West Penn Allegheny Health System says Highmark Breached Affiliation Agreement

Sep 28, 2012

West Penn Allegheny Health System said it is released from its obligations to Highmark under the affiliation agreement signed by the two entities in 2011. The reason, said WPAHS Board Chair Jack Isherwood, is a breach of the agreement on Highmark’s part. That breach, he said, comes in the form of an indication that Highmark would not consummate the agreement, even if the insurance commissioner approved it.

“Instead Highmark wants a new deal that involves West Penn Allegheny Health System undergoing a bankruptcy process,” said Isherwood.

WPAHS will begin exploring other affiliation options. The agreement with Highmark prevented them from looking at other possibilities before now. Isherwood said one thing is certain in what they’re looking for – bankruptcy has to be the last option on the table, and added bankruptcy has never been considered by the health system as an option. He said Highmark cited WPAHS’s financial liabilities, which total just under $1 billion, and ongoing operating challenges as reason for entering bankruptcy.

“It must be noted that Highmark entered into the affiliation agreement with a full understanding of the debt burden this organization was carrying, the level of debt has not changed since the original was struck except for the addition of Highmark loans which were a part of the definitive agreement,” he said.

Because of the breach in agreement, the loans will now be considered grants and will not have to be paid back. Though other options will be explored, Isherwood said Highmark could still be part of the solution.

State Senator Jim Ferlo said he’s gravely disappointed in the announcement.

“I have concerns that this entire process was nothing more than a ruse from the start on Highmark’s behalf to provide leverage in their negotiations with UPMC to extend their partnership. The facts are clear: Highmark signed a contract extension with UPMC for preferential rates, low-balled West Penn on the rates it was willing to pay their ostensible partner, and then changed the nature of the Affiliation Agreement by demanding a bankruptcy proceeding. This appears to be a process which was rigged simply to maintain a relationship with UPMC that provides both with unfair market dominance and hurts Southwest Pennsylvanians,” he said.

In a statement to the media, Highmark said it “categorically denies the claim 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.”