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Highmark's $25 million advance detailed

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Friday, Jan. 6, 2012

Two months before Highmark Inc. announced a deal to acquire West Penn Allegheny Health System for $475 million, the state's largest health insurer advanced the financially troubled hospital network $25 million, documents made public on Thursday show.

The $25 million in April was in addition to $50 million that Highmark gave West Penn Allegheny when the two organizations announced on June 28 their planned merger. West Penn Allegheny had disclosed the advance in an October financial report but said only that it came from "a commercial payor" and would "be used to offset future reimbursements from the commercial payor."

Details of the "payor" came to light in a new version of the acquisition agreement between Highmark and West Penn Allegheny that was filed yesterday in federal court. A version of the agreement filed last month had many sections blacked out as confidential business information. But U.S. District Court Judge Arthur Schwab ruled the entire agreement had to be made public, with a handful of exceptions.

West Penn Allegheny asked Highmark for the advance -- a rare request among medical providers, Highmark spokesman Aaron Billger said.

"There was a very close assessment of the situation, and we determined it was appropriate," he said.

West Penn Allegheny officials deferred to Highmark for a response.

In addition to the advance, the new version of their agreement removes blacked-out sections related to a joint venture company that Highmark and West Penn Allegheny may form to provide laboratory services for the hospital system, Highmark and its affiliates at cost or below cost.

The laboratory services joint venture would acquire lab assets from West Penn Allegheny for a fair market price to be determined later, the documents state. West Penn Allegheny has more than a dozen laboratory service offices across the Pittsburgh area at which patients can go to have blood drawn or provide other specimens for diagnostic testing.

Billger said the lab joint venture was a component of Highmark's plan to build an integrated medical delivery system, which includes buying West Penn Allegheny and private physician practices across the state. Highmark announced on Wednesday that it had affiliated with Premier Medical Associates, a large Monroeville physician practice.

Highmark's 50 percent stake in the joint venture will be funded through its $475 million commitment to West Penn Allegheny, Billger said.

Earlier yesterday, Schwab had ruled that two schedules attached to the agreement would not be made public for now.

West Penn Allegheny asked Schwab to keep sealed two attachments that list physicians who make more than $500,000 a year and contracts worth more than $900,000 a year.

West Penn Allegheny argued that Schwab erred in not including the two attachments in a list of nine attachments that could remain sealed. Schwab told lawyers for West Penn Allegheny, UPMC and the Pittsburgh Post-Gazette, which intervened in the case, to meet today to try to agree on their own whether the attachments can remain sealed. If they cannot agree, UPMC and the Post-Gazette must file responses by noon Monday.

Schwab is overseeing West Penn Allegheny's 2009 antitrust lawsuit that originally alleged Highmark and UPMC had conspired to drive it out of business. After West Penn Allegheny agreed last year to be acquired by Highmark, it dropped the insurer from the lawsuit. The hospital system has asked Schwab to allow it to revise the lawsuit with UPMC as the sole defendant.

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