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With help from Highmark, Western Pennsylvania Hospital renovated its 18-bed intensive-care unit as part of efforts to turn around West Penn Allegheny Health System.

Highmark not letting go

Files suit to stop West Penn from pursuing new deal

By Melanie Evans
Posted: October 6, 2012 - 12:01 am ET

West Penn Allegheny Health System wants to explore possibilities for a new partner to salvage its finances, but Highmark isn't ready to let go.

The parties, both based in Pittsburgh, quickly landed in court after the hospital operator abruptly announced it had called off the agreement Sept 28.

Highmark filed a lawsuit last week claiming West Penn Allegheny had received half of the $400 million the insurer committed to the system under the deal and an end to the transaction would jeopardize “a unique business opportunity” to create “a new and vigorous integrated healthcare financing and delivery system.”

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The insurer asked the court to stop West Penn Allegheny from talking to other suitors and reject the system's grounds for breaking off the deal.

West Penn Allegheny said on Sept. 28 that Highmark violated terms of the agreement, allowing the system to exit and keep $100 million in loans received from the insurer. West Penn Allegheny has received another $100 million in grants from Highmark.

Highmark denies the claim and said in the Oct. 1 lawsuit that it was West Penn Allegheny who breached the terms when it broke off the deal.

Faltering operations at the Pittsburgh-based health system appear to have led to the dispute.

During the first nine months of West Penn Allegheny's fiscal year, which ended March 31, the system lost $87.8 million on operations. In the previous year, operating losses totaled $35.1 million for the same nine months. The three major credit-rating agencies—Fitch Ratings, Moody's Investors Service and Standard & Poor's—reacted to news of the system's breakup with Highmark by placing West Penn Allegheny's weak credit ratings on watch for a possible downgrade.

The health system's leadership said they soured on the deal when Highmark indicated it would not close on the original agreement and West Penn Allegheny would receive further financial aid only if it restructured under bankruptcy.

Kelly Sorice, a West Penn Allegheny spokeswoman, said the system had no further comment.

Highmark asserted in court papers that the health system “has not addressed the concerns about its financial position and debt other than to suggest that in various ways and amounts Highmark give it more money.” The insurer proposed bankruptcy as a potential step, the lawsuit said. Losses at West Penn Allegheny would total

$350 million over five years, Highmark projected, and Highmark's financial aid prevented default on the system's bonds.

Meanwhile, Highmark said, the insurer entered into other agreements building on its impending partnership with West Penn Allegheny to develop a “highly publicized” integrated delivery system.

Pennsylvania Insurance Department filings for the deal show Highmark in August pledged up to $175 million for a health foundation and capital projects in an affiliation agreement with Jefferson Regional Medical Center in Jefferson Hill, Pa. The insurer said it has also “secured relationships” with more than 100 doctors.

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