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State regulators must break Highmark dominance, Aetna exec says

About Alex Nixon

By Alex Nixon

Published: Tuesday, April 17, 2012

Competing health insurers think Highmark Inc.'s acquisition of West Penn Allegheny Health System could enhance competition among carriers, but only if the deal is approved by the state with conditions that break Highmark's dominance in the market, the president of Aetna Inc. in Pennsylvania said at a public hearing today.

"Insurers must have access at fair rates," said Aetna's Patrick Young. "Highmark's acquisition can be very positive for Western Pennsylvania if the right consumer protections are put in place."

Young asked that West Penn Allegheny and Highmark, a non-profit, be required to extend the same reimbursement rates to all insurers. Last year, for-profit insurers Aetna, Cigna Corp., HealthAmerica and United HealthCare began competing in the market with full access to UPMC, the region's largest hospital system and West Penn's main competitor.

The state Insurance Department is holding a public hearing on the proposed acquisition at the Westin Convention Center Hotel, Downtown.

State Insurance Commissioner Michael Consedine questioned Highmark executives on how the insurer's proposed $475 million acquisition of struggling West Penn Allegheny might affect the company's financial solvency.

Consedine said he's heard concerns that West Penn Allegheny could become a "money pit," and asked how confident Highmark is that the $475 million will be enough to save the system.

"We're very confident in the plan we put in place," said Deborah Rice, Highmark's senior vice president for health services. Rice testified along with Robert Baum, Highmark's board chairman and acting CEO.

Baum also noted that Highmark is not assuming responsibility for West Penn Allegheny's $750 million in bond debt and $250 million in pension liability.

Baum and Rice were the first to speak at today's hearing. More than 40 people registered to speak on the proposed acquisition. About 200 people were in the audience.

The combined organization will maintain jobs, provide health care consumers with greater choice and help to lower costs, said Neil Bisno, president of SEIU Healthcare Pennsylvania, a labor union representing about 2,000 West Penn Allegheny employees.

"I think the Insurance Department is doing its job of asking the hard questions," Bisno said. "I'm very confident ... that the commissioner will ultimately approve this transaction."

Department regulators are tasked with examining a range of potential implications, including how combining a health insurance company with a hospital network could increase or decrease competition to the deal's affect on health insurance costs, Highmark's financial solvency or if it would violate state laws.

Highmark, the state's largest insurer, announced in June that it planned to buy financially struggling West Penn Allegheny. In November, the Insurance Department began reviewing the deal.

The deal also needs approvals from the IRS, state Attorney General's Office and Allegheny County Orphan's Court.

The Justice Department last week said it had closed an antitrust investigation of the acquisition, stating that it would not reduce competition for health insurance or medical services in Western Pennsylvania.

Highmark is seeking to create an integrated health system, anchored by the five-hospital West Penn Allegheny, to compete with UPMC, the region's dominant health system with 19 hospitals and 3,200 doctors.

Since Highmark announced its intention to buy West Penn Allegheny, UPMC has refused to negotiate new reimbursement contracts. Without new contracts, Highmark members will have to pay higher out-of-network costs to access UPMC hospitals.

In addition to pushing for new contracts with UPMC and keeping West Penn Allegheny afloat, Highmark is searching for a new CEO. The company fired former CEO Ken Melani on April 1 after police charged him with assault and trespassing for fighting with the husband of his mistress. Melani struck a deal with prosecutors to drop the charges if he completes counseling.

Highmark is conducting both a nationwide and internal search for its next CEO, acting CEO Baum told reporters during a break in the hearing.

Baum declined to provide specifics on the company's search to replace Melani, but said, "Hospital experience would be a plus."

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