didn't think they were talking about the Steelers."
He said he believed Highmark was looking to reduce the bond debt, "to take $600 million to $700 million off the purchase price" for acquiring the health system.
Mr. Winkenwerder on Friday expressed confidence that Judge Ward would rule in Highmark's favor and that the affiliation will be completed.
For his part, Mr. McClenahan said that if the judge's ruling directs West Penn Allegheny to honor the affiliation agreement, "We will cross our fingers and hope for the best, both for ourselves and for the community."
First Published November 3, 2012 12:00 am