Highmark says plan 'misconstrued'

Luis Fábregas
| Friday, Oct. 12, 2012, 5:00 p.m.

In a war of letters, two top Highmark Inc. officials on Friday said the West Penn Allegheny Health System board “completely misconstrued” the insurer's plan to restructure the health system's debt and urged them to drop a breach of affiliation claim.

“What we intended and presented was a plea and a plan to jointly approach your major creditors about a debt restructuring,” Highmark CEO William Winkenwerder and board chair Robert Baum wrote to West Penn Allegheny board chair Jack Isherwood. “The proposals we discussed would fully protect the pensions of all WPAHS employees.”

“We doubt that our 18 directors misconstrued your words ‘The original affiliation is history,' and subsequently, ‘The affiliation is dead,' ” Isherwood and interim CEO Keith Ghezzi fired back in a letter to Highmark. They maintained they would not drop their position that Highmark breached their agreement.

The proposed $475 million affiliation between the state's largest health insurer and the region's second-largest hospital network collapsed two weeks ago when West Penn Allegheny officials said Highmark demanded that the health system declare bankruptcy to restructure nearly $1 billion in debt.

Highmark for now has stopped second-phase renovation projects at West Penn Hospital in Bloomfield and Forbes Regional Hospital in Monroeville because of the health system's claim of a breach.

The escalating feud prompted top physicians from West Penn Allegheny to lash out at its board, demanding the resignation of the system's interim management team. The board received letters from three doctors' groups, one of which asked for board representation of doctors from each of the five hospitals.

In a memo to employees, Isherwood rejected suggestions to fire Ghezzi and his Alvarez & Marsal team, saying the board voted to back out of the Highmark deal, not the consultants.

“I must admit that I was very hurt when I learned that ‘unnamed WPAHS physician leaders' spoke with the Tribune-Review about the contents of one such letter before I had even received it,” Isherwood wrote.

In their letter to West Penn Allegheny, the Highmark leaders expressed shock over West Penn Allegheny's interpretation of their plan. They said they want to move forward with the agreement.

Highmark filed a civil suit against West Penn Allegheny seeking an injunction. If upheld, the breach could cost the insurer repayment of $100 million in loans it extended to the health system. A hearing on the injunction is scheduled for Oct. 25-26.

Isherwood and Ghezzi said Highmark officials told them even if the board agreed to debt restructuring and a pension transfer to the Pension Benefit Guaranty Corp., the insurer could not assure them it would complete the acquisition.

“It is shocking to us that you would characterize these proposals as ‘eminently reasonable approaches,' ” the West Penn Allegheny letter states.

The hospital leaders said the health system contracted with New York City-based Alvarez & Marsal at Highmark's urging.

“While I completely understand that this organization is consultantweary, A&M is doing the job that the board hired them to do and is doing it well,” Isherwood told employees. “... A management change at this critical juncture would not only be extremely disruptive, but could also set WPAHS back.”

A Highmark executive told the Trib it's important to resume negotiations soon because the system's financial condition is weak.

The executive, who asked not to be identified, said West Penn Allegheny's intent to keep the loan money and $100 million more in grants is “completely absurd.”

“We've never left the table,” the official told the Trib. “They were the party that left. We're ready to talk at any time.”

Luis Fábregas is a staff writer for Trib Total Media. He can be reached at 412-320-7998 or lfabregas@tribweb.com.

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