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Highmark didn't breach West Penn Allegheny agreement, judge rules

Luis Fábregas
| Friday, Nov. 9, 2012, 2:12 p.m.

Negotiations between Highmark Inc. and West Penn Allegheny Health System could restart as early as next week since an Allegheny County judge ruled on Friday that the insurer did not breach its $475 million affiliation agreement with the hospital network.

Common Pleas Judge Christine Ward granted Highmark's request for a preliminary injunction, which prohibits West Penn Allegheny from searching for other suitors in a quest to remain financially solvent.

In her ruling, Ward said Highmark would have sustained “irreparable harm that cannot be assigned a dollar amount” without the West Penn Allegheny partnership. The state's largest insurer has given West Penn Allegheny $230 million in grants and loans.

Leaders of the struggling hospital network had vowed to talk to other organizations about a partnership after they said Highmark threatened to take the system to bankruptcy to restructure about $1 billion in debt.

Highmark officials issued a statement saying they are pleased with the ruling and intend to resume negotiations immediately. A spokesman, however, could not say if any meetings had been scheduled or if anyone from Highmark had called West Penn Allegheny.

“We look forward to meeting with WPAHS immediately to develop an appropriate financial restructuring plan or an alternative proposal that benefits patients, employees and the community and that addresses the Pennsylvania Insurance Department's concerns about the short-term and long-term financial condition of WPAHS,” Highmark spokesman Michael Weinstein said in a statement.

West Penn Allegheny officials said they were disappointed by the court's decision.

“As we have said from the beginning, we believe that Highmark is a good partner for WPAHS,” board Chairman Jack Isherwood said in a statement. “We look forward to engaging in constructive dialogue with them as soon as possible regarding the best way to move forward.”

Highmark wants to acquire West Penn Allegheny as part of a $1 billion, integrated, health care delivery network to compete with UPMC, the region's largest medical provider.

Highmark sued West Penn Allegheny after the system's board of directors claimed the insurer's CEO, William Winkenwerder, told them that “the original affiliation is history.”

“This court finds that while WPAHS's interpretation of Dr. Winkenwerder's statements is not wholly unreasonable, we find that Dr. Winkenwerder's statements reflect tactical threats made as a form of negotiation,” Ward wrote in her opinion.

The dispute played out in court during a four-day hearing that concluded Nov. 2 in which Highmark and West Penn Allegheny executives testified about the strained relationship.

Both parties agreed on one thing: The financial state of the region's second-largest hospital network is precarious at best.

In court documents filed on Thursday, Highmark said West Penn Allegheny “refuses to confront reality” and has a viable future only if it teams with a strong partner. The hospital network posted operating losses of $112.5 million in fiscal year 2012, which ended June 30. The amount was higher than what management projected. The hospital system is projected to lose $116.8 million during the current fiscal year, the court documents show.

The state Insurance Department has raised concerns about West Penn Allegheny's ability to repay its huge debt. Insurance officials, who must approve the deal, were reviewing the judge's ruling, said department spokeswoman Rosanne Placey.

The feud between the potential partners prompted physicians across the hospital network to sign a petition asking the system's board of directors to remove the interim executive management.

The health system's contract with the management firm, Alvarez & Marsal, expired on Tuesday but has been extended, West Penn Allegheny spokeswoman Kelly Sorice said. She could not immediately provide the terms.

Even if a breach had occurred, the agreement requires West Penn Allegheny to notify Highmark and give the insurer 30 days to make corrections, Ward ruled.

Highmark likely would have succeeded in proving that West Penn Allegheny violated an exclusivity agreement that blocked the health system from shopping for other partners. Interim CEO Keith Ghezzi testified during the hearing that the system has “received significant expressions of interest” since Sept. 28, when the health system called a press conference to announce the breach.

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

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