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Consultant: Highmark-West Penn deal would benefit consumers

Health insurer Highmark wants to infuse an additional $175 million into its Allegheny Health Network, saying the newly formed hospital network needs cash to pay its bills and make capital improvements.

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Monday, April 8, 2013, 10:03 a.m.

Highmark Inc.'s acquisition of West Penn Allegheny Health System would benefit consumers in Western Pennsylvania, a consultant hired by the state Insurance Department concluded.

Chicago-based consultant Margaret Guerin-Calvert and a second consulting firm, the Blackstone Group in New York, said in separate reports released on Monday that significant risks accompany Highmark's strategy to make West Penn Allegheny the centerpiece of a health system to compete against UPMC.

However, Guerin-Calvert said “there 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, with an invigorated WPAHS.”

Guerin-Calvert, a senior consultant with Compass Lexecon, noted there is “substantial uncertainty” about Highmark's ability to shift large volumes of patients from UPMC — which is key to turning around the struggling West Penn Allegheny Health System.

“I find there is a great deal of uncertainty underlying many of the key assumptions supporting these projections and some appear to be unreasonable or lacking in credibility, given market conditions,” she said.

The state Insurance Department hired Compass Lexecon to analyze the public benefits of the acquisition and its effect on Western Pennsylvania's health care and insurance markets. The Blackstone Group's report looked at the deal's impact on Highmark's finances and its insurance members.

State regulators have been reviewing the $1.1 billion deal since November 2011 and declined to comment on the reports. The state Insurance Department will accept public comments on the reports through April 19.

Highmark, the state's largest health insurer, plans to make financially troubled West Penn Allegheny and its five Pittsburgh-area hospitals the centerpiece of a health system that could compete with UPMC, the largest hospital network in Western Pennsylvania.

The insurer anticipates a state decision on the deal by April 30, when its acquisition agreement with West Penn Allegheny expires.

Highmark spokesman Aaron Billger said the reports show the department “is moving toward completion of its review within a time frame that works.”

“We are pleased with the overall conclusions of the reports because they affirm our judgment that an affiliation with WPAHS and our integrated delivery network strategy are good for our community,” Billger said. “The reports recognize the need for a strong WPAHS to preserve health care choice and contain health care costs in the marketplace.”

Blackstone Group, a financial advisory firm, concluded that Highmark's plans won't hurt the company's financial strength under normal circumstances. But unforeseen events, such as a downturn in the economy or stock market, as well as unexpected changes in the health care market brought by the so-called “Obamacare” could “materially lessen Highmark's financial flexibility and capacity to respond to such circumstances.”

The group's analysts noted that although Highmark claims it will spend $1 billion to build the system — composed of West Penn Allegheny, Jefferson Regional Medical Center, St. Vincent Health System in Erie and doctor practices — the true cost to the insurer ranges from $1.8 billion to $2.4 billion.

“Savings realized by Highmark and its policyholders in the cost of care generated by the planned WPAHS and (Highmark's integrated health system) investments are based upon plans that have limited precedent and may be less effective and/or more expensive than Highmark anticipates,” Blackstone noted.

Blackstone suggested the Insurance Department should require a “firewall” between Highmark and West Penn Allegheny that would prevent the sharing of proprietary information about other health insurers in the region who have contracts with the hospitals that could give Highmark a competitive advantage.

SEIU Healthcare Pennsylvania, a labor union representing 2,000 West Penn Allegheny nurses, urged the department to act quickly and “approve the acquisition so WPAHS and Highmark can focus on building a strong integrated delivery network that will provide high quality, cost efficient care for the people of our region.”

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

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