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Highmark continues to build healthcare network with St. Vincent deal

Showing it is forging ahead to build a healthcare network that will eventually not include UPMC, Highmark earlier this week committed $65 million to acquire Erie, Penn.-based St. Vincent's Health System.

According to St. Vincent President and CEO Scott Whalen, the health system has been actively engaged in looking for a partner and its affiliation with Highmark will allow it to remain a viable choice for patients in the Erie market.

"Here's the bottom line, the community needs two strong tertiary care hospitals," Whalen said in a news conference announcing the deal. "It's the right thing for the community. If not, healthcare costs increase and most certainly, healthcare quality decreases and patient choice can cease to exist."

Erie, with roughly a quarter million residents in its metropolitan area, has one other health system, UPMC Hamot, which was acquired by UPMC in early 2011 for $300 million. While on a smaller scale, the Highmark-St. Vincent affiliation now sets up a competitive environment similar to the one in Pittsburgh between the region's dominant health insurer and the dominant health system, UPMC.

"The preservation of competitive health systems in Erie is important not only to consumers but also to independent physicians, including those affiliated with Saint Vincent, so they can offer more choices to their patients and sustain adequate patient volume to retain a viable office practice in Erie," said William Winkenwerder, MD, president and CEO of Highmark, in a press release announcing the deal.

As with its other recent network deals, Highmark's cash will be used to enhance care, and in the case of St. Vincent help stabilize the bottom line. According to published reports, the health system lost $2.8 million for the past fiscal year which ended June 30, a significant improvement on the $14.1 million it lost the previous year.

"We've had substantial improvement," noted Whalen in the press conference. "We still report a negative bottom line and it's no secret we have a lot of competition and a lot of physician movement."

Under the terms of the proposed deal, Highmark would provide St. Vincent's with $20 million in cash to help it stay financially viable, another $5 million for capital projects and another $40 million over the next three years to "improve the existing facilities of Saint Vincent and invest in new assets for the Erie region and northwest Pennsylvania," according to information released by the two companies.

The new affiliation announcement shows that the recent squabbles between Highmark and financially troubled integrated health network West Penn Allegheny Health System, aren't going to slow the insurer as it looks to deploy as much as $1 billion to build its own integrated health system. Winkenwerder has said he remains confident the two can still find a way to work toward an affiliation despite WPAHS pulling out of the deal last month amid WPAHS' contention that Highmark breached the original affiliation agreement.

In addition to the WPAHS deal, Highmark also agreed in June to a $275 million affiliation with a second Pittsburgh-area hospital, Jefferson Regional Medical Center.

[See also: West Penn Allegheny walks away from Highmark affiliation]

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