Highmark acquires West Penn Allegheny

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The buyer: Highmark, based in Pittsburgh

The acquired: West Penn Allegheny Health System (WPAHS), based in Pittsburgh

The price: $475 million

The timeline: Deal announced June 28, 2011; signed an agreement to affiliate Nov. 1, 2011. Deal is awaiting state and federal regulators' approval.

The scoop: Highmark's pending purchase of WPAHS (and its $800 million in debt) included an upfront $50 million payment to rescue the hospital system from imminent closure and $75 million to fund scholarships for students attending medical schools affiliated with WPAHS. The deal, when finalized, will enable WPAHS to reopen its emergency room next year.

With its takeover of WPAHS, Highmark will offer healthcare focused on providing quality and efficient service rather than increasing revenue. "This transaction is critical to ensuring the continued vitality of the West Penn Allegheny Health System and maintaining provider choice in our community," Highmark CEO Kenneth Melani said in a Nov. 1 press statement. The payer also plans to add other hospitals and physician practices into an integrated delivery system division that it will create.

However, Melani clarified that, despite the acquisition, Highmark will keep its providers as a separate self-sustaining division of the organization because WPAHS will continue contracting with rival health plans. Melani remained CEO of Highmark's insurance business, leading the parent organization to oversee the insurance and provider divisions.

Highmark is assuming certain risk with its acquisition of WPAHS, which hasn't had a positive operating margin in at least four years. WPAHS also has a pension plan that is $196 million underfunded for more than 11,000 employees. Plus, the system's hospitals need upgrades, its acute services need bolstering, and many essential services need to be reinstated.