PITTSBURGH (AP) — Health insurance giant Highmark Inc. received conditional approval Monday from Pennsylvania regulators to take over the financially troubled West Penn Allegheny Health System as part of its plan to compete for patients and their health care dollars with UPMC, western Pennsylvania’s dominant network.
The conglomerate’s new name is The Allegheny Health Network.
Pennsylvania's insurance commissioner, Michael Consedine, called the takeover a landmark transaction, while proponents of the deal hope it will slow the growth of health care costs and improve health care in western Pennsylvania.
The state Insurance Department's approval comes amid a feud between Pittsburgh-based Highmark and UPMC, the University of Pittsburgh Medical Center's health system. An insurance contract between the two is scheduled to expire in 2015.
In a statement, Gov. Tom Corbett said the decision was in line with his administration's aim to improve health care access, quality and affordability.
“Probably most importantly, it provides choice for our customers and for our long-standing and new members, whoever is a member of Highmark,” said Dr. William Winkenwerder Jr., president and CEO of Highmark.
The conditions of the approval are designed to protect the public, community hospitals and Highmark policyholders, while preserving fair competition and the financial stability of Highmark, the Insurance Department said.
The conditions also require communication to patients and subscribers about the potential termination of the UPMC contract in 2015, the department said.
One condition is designed to maximize access to Highmark's network for unrelated medical providers, community hospitals and insurers.
A consultant to the Insurance Department said there is "substantial uncertainty" as to whether Highmark can shift enough patients from the UPMC health system to turn around the finances of the five-hospital West Penn health system. Another consultant determined that the proposed parent company appeared to be well-capitalized and unlikely to jeopardize Highmark's financial stability.
Highmark notified the Insurance Department in 2011 of its planned $475 million takeover of the West Penn health system. The deal also requires Highmark to pay West Penn bondholders $635 million, making its investment $1.1 billion.
At the end of 2012, Highmark reported a surplus of $4.1 billion to the state Insurance Department.
Under the existing contract, Highmark's 3 million subscribers are able to use UPMC's 3,200 doctors at in-network rates. UPMC offers various health insurance plans and runs more than 20 academic, community and specialty hospitals and 400 outpatient sites. It employs more than 3,200 physicians and runs rehabilitation, retirement and long-term care facilities.
The merger is not expected to impact employment at Highmark.
“We have no current plans to make any major job additions or job cuts. They will be looked at on a case-by-case basis," said Winkenwerder.
In a statement, Mayor Luke Ravenstahl said the merger is a “decision that will help maintain and expand jobs for Pittsburgh residents, while presenting more viable options for quality healthcare …
“This alliance will play a key role in keeping this city, and the entire region, on a steady path for growth,” he said.