The state will have authority to approve financial donations that are larger than 3% of its surplus “as regards to policyholders” or more than 25% of its net income.
Highmark must also draft a corrective action plan criteria if West Penn Allegheny's deteriorating finances and operations fail to improve if the health system cannot break even by June 30, 2015, or if Highmark must pour another $100 million into the system and West Penn Allegheny continues to receive speculative grade ratings from two ratings agencies though that period.
West Penn Allegheny ratings from Fitch Ratings, Moody's Investors Service and Standard & Poor's are among the lowest speculative ratings awarded to borrowers.
“Our objective was to really hold Highmark to the promises it has made” to control healthcare costs, promote competition and innovate, Insurance Commissioner Michael Consedine said in an interview.
The deal was first announced in June 2011 and submitted for approval in November 2011.
Other conditions set by the Insurance Department include state review of executive compensation. A “meaningful portion” of long-term pay to top executives must be “tied to achievement of quantifiable and tangible benefits to policyholders” or the not-for-profit, the Insurance Department said.
Regulators also sought to protect competition.
Conditions set by the Insurance Department require a firewall policy to prevent Highmark and West Penn from sharing rivals' pricing or product information, which could reduce competition. Conditions also prohibit exclusive contracts by Highmark's hospitals, doctors or other providers or contracts longer than five years. The regulator also banned use of deals that guarantee insurers the best terms or price, known as “most favored nation” clauses.
UPMC—a Pittsburgh-based rival to West Penn Allegheny that also owns an insurer—said in a statement that the health system “looks forward to competing” with Highmark's new integrated network. But UPMC won't renew or extend a contract with Highmark that ends in 19 months. “It is important that consumers understand these changes so they can take the steps needed to continue accessing their preferred doctors and hospitals.”
Follow Melanie Evans on Twitter: @MHmevans