Highmark West Penn Allegheny Merger Update

In 2011, the state’s largest insurer, Highmark, signed an affiliation agreement with the financially troubled West Penn Allegheny Health System (WPAHS) and its five Pittsburgh-area hospitals to create an integrated health system.

The goal of the acquisition is for the integrated health system to be a competitor to the largest hospital network in western Pennsylvania, University of Pittsburgh Medical Center (UPMC).

Now, the acquisition agreement between Highmark and WPAHS is set to expire at the end of the month. At this point, it is up to the Pennsylvania Insurance Department to make a decision on whether the money being spent by Highmark will compromise the health care system’s ability to pay the claims of its customers while still providing for and meeting the health care needs of western Pennsylvanians.

The state Insurance Department has been reviewing the $1.1 billion deal since November 2011 and hired Compass Lexecon of Chicago to analyze the public benefits of the acquisition and its effect on western Pennsylvania’s health care and insurance markets. The Insurance Department has charged the Blackstone Advisory Partners of New York with analyzing the deal’s impact on Highmark’s finances and its insurance members.

Last week, the consultant groups issued separate reports that concluded that the acquisition of WPAHS by Highmark is “a reasonable economic basis for substantial benefits to the public in the form of improved delivery of care, reduced rate of increase in health care costs, and enhanced competition, particularly in the hospital sector.” Furthermore, the firms feel that the transaction on its own would not likely jeopardize Highmark’s financial stability and it would take an unforeseen external circumstance, like another economic decline, to lessen Highmark’s financial condition and flexibility.

State Insurance Department officials have been awaiting the reports as they consider whether to approve the affiliation. While not decisive to the Department’s final finding, the reports are considered key to the Department’s final determination of the merger. In the meantime, as a part of the Department’s ongoing public input process, comments on the reports and the planned acquisition will be accepted by the Insurance Department through Friday, April 19. Written comments should be directed to:

Robert Brackbill, Chief

Company Licensing Division

Insurance Department

1345 Strawberry Square

Harrisburg, PA 17120

Email: rbrackbill@pa.gov

Fax: 717-787-8557

You can review both reports by visiting www.insurance.pa.gov.

Hospitals and the health care industry are a major economic factor in the Pittsburgh region. The recent disagreements between Highmark and UPMC have caused great concern and anxiety for the many people who are employed by these health care giants, customers, individuals and companies who do business in the industry, as well as local officials. I am optimistic that the acquisition of WPAHS by Highmark could result in a more accessible, thriving health care market for all of southwestern Pennsylvania. After all, when people have a choice, not only does it guarantee high quality care but it also helps to keep health care costs down for the customers.

Senator Wayne D. Fontana

42nd Senatorial District

www.senatorfontana.com

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