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Allegheny Health Network seeking $850M from parent Highmark Health

| Thursday, April 6, 2017, 4:59 p.m.
Keith Hodan | Tribune-Review
The Highmark sign atop Fifth Avenue Place in downtown Pittsburgh.

Highmark Health wants to give Allegheny Health Network $850 million over the next two years and is asking the state to stop requiring that the insurer get permission for large cash infusions to the hospital system in the future, according to documents newly filed with the Pennsylvania Insurance Department.

Highmark requested permission to forgive about $720 million in loans made to the seven-hospital system, which includes flagship Allegheny General Hospital in the North Side, and to refinance $700 million in loans to the system, according to the insurance department.

The insurer said in the filings, posted to the department's website Thursday, that it should no longer have to get permission for investments in AHN of more than $250 million or report investments of more than $100 million. The state required approval and reporting for the investments when it allowed Highmark to form AHN in 2013. The approval agreement allowed for future revisions such as the one Highmark is now requesting, the insurer said in the filings.

Highmark said in the filings that the changes would allow AHN to more freely compete with UPMC and other hospital systems.

“No other business has to compete in an environment where they are being assessed by their competitors,” Highmark spokesman Aaron Billger said.

The insurer is preparing for 2019, when a state consent decree governing some business relations between Highmark and UPMC expires. The consent degree preserves access to UPMC hospitals until then for seniors, cancer patients and other vulnerable populations with Highmark insurance, but after that Highmark members might not have access to any UPMC hospitals.

While it doesn't go into specifics, Highmark's request states that the insurer plans to invest in “service lines and service areas expected to experience the greatest disruption from the termination of the consent decree.”

Highmark argues in the request that forming AHN benefited Western Pennsylvania consumers by preserving hospital competition, which keeps prices in check. Highmark says in the request that UPMC's recent affiliation with Susquehanna Health in northern Pennsylvania and its proposal to affiliate with Pinnacle Health in central Pennsylvania are expanding the turf war between the rivals.

“All these changes mean that the threats to access and choice for Highmark customers and the public generally, which, until now, has been a uniquely western Pennsylvania phenomenon, likely is going to become a statewide issue within the very near future,” the filing states.

Highmark Health has invested more than $1 billion in Allegheny Health Network, which was formed in 2013. In addition to AGH, the hospital system includes Allegheny Valley Hospital in Harrison, West Penn Hospital in Bloomfield, Forbes Hospital in Monroeville, Canonsburg Hospital, Jefferson Hospital in the South Hills and St. Vincent Hospital in Erie.

In February, Allegheny Health Network reported an operating loss of $39 million for 2016, more than the hospital system projected it would lose for the year. Year-end revenues were $2.9 billion, up 30 percent since Highmark acquired it, according to the filing.

Highmark Health reported operating profits of $64 million for 2016 and revenues of $18.2 billion for the year. The company says it plans to lower costs and improve health care by focusing on value-based care rather than the traditional fee-for-service model.

A plan filed by AHN with the state shows the hospital system projects significant increases in patient volume and operating income through 2020. Allegheny Health projects the increased volume will lead to operating income gains of $151 million in 2019 and $175 million in 2020, records show.

Wes Venteicher is a Tribune-Review staff writer. Reach him at 412-380-5676 or wventeicher@tribweb.com.

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