West Penn Allegheny says Highmark deal is over

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PITTSBURGH —

West Penn Allegheny Health System told insurer Highmark Inc. on Friday that it wants out of the affiliation agreement the two signed last year and that the struggling hospital system “will explore new options for its future direction.”

Officials at the region’s second-largest hospital network said they decided to walk away from the $475 million deal because Highmark demanded that West Penn Allegheny declare bankruptcy, board officials said during a hastily scheduled press conference at the system’s headquarters on the North Side.

West Penn Allegheny board Chairman Jack Isherwood said bankruptcy was “not the preferred option,” and that such a move would harm the health system, its employees and the community.

“Our impending marriage is over because Highmark is demanding new terms that will alter the course of the West Penn Allegheny Health System in ways far afield from our agreed-to strategic vision,” said Isherwood.

Highmark and West Penn Allegheny announced the $475 million acquisition in June 2011. The deal has been under review by the state Insurance Department since November.

Highmark, the state’s largest health insurer, gave West Penn Allegheny $100 million in grants and a $100 million loan so far.

Under terms of the agreement, if West Penn Allegheny pulls out of the deal it would have to repay the loans but not the grants.

In a statement released Friday Highmark officials said, "Highmark categorically denies the claim by West Penn Allegheny Health System (WPAHS) that Highmark has breached the affiliation agreement between us.  Highmark continues to believe that an affiliation between Highmark and WPAHS is in the best interests of both parties, and more importantly of the entire community - the physicians and employees of WPAHS, Highmark plan members, employers, and all parties.  We believe that WPAHS is an important community asset that is vital to our region.  We have been working in good faith with WPAHS to move forward our proposed affiliation in a way that creates a strong foundation for success.  We believe that we have made substantial progress in this regard, especially in recent weeks.

Market forces and health system reform are causing all participants in the health care system to change the way they do business. For that reason in 2011, we announced our proposed affiliation with WPAHS.  Highmark wants to maintain competition and preserve provider choice for consumers in Western Pennsylvania.  Alignment with WPAHS helps create this outcome.

Highmark is firmly committed to working with all segments of the community to make necessary changes to help control health care costs, improve quality of patient care and patient safety, preserve options and choice for individuals, employers, physicians and other health care practitioners.  We will continue to pursue efforts that are in the best interests of the broader community."

The deal’s unexpected collapse drew a passionate reaction from state Sen. Jim Ferlo, D-Highland Park, who had lobbied for improvements in the West Penn Allegheny system.

“I am gravely disappointed in today’s announcement,” Ferlo said. “West Penn has been an honest broker in this process, is an important community asset, and is a vibrant health system whose survival is instrumental if the Pittsburgh region is to have a competitive and vigorous health care market.”

Jan Jennings, a health care consultant, said it might be difficult for West Penn Allegheny to find a comparable partner but said several for-profit companies might be interested in entering the Western Pennsylvania market.

“It is the dumbest, most reckless abandonment of fiduciary responsibility I have ever seen,” Jennings said about the West Penn Allegheny board. “It’s a huge embarrassment for the community.”

West Penn Allegheny CEO Keith Ghezzi said the system has had no discussions with potential partners.

“I'll do anything I can to support that effort. I know, for example, the Bloomfield community is very much reliant on West Penn and I don’t know what West Penn’s plans are, but my hope is they try to work this out with Highmark," Mayor Luke Ravenstahl said Friday.

Channel 11's news exchange partners at TribLIVE contributed to this report.