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Highmark, Jefferson Regional make deal

| Tuesday, June 12, 2012, 10:43 a.m.
Highmark board chairman J. Robert Baum (left) announces a strategic partnership with Jefferson Regional Medical Center alongside John J. Dempster, president and CEO of the community hospital, on Tuesday in the facility in Jefferson Hills. James Knox | Tribune-Review

Don't call it a takeover, but Highmark Inc. expects to control 75 percent of Jefferson Regional Medical Center's board of directors by the end of the year, officials said on Tuesday.

The two nonprofits announced a "strategic partnership" in which the state's largest insurer will assume $200 million of the Jefferson Hills hospital's debts and obligations, pay $75 million into Jefferson Regional's community foundation and upgrade its emergency department and clinical services. Officials declined to speculate about the cost of the upgrades.

"This is not a rescue," Highmark Chairman J. Robert Baum said. "This is instead part of a growth strategy we both have."

Jefferson Regional's board unanimously agreed to the terms on Monday with the goal of having the hospital serve as the "southern hub of the Highmark provider network," CEO John J. Dempster said. The proposed partnership must be approved by the state attorney general and Allegheny County Orphans' Court, which have jurisdiction under state law.

Highmark is pursuing partnerships with -- and acquisitions of -- various health care providers throughout the region as it seeks to build a new health system to compete with UPMC, the largest hospital services provider in Western Pennsylvania. Highmark, the state's largest insurer, expects to spend $1 billion building its integrated delivery system, Baum said.

Highmark officials have said the new system will be a high-quality, low-cost alternative to UPMC.

One way Highmark will lower costs, Baum said, is by bringing back its Community Blue insurance plan. The plan, which Highmark eliminated in 2004, was inexpensive but denied access to UPMC hospitals. As part of Highmark's deal with UPMC to extend reimbursement contracts until the end of 2014, Highmark said it will begin offering Community Blue early next year.

Once Highmark's provider network is up and running, Baum said, its 2 million members in Western Pennsylvania would pay less for care at Highmark-owned hospitals but could still receive care at UPMC facilities and others by paying a premium.

UPMC has said it doesn't want to participate in a network like that because Highmark will unfairly "steer" patients away from UPMC's 19 hospitals and more than 3,200 employed physicians.

"When you have better clinical care and better services to patients, you don't have to steer," Baum said. "If you have insurance plans in place to enable patients to make choices, you're going to get that sort of thing."

Yesterday's deal is separate from Highmark's pending acquisition of the West Penn Allegheny Health System, Baum said. Highmark is waiting for state approval of its $475 million takeover of the five-hospital system, which includes Allegheny General Hospital.

If both deals are approved, Jefferson Regional will maintain its own brand and operate as a sister organization to West Penn Allegheny, Baum said.

The next step in Highmark's expansion will be creating a broad array of full-service, outpatient ambulatory care sites across the region, said John Paul, who is in charge of the insurer's integrated system.

"We need to step it up in Western Pennsylvania," Paul said.

Highmark's $75 million contribution to the Jefferson Foundation will increase its funding to about $82 million, Dempster said.

Highmark's assumption of $200 million in Jefferson Regional's debt would include $114.5 million from bonds and loans, and pension obligations of $43.8 million as of June 30, according to financial reports.

Highmark's support will include a new, state-of-the-art emergency department at the hospital's Jefferson Hills campus, new clinical services such as neurosurgery and gynecology, and expanded services at its Bethel Park campus, officials said.

Jefferson Regional, which has 373 licensed beds, posted net patient revenue of $186.8 million for the nine months ended March 31, down from $188.7 million in the same period a year before. It had net income of $3.6 million in the nine months, down from $17.2 million a year ago.

With 17,265 cases in 2010, Jefferson Regional ranked 30th in the state, just ahead of St. Clair Memorial Hospital, Western Pennsylvania Hospital and UPMC Passavant, according to the Pennsylvania Health Care Cost Containment Council, a state agency that collects and analyzes hospital data.

Jefferson Regional ranks fifth in Allegheny County for number of hospital beds, according to the Pennsylvania Department of Health.

For its 2011 fiscal year, which ended June 30, Jefferson Regional lost $4.8 million on its health system operations. In addition to the hospital, Jefferson owns physician practices and outpatient centers.

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