West Penn Allegheny Health System's divorce from Highmark may not be final, despite borderline incendiary statements from both parties suggesting a wide rift exists.

The Western Pennsylvania health insurance industry reacted with surprise following last week's announcement by West Penn Allegheny Health System that it was withdrawing from its proposed affiliation with Highmark Blue Cross Blue Shield.

Joseph Friedman, partner and leader of the managed care litigation practice at Thorp Reed & Armstrong LLP in Pittsburgh, said the developments were ?unexpected,? given how much Highmark has invested in becoming an integrated delivery and finance system.

?It would be hard to believe that this is the end of the story,? Friedman said.
In a prepared statement issued Friday, West Penn said Highmark breached the affiliation agreement when it requested the health system enter bankruptcy to address excessive bond debt, which is estimated to be around $800 million.

West Penn balked at the suggestion, stating such a move could harm its employees and the community.

Another sticking point in negotiations could be Highmark's desire to see West Penn Allegheny unload its unfunded pension liability to the Pension Benefit Guaranty Corp., a federal entity that oversees private-sector defined benefit pension plans.

In a prepared statement of its own, Highmark said it ?categorically denies? West Penn's claim that it breached the contract.

?This literally came out of nowhere,? Douglas Moore, director of the benefits division at Seubert & Associates in Pittsburgh, said of the sudden turn in events.

New leadership at Highmark could have something to do with the about-face.  This past June, Highmark's board of directors appointed William Winkenwerder Jr., M.D., as the company's new president and CEO. He replaced longtime CEO Kenneth Melani, who was fired after his arrest for a highly publicized altercation with the husband of his mistress.

Calling off the affiliation could open the door for Highmark to mend fences with UPMC, which is a competitor of West Penn Allegheny. Following a year of contentious negotiations, UPMC and Highmark signed a truce in May 2012 that extends their network agreement through December 2014. UPMC had initially refused to sign an in-network provider contract with Highmark and instead signed multiyear network agreements with competitors Coventry Health Care, Aetna, UnitedHealthcare and Cigna.

More likely, however, is that Highmark will attempt a compromise with West Penn and continue towards its goal of becoming a rival to UPMC in the provider market.

This is not the first time Highmark has had trouble closing a deal. In early 2009, a merger with Independence Blue Cross, the dominant carrier in the Philadelphia market, was called off when the insurers said they would not accept a requirement from the Pennsylvania Insurance Department that it surrender either the Blue Cross or Blue Shield brand.

Highmark could also rethink its strategy and opt for transitioning to integrated care by partnering with physician groups, as UnitedHealthcare and Cigna have done.

West Penn, meanwhile, has stated it will be looking for a new partner. It's possible the system did not want to commit to the stigmatizing Chapter 11 process only to risk Highmark pulling away from the deal later at a later date.

The agreement between Highmark and West Penn was awaiting approval from the Insurance Department. The department stated Friday that while it had ?significant concerns? about West Penn's monetary woes, it did not raise bankruptcy as a possibility and urged the two parties to craft a settlement.
 
Friedman said an agreement could still be worked out between Highmark and West Penn.  ?I do not think we?ve heard the last of this,? he said.

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