Highmark to partner with Erie hospital system
Highmark Inc. continued to push its plan to establish an integrated health system to compete with UPMC on Tuesday, announcing a $65 million deal to take control of St. Vincent Health System in Erie.
Experts said that emphasizes Highmark's message to West Penn Allegheny Health System that it will move forward despite their affiliation dispute and opens another front in Highmark's war with UPMC. St. Vincent competes with the former Hamot Medical Center in Erie, which UPMC acquired last year.
“If anyone was thinking that Highmark was rethinking their integrated provider strategy, perhaps we thought too soon,” said James McTiernan, a health care consultant with Triad USA, a Downtown benefits consulting firm.
Highmark's “message to West Penn Allegheny is that we're still very serious” about creating a health system, McTiernan said. “And the message to UPMC is we're really serious” about competing in Western Pennsylvania.
The St. Vincent announcement occurs more than two weeks after West Penn Allegheny — the central component of Highmark's planned $1 billion integrated health system — said the state's largest health insurer broke their merger deal by demanding bankruptcy to restructure, a charge Highmark denies.
Highmark CEO William Winkenwerder, in Erie to announce the deal with St. Vincent, expressed confidence Highmark and West Penn Allegheny would resolve their dispute but would not say whether executives scheduled meetings.
“We are confident that the relationship we've envisioned is going to happen. We've hit some snags in the road, but we're 100 percent committed to it,” Winkenwerder said.
Officials with Highmark and St. Vincent, a Catholic health system that owns the 428-bed St. Vincent Health Center, said they signed a letter of intent and expect to reach definitive agreement on a deal by the end of the year.
Highmark would give St. Vincent $20 million to shore up finances, $5 million for immediate facility improvements and $40 million over three years for upgrades.
In exchange for the money, Highmark could appoint 75 percent of St. Vincent's board of directors. The insurer wouldn't assume liability for St. Vincent's debt or pension obligations, which total about $208 million.
St. Vincent CEO Scott Whalen said the deal followed “lots of deliberation” and years of seeking a strategic partner.
“It's the right thing for the community,” Whalen said. “Maintaining choice is important for consumers.”
St. Vincent, sponsored by Sisters of St. Joseph of Northwestern Pennsylvania, lost $2.8 million on operations in year ended June 30, its financial statements show. It posted an operating loss of $14.1 million the year before.
In April, Moody's Investors Service downgraded St. Vincent's bond rating to “below-average” creditworthiness with a negative outlook. It did not update the rating.
St. Vincent's main competition comes from UPMC Hamot about two miles away, which UPMC acquired for $300 million in February 2011.
UPMC spokesman Paul Wood declined to comment.
St. Vincent, which employs nearly 3,000 people, “has always been on Highmark's radar screen,” said Jan Jennings, CEO of American Healthcare Solutions, Downtown. “Highmark has always wanted to have a presence in that market.”
Highmark said the deal is similar to its proposed takeover of Jefferson Regional Medical Center, announced in June.
Highmark would give Jefferson's foundation a $75 million grant and pay for improvements at the Jefferson Hills health system worth up to $100 million in return for majority board control.
Highmark would guarantee Jefferson's approximately $200 million in debt and pension obligations.
Highmark and St. Vincent officials said they don't need the Pennsylvania Insurance Department to review their deal, although it needs approval from the state attorney general's office and Erie County Orphans Court.
Luis Fábregas and Alex Nixon are staff writers for Trib Total Media. Fábregas can be reached at 412-320-7998 or lfabregas@tribweb.com. Nixon can be reached at 412-320-7928 or anixon@tribweb.com.
