Highmark Inc., West Penn Allegheny Health System and a selected number of West Penn bondholders announced on Wednesday they had reached a financial settlement that would allow for a reduction in the debt load of the WPAHS and allow the proposed merger of Highmark and ailing health system to proceed.
According to a press release issued by both companies, the deal would see Highmark purchase the outstanding series 2007A bonds issued for WPAHS by the Allegheny County Hospital Development Authority for cash at 87.5 percent of par amount. The deal, which will require approval by the bondholders, would significantly improve WPAHS' balance sheet and allow the planned merger of the two entities to move forward.
"Throughout this process we all worked hard to develop a financial plan for the short and long term financial stability of the health system," said Highmark president and CEO William Winkenwerder, Jr., MD, in a press release announcing the plan. "We are glad to have reached common ground with everyone, and we appreciate the strong support from the community and elected officials."
In addition to the planned bond purchase, the deal also will preserve the pensions of 12,000 WPAHS employees. Both issues have been a sticking point over the past few months and tensions over these issues and others caused West Penn to seek a nullification of the deal last October.
West Penn also alleged that Highmark had breached the affiliation agreement by trying to force the health system into bankruptcy as a means of lowering the debt obligation the insurer would bear under the affiliation.
But the parties were forced back to the bargaining table in November after a judge in the Court of Common Pleas ruled that Highmark had not breached the deal and allowing WPAHS to seek other suitors would have caused Highmark irreparable harm.
West Penn officials declined an interview, but in a letter to its employees on Wednesday Board Chairman Jack Isherwood said "This deal enables us to restructure our debt without a bankruptcy filing. The Board of Directors and I are extremely pleased such a settlement was reached as this means that WPAHS employees' and retirees' pensions will not be impacted as a part of the deal."
With the squabbles between the two companies seemingly behind them, the focus again turns to the regulatory process in the state, as Highmark looks to have WPAHS as its centerpiece in a new delivery system to compete with the region's dominant provider, UPMC.
The Pennsylvania Department of Insurance (PID) must approve the new structure of the deal, and locally, the Allegheny County Orphan's Court will examine the proposed deal to make a determination as to whether it will benefit the community.
Highmark noted in its press release that it will work diligently with the PID to provide any information needed to facilitate a prompt ruling.