Highmark To Buy Erie’s Saint Vincent Health System

Oct. 17--Erie is about to get a taste of health care feuding, Pittsburgh-style.

Pittsburgh health insurer Highmark Inc. announced Tuesday its intent to acquire Saint Vincent Health System, Erie's largest hospital, in a deal that will give Highmark control of Saint Vincent's board of trustees in exchange for $65 million over three years.

The deal, if consummated by the end of 2012 as the two organizations expect, means that Erie's two primary hospitals will be controlled by Pittsburgh companies -- the former Hamot Medical Center, less than two miles from Saint Vincent, has been known as UPMC Hamot since February 2011 when the 404-bed hospital joined Pittsburgh's largest health network.

"Here's the bottom line -- the community needs two strong tertiary care hospitals," said Scott Whalen, president and chief executive of Saint Vincent, in a news conference Tuesday.

The deal also seems to put to rest the notion that Highmark, under its new CEO, William Winkenwerder Jr., is having second thoughts about the insurer's long-game strategy of buying up hospitals and building out its own billion-dollar provider network.

Officials at Saint Vincent, a 428-bed Catholic hospital that serves the Erie market as well as parts of Ohio and New York, said the hospital's board of trustees agreed unanimously Monday to sign a nonbinding letter of intent to partner with Highmark.

The Pittsburgh Post-Gazette reported last spring that Highmark was in negotiations to acquire or affiliate with Saint Vincent. On Tuesday, the two parties said the deal has been in discussions since 2011.

"Saint Vincent has been looking for a strategic partner for several years," Mr. Whalen said. Such a deal was imperative, he said, because it will be difficult for smaller, regional hospitals to remain independent in the years to come, especially given the price pressures being applied by Medicare and federal health care overhauls.

While Highmark will control the hospital, Saint Vincent will keep its name and -- more importantly to the Sisters of Saint Joseph, who founded the hospital in 1875 and have sponsored and worked at the hospitals -- its Catholic identity.

"We have been assured by Highmark that the mission will continue," said Sister Mary Herrmann, president, Sisters of Saint Joseph. Sisters will continue to be employed at the hospital, and the hospital's pastoral care program will also continue.

The Tuesday announcement marks Highmark's third major hospital affiliation agreement in its effort to build a health provider wing that competes with UPMC.

Last year, Highmark and Pittsburgh'sWest Penn Allegheny Health System announced their partnership; that marriage is now on the rocks. WPAHS said Sept. 28 it is canceling the agreement because it doesn't want to go into bankruptcy, as Highmark is urging.

In June, Highmark signed a deal with Jefferson Regional Medical Center in Jefferson Hills, a deal that gave the insurer control of Jefferson's board of directors in exchange for cash for hospital upgrades and contributions to Jefferson's charitable foundation.

As in Pittsburgh where Highmark is trying to prop up the financially ailing West Penn Allegheny Health System, Highmark took on the more financially distressed of the two major Erie hospitals.

While UPMC Hamot broke even in fiscal year 2011 -- 2012's fiscal-year results should be released at the end of this month -- Saint Vincent Health Center lost $11.9 million in fiscal 2011 and lost a combined $18.2 million in the last two years.

Dr. Winkenwerder, Highmark's CEO, said at Tuesday's news conference that Highmark's investment demonstrates the insurer's commitment to local care.

Highmark wants to "[keep] care in the community -- not funneling all the care into an urban area, like, say Pittsburgh. It just makes a lot of sense," he said.

But Erie County's chief executive, Barry Grossman, said that while the hospital remains in Erie, he's wary of leadership that comes from 120 miles away.

"We don't want to end up with two Pittsburgh satellites here," he said. "The bottom line is, who are the decision-makers? Where do they live? Where are their loyalties?"

Despite the proximity to UPMC Hamot and Highmark's ongoing feud with UPMC, Dr. Winkenwerder and Mr. Whalen said Saint Vincent has no interest in limiting patient or insurance carrier access.

"We're not trying to close off choices," Dr. Winkenwerder said.

The deal will have to be cleared by the state attorney general and the county's Orphans' Court, which supervises the transfer of assets between nonprofit or charitable institutions.

Asked if the letter of intent had any walk-away language built into it, which would allow either party to spike the deal if it weren't consummated by a certain date, Mr. Whalen said the deal was more or less in stone, in essence if not contractually.

"We do this once every 137 years," he said, referencing the Erie hospital's age. "We're sure."

Highmark already had a contractual relationship with Saint Vincent, acting as its medical supplier and group-purchaser through Highmark's supply chain company, ProtoCo. The insurer also owns Lake Erie Medical Group, a hospital physicians practice in Erie that is affiliated with the Saint Vincent Health System.

Highmark's most recent affiliation may not be its last, as the health insurer is exploring partnerships with two Central Pennsylvania health systems.

But then, so it seems is everybody else.

At a meeting with West Penn Allegheny Health System clinical staff last week, Highmark officials told physicians that the Pittsburgh health insurer is looking at partnerships with Altoona Regional Health System and with Conemaugh Health System, headquartered in Johns-town, Cambria County.

The private meeting, held Wednesday evening in Green Tree, was a bit of shuttle diplomacy organized by Highmark, during which the insurer assured the West Penn Allegheny physicians that it remains committed to the proposed partnership with WPAHS, and would continue to build up its provider wing.

As evidence, Highmark offered its on-and-off talks with Altoona and Conemaugh.

Of the two systems, Altoona Regional Health System seems the more likely to be merged and become part of a larger system. Altoona has already signed a nonbinding merger deal with Nason Hospital to form a single system that would cover all of Blair County.

That one system, in turn, would be an attractive asset to UPMC, to the nearby mid-state Geisinger Health System or to Highmark. All three have been exploring a partnership with Altoona, according to sources with knowledge of the discussions.

Altoona Regional is an 8-year-old health system with 380 beds, while Nason is a 44-bed hospital.

Though the system would not confirm the specific nature of its talks, Altoona spokesman Dave Cuzzolina said "we're exploring all of our options regarding affiliations."

Conemaugh Health System, meanwhile, has three hospitals and about 600 total beds across its system. Conemaugh has heard presentations from would-be suitors but is looking for more of an affiliation than an acquisition. Conemaugh's CEO for the last seven years, Scott A. Becker, was the vice president of hospital and mid-market sales at Highmark from 2000 to 2005.

Bill Toland: btoland@post-gazette.com or 412-263-2625.

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