Pa.’s Highmark Sues West Penn Allegheny Over Broken Deal

Oct. 02--Highmark Inc. sued West Penn Allegheny Health System on Monday, seeking to stop the health system from starting acquisition discussions with other companies and to protect the insurer's investment in the financially ailing health system along with its plans to build a $1 billion rival to UPMC.

Highmark, the state's largest health insurance company, is asking Allegheny County Common Pleas Court to issue a temporary restraining order to prohibit West Penn Allegheny from talking to other possible acquirers and to declare that the health system's claims that Highmark violated their agreement are "improper, unjustified, and of no effect."

Highmark also is demanding, in addition to or as an alternative, that West Penn Allegheny be forced to immediately repay $200 million in grants and loans provided by Highmark, the lawsuit states.

West Penn Allegheny spokeswoman Kelly Sorice called the move by Highmark "truly sad."

"We are shocked and disturbed that a nonprofit organization would take this action against another nonprofit community asset," Sorice said.

West Penn Allegheny and Highmark agreed in November to the acquisition, but the deal broke down on Friday when health system officials said Highmark violated the agreement by demanding West Penn Allegheny restructure about $1 billion in debt and pension liabilities through a bankruptcy proceeding.

"Although a financial restructuring is one option that must be considered to meet these objectives, Highmark is open to considering alternative WPAHS proposals that would sustain the system's long-term financial soundness," the insurer said in a statement on Monday.

Local health care consultant Jan Jennings said he's never witnessed a more irresponsible move on the part of a hospital system's board of directors.

"In my 42 years serving American hospitals, this is the worst decision I've ever seen a hospital board of directors take," said Jennings, CEO of American Healthcare Solutions, Downtown.

"We're talking about junk bonds," he said of the health system's nearly $750 million in bond debt. It also has unfunded pension liabilities of about $250 million.

Jennings said any company that considers acquiring West Penn Allegheny is going to demand that it reduce its debt through bankruptcy.

"To make the assertion that 'We're going to make this decision because we think it's in the best interest of our employees,' " Jennings said, "that's Alice in Wonderland, that's through the looking glass.

"There is nobody, for profit or not for profit, that doesn't understand that this place is going into bankruptcy, and soon."

The planned acquisition prompted additional spending by Highmark to support West Penn Allegheny, such as the planned takeover of Jefferson Regional Medical Center, a deal worth up to $375 million, and purchases of several independent physician practices and property for outpatient clinics and medical malls.

West Penn Allegheny's five hospitals and hundreds of doctors were viewed as the anchor for a new health system Highmark was starting to compete against UPMC, the region's dominant health system.

In its lawsuit, Highmark states that West Penn Allegheny's financial position is too dire to not consider bankruptcy. Above the $475 million the insurer has committed to the health system, Highmark estimates West Penn Allegheny may need an additional $350 million over the next five years to cover shortfalls in revenue.

"To date, however, WPAHS has not addressed the concerns about its financial position and debt other than to suggest that in various ways and amounts Highmark give it more money," the insurer states in the suit.

On Friday, West Penn Allegheny officials said that because Highmark had broken the agreement by requiring bankruptcy, the health system was free to be acquired by another company and to keep Highmark's$200 million.

"In a flight from reality, WPAHS has chosen to take over $200 million of Highmark's money and the expectations of an entire community and run from its obligations to negotiate in good faith and exclusively with Highmark," the insurer's lawsuit states.

Alex Nixon is a staff writer for Trib Total Media. He can be reached at 412-320-7928 or [email protected].

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