Healthcare Business News
Dr. Christopher Olivia

Highmark, West Penn plan affiliation

By Jaimy Lee
Posted: June 28, 2011 - 11:15 am ET

Highmark said it will provide up to $475 million to West Penn Allegheny Health System as part an affiliation agreement announced today by the health insurer and the financially troubled health system, both based in Pittsburgh.

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Highmark will “immediately” provide a $50 million grant to West Penn Allegheny, a five-hospital system, according to statements made by Highmark officials during a conference call. During the next four years, the insurer will provide up to $350 million, along with an additional $75 million that will be used to fund scholarships for students who attend medical schools affiliated with West Penn Allegheny and other health professional education programs.

“I think it's fair to call it an acquisition of our system by Highmark,” said David McClenahan, West Penn Allegheny's chairman, during a call with reporters. “West Penn hospital would be closed in a couple of months were it not for this transaction. One of the purposes, among others, of the initial $50 million payment is to keep West Penn open.”

The boards of both organizations approved the affiliation unanimously. In 2000, Highmark had loaned West Penn Allegheny $125 million in order to make a debt payment.

Highmark also announced that Dr. Christopher Olivia, president and CEO of West Penn Allegheny, is leaving the health system, effective today. The health insurer said Olivia will join Highmark as a consultant for the transaction. Dianne Dismukes, chief of hospital operations at West Penn Allegheny, will succeed Olivia as president and CEO.

“We believe that this relationship with West Penn Allegheny Health System will preserve a second option, that will be extremely vibrant and, from a clinical perspective, as good or better than anything else that exists in this community,” said Dr. Kenneth Melani, president and CEO of Highmark.

Highmark officials said the deal should close within six months. The organizations are expected to reach a definitive agreement within the next eight weeks.

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