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Highmark issues rosy West Penn prognosis

| Wednesday, March 13, 2013, 12:01 a.m.

West Penn Allegheny Health System would return to profitability next year, according to financial projections Highmark Inc. filed with the state Insurance Department, a scenario that appears more optimistic than the insurer previously stated.

Highmark said that keeping UPMC in its network of medical providers would “not deter or harm the turnaround” of struggling West Penn Allegheny, which it is planning to acquire as part of a strategy to build a health system to compete against UPMC.

State officials last month raised concerns about Highmark's proposed acquisition of West Penn Allegheny. The Insurance Department, which needs to approve the deal, questioned whether Highmark could fix West Penn Allegheny if the insurer extended its relationship with UPMC beyond the end of 2014.

“Highmark believes that the data it has submitted to the PID (Pennsylvania Insurance Department) proves that its plan for restoring WPAHS to financial health is achievable, with or without a UPMC contract, and that a UPMC contract ensures a stronger Highmark,” the insurer said in the filing made public on Monday.

With Highmark members able to continue accessing UPMC hospitals and doctors after 2014 — when current contracts expire — West Penn Allegheny's revenue would skyrocket to an estimated $1.8 billion in 2014, up 69 percent from $1.1 billion projected for this year, the filing said. It would swing from a net loss of $43.6 million estimated for this year to a net profit of $4.8 million in 2014 and balloon to $113.8 million in 2015.

The return to profitability in 2014 is a year sooner than Highmark told the department in a January filing, which assumed that it didn't extend its contracts with UPMC.

Highmark Chief Financial Officer Nanette DeTurk said last month that the turnaround could take even longer — up to five years — if Highmark were able to extend the UPMC contracts.

That statement was backed up in the latest filing, which stated: “Even in a scenario which posits that UPMC remains in Highmark's network, the turnaround of WPAHS will occur, albeit at a slower pace.”

Yet the statement appears at odds with the numbers provided to the department, which show West Penn Allegheny turning a profit as early as next year.

Highmark spokesman Aaron Billger declined to comment and said DeTurk was not available.

Highmark detailed year-by-year growth in revenue and profit at West Penn Allegheny from 2013 to 2016 in the latest financial projections.

The January filing, which uses the assumption that Highmark members will not be able to access UPMC after 2014, does not include comparable yearly financial projections. The Insurance Department does not have them, and Highmark declined to provide them.

State Sen. Don White, a Republican from Indiana and chairman of the Senate Banking and Insurance Committee, echoed the Insurance Department's concerns last month. In separate letters to Highmark, Deputy Insurance Commissioner Stephen Johnson and White questioned how the insurer expected to boost patient volume at West Penn Allegheny if its members could continue accessing UPMC, the largest network of hospitals and doctors in Western Pennsylvania.

Insurance Department officials declined to comment. White could not be reached for comment.

“Highmark's latest filing is less about saving West Penn than it is about Highmark ensuring its domination of the market to the detriment of competing health insurers, community hospitals and UPMC,” UPMC spokesman Paul Wood said.

UPMC has said it will not renew contracts with Highmark because the insurer will harm UPMC financially by steering patients to West Penn Allegheny.

The contracts are considered essential to Highmark's ability to retain and grow its base of insurance customers. Patients could leave Highmark for other health insurers that have access to UPMC, which owns 19 hospitals and employs more than 3,300 doctors in Western Pennsylvania.

According to Highmark's projections, its insurance revenue in 2015 would be $16.8 billion if it lost UPMC contracts. With the contracts, 2015 revenue would be $18.2 billion.

Highmark said that with UPMC, it would increase patient volume at West Penn Allegheny by 46 percent over five years — from 57,000 patients a year to 83,000 by 2017.

If the increase occurred as Highmark expects, volume would exceed 2008 levels, when West Penn Allegheny hospitals treated 77,800 patients.

Wood noted that UPMC on average treats about 30,000 to 35,000 Highmark members a year.

Alex Nixon is a staff writer for Trib Total Media. He can be reached at 412-320-7928 or anixon@tribweb.com.

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