Healthcare Business News

Officials urge quick review of West Penn deal

By Melanie Evans
Posted: November 1, 2011 - 3:00 pm ET

(Story updated at 3 p.m. ET.)

Highmark and West Penn Allegheny Health System officials announced a definitive agreement for the insurer to acquire the faltering health system.

Consultant Dr. Keith Ghezzi, a managing director with the turnaround firm Alvarez & Marsal, was named interim CEO for Pittsburgh-based West Penn Allegheny.

The agreement, which must be approved by state and federal regulators, would create a new not-for-profit named Highmark that would operate two subsidiaries. One subsidiary would be a not-for-profit health plan. The second would be a not-for-profit provider organization, including West Penn Allegheny. Dr. Kenneth Melani, Highmark's president and CEO, said during a news conference open to reporters and investors that the organization is seeking contracts, joint ventures or mergers with other provider groups.

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Melani said terms of the agreement would be submitted to the Pennsylvania Insurance Department within a week and would be publicly available at that point. He said officials acknowledge reviews by the department, the state attorney general and the Internal Revenue Service would be extensive, but he urged regulators to move quickly.

Robert Baum, the chairman of Highmark, also called for swift approvals. “We know that these reviews will be thorough, but we also feel that we have a compelling story, and there are more reasons we can list to go forward with this as soon as possible,” he said.

Melani said speedy approvals would create much needed stability and allow for faster adoption of development plans.

Uncertainty and leadership turnover at the financially troubled system undermined its ability to recruit and retain doctors, Ghezzi said.

Under the agreement, West Penn Allegheny will reopen the emergency room at West Pennsylvania Hospital, which was closed under the prior chief executive's consolidation and turnaround plan. Weak finances at West Penn Allegheny left the system with an operating loss of $51.7 million in fiscal 2011.

Officials hope to reopen West Penn Hospital's emergency room in 2012, Ghezzi said.

Highmark in June agreed to spend up to $475 million in its acquisition bid for the struggling West Penn Allegheny, which sparked a heated contract dispute with the University of Pittsburgh Medical Center.

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