Healthcare Business News

Judge blocks West Penn from seeking new partners

By Melanie Evans
Posted: November 9, 2012 - 4:00 pm ET

Pittsburgh insurer Highmark has won a preliminary injunction (PDF) to stop West Penn Allegheny Health System from seeking a new partner.

In the decision, Pennsylvania Judge Christine Ward said Highmark was entitled to the preliminary injunction because the insurer would likely succeed in its legal battle to stop West Penn Allegheny from walking away from its 2011 acquisition deal, and Highmark risked losing a "unique business opportunity” to build an integrated delivery network.

"While the money contributed toward the partnership by Highmark, some $230 million, could be returned to Highmark via the award of monetary damages, it is clear that the loss of the unique opportunity to partner with (West Penn Allegheny Health System) is irreparable harm that cannot be assigned a dollar amount,” Ward said.

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Highmark agreed to award up to $400 million in grants and loans for West Penn Allegheny under the terms of the acquisition deal and had already invested more than half the funds. The deal has not closed and is under review by the Pennsylvania Insurance Department.

Highmark said in a statement that it was pleased with the decision. "We look forward to meeting with WPAHS immediately to develop an appropriate financial restructuring plan or an alternative proposal that benefits patients, employees and the community and that addresses the Pennsylvania Insurance Department's concerns about the short-term and long-term financial condition of WPAHS," the statement said.

West Penn Allegheny said in late September that it would break off its acquisition deal with Highmark after the insurer's executives called for restructuring under bankruptcy. The financially distressed system, which lost $112.5 million on operations with revenue of $1.6 billion last year and has about $730 million in outstanding bonds, claimed that Highmark breached terms of its agreement and announced West Penn Allegheny would seek another partner.

Jack Isherwood, the health system's board chairman, said in a statement that officials were "disappointed" with the court’s decision but continue to believe Highmark would make a good partner. "We look forward to engaging in constructive dialogue with them as soon as possible regarding the best way to move forward," he said.

The court said Highmark would likely succeed in its argument that the health system, not the insurer, breached terms of the agreement.

Highmark may have threatened to violate terms of the deal but did not do so, the court said. West Penn Allegheny's claim that Highmark "destroyed all trust" was undermined during testimony by the system's interim President and CEO Dr. Keith Ghezzi, who was asked if an infusion of unrestricted cash would have "gone a long way" toward restoring trust. "It would have gone some way," he replied.

"If additional finances and reassurances would restore the trust between the parties, this court finds that the trust could not have been irreparably broken," the court said.

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