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Highmark to invest $475 million in West Penn deal
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Officials from Highmark and West Penn Allegheny Health System, from left, Dr. Kenneth Melani, president and CEO, Highmark; J. Robert Baum, Highmark; David L. McClenehan, board chairman, WPAHS; Dr. Christopher Olivia, WPAHS; and Dr. Anthony Farah, chief medical officer, WPAHS.
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The boards that lead Highmark Inc. and West Penn Allegheny Health System have unanimously approved a "capital partnership" in which the area's dominant health insurer will invest up to $475 million into the region's second largest health system, including an up-front $50 million payment that will rescue Bloomfield's West Penn Hospital from what would have been imminent closure.
The deal puts Highmark into the hospital business in a big way, and floats a life preserver to a hospital system that has been losing money each quarter, including a $22 million operating loss in the quarter ending March 31.
Executives from both Highmark and West Penn Allegheny called the partnership "a historic transaction for Pittsburgh," one that will put WPAHS on sure financial footing, and will help maintain a viable option to the region's largest hospital system, the University of Pittsburgh Medical Center, which controls more than half of the hospital beds in the region and many of its physicians, too.
"They are well-capitalized, and we're not," said David L. McClenahan, WPAHS board chairman, speaking of Highmark. "That's putting it mildly." In the decade since the collapse of the Allegheny Health Education and Research Foundation, whose bankruptcy eventually bore the West Penn Allegheny Health System, WPAHS has been persistently starved for capital, he said.
PG VIDEO: HIGHMARK, WPAHS AGREEMENTWPAHS wanted to remain independent, that was no longer an option, financially, he said. Had the deal with Highmark not materialized, WPAHS was preparing a budget that would have included the autumn closure of West Penn Hospital.
While the short-term goal of this partnership is to preserve a "fragile" Pittsburgh hospital system, the long term goal, said Highmark CEO and President Kenneth Melani, is the creation of a new model of health care, one that is outcomes based, with an integrated delivery and financing system.
"Health care services are becoming less affordable," he said. "It's important to have choice. It's important to have a second system."
He also said that while the Highmark-WPAHS partnership is the primary product of this deal, the two institutions will also work to strengthen relationships with other regional hospitals and physicians' practices.
Also announced today, Christopher Olivia, president and CEO of West Penn Allegheny Health System, will step down from that position, effective immediately. He will take on a consulting position at Highmark, he said at the press conference this morning.
With Dr. Olivia's departure, Dianne Dismukes has been named interim president and CEO. Ms. Dismukes last month was named executive vice president for hospital operations at WPAHS, replacing Dawn Gideon.
Following the signing of a tentative "term sheet," Highmark "is immediately providing a $50 million grant to the WPAHS" to strengthen its West Penn and Forbes Regional hospitals "while assuring the continued delivery of quality medical services by the entire system."
Highmark is making "a total financial commitment of up to $475 million over four years, including $75 million to fund scholarships for students attending medical schools affiliated with WPAHS, and to support other health professional education programs," according to the morning's press release.
Earlier this month, Dr. Olivia announced that WPAHS would open a regional campus of Temple University's School of Medicine.
Throughout the morning, Highmark and West Penn officials took some verbal jabs at UPMC, noting more than once, for example, that WPAHS is the only local hospital system currently offering live transplants, as a result of having UPMC suspended those operations last month after a patient received a kidney from a donor with hepatitis C.
Officials from Highmark and WPAHS organizations (which are both non-profits) also tried to draw a distinction between WPAHS and UPMC, saying UPMC is not behaving like a not-for-profit community asset in the way that it tries to "maximize revenue" and put WPAHS out of business.
Highmark and UPMC relations have frayed in recent months as negotiations over a new reimbursement contract are at an impasse, with Highmark claiming that UPMC wants too much money, and UPMC saying that it cannot, and will not, sign a deal with an insurer that is now partner with a UPMC competitor.
The partnership's framework will be fleshed out over the coming two months, and the organizations hope it will be approved within six months. Some aspects of the deal may need state approval.
"Ultimately, we expect the Department will be one of the regulators that has a role in reviewing and approving the proposed arrangement between Highmark and West Penn," said Pennsylvania Insurance Department Commissioner Michael F. Consedine in a statement.
"However, no formal agreement has yet been signed and no filing has been submitted to the Department for its review."
Cathy Stoddart, staff nurse at Allegheny General Hospital and an SEIU member and union leader representing the system's 2,000-plus nurses, said the deal may prove beneficial for staff.
"I'm actually pretty excited," she said. "To have our system have money is something that hasn't happened in 11 years."
First Published June 28, 2011 10:11 am
