Business Forum: Bankruptcy should be the last option
Share with others:
I was most disappointed to read of insurer Highmark's decision to attempt to force the West Penn Allegheny Health System into bankruptcy as a condition of their proposed affiliation, but I was not all that surprised by the timing.
My former colleagues and I who made up the former management team at WPAHS had many dealings with Highmark over the years, and it wasn't unusual for them to say they would do something only to change their mind at the 11th hour.
I always believed that this behavior was a result of the makeup of their governance. Many people may not realize that Highmark's board of directors is very geographically diverse, and I just don't think they fully understand the nature and degree of competitiveness of the health care market in southwestern Pennsylvania.
As for bankruptcy, I respectfully disagree with those who think this is a good option. I witnessed firsthand the mayhem that ensued following the bankruptcy filing of the AHERF health system in the 1990s. It was pure chaos and incredibly expensive.
The army of lawyers and consultants made tons of money and really had no incentive to address matters quickly. Thus, it took many years for the bankruptcy estate to be settled. I just can't see that there is a benefit to this community in getting WPAHS tied up in something like that.
Is there some restructuring at WPAHS that needs to happen? Probably. But my guess is that the majority of it could be handled outside of bankruptcy.
This brings me to the topic of WPAHS's debt. I can't speak to the pension obligation because I don't have current information on that. As for the bonds, though, people should be less focused on the total amount than on the annual debt service (i.e. mortgage payment). Because the interest rate on these bonds is so low, the annual payments are quite modest in relation to the size of the organization. If WPAHS were to reduce this debt through a bankruptcy process, the interest rate would certainly be much higher and they may end up saving nothing in terms of their annual debt service.
The real issue for WPAHS is that it is undercapitalized. It is something we often struggled with because, at times, we didn't have the resources to respond to the competitive pressures of the market.
In my opinion, to be stable and create competitive balance in this marketplace, WPAHS absolutely needs a capital partner. Highmark has the resources to make this work and would have been a great strategic fit. Unfortunately, as in the past, they have disappointed me.
First Published October 6, 2012 12:00 am