Highmark CEO: West Penn bankruptcy needed for merger approval

Highmark is defending itself against allegations that it forced West Penn Allegheny Health System into declaring bankruptcy. The two organizations are in court to determine whether Highmark can block WPAHS from seeking other buyers after WPAHS canceled the planned acquisition.

Instead, the Pittsburgh-based insurer offered the financially struggling WPAHS an additional $125 million to enter a structured bankruptcy, Highmark CEO William Winkenwerder said Thursday in state court. He added that such an incentive shows Highmark was committed to obtaining approval for the state insurance department so it could acquire WPAHS, reported the Pittsburgh Tribune-Review.

Highmark thought the department wouldn't approve the merger without assurance that WPAHS would reduce its almost $1 billion debt. Although insurance officials didn't require WPAHS file for bankruptcy, the department sought bankruptcy legal counsel, leading Highmark officials to have "very serious beliefs" that it needed to "address the issue of operational performance and indebtedness," Winkenwerder testified, according to the Pittsburgh Post-Gazette. "It was my judgment that we would not get approval if we did not address the issues that they asked us to address."

Meanwhile, Highmark Chief Financial Officer Nanette DeTurk testified that the insurer worked to improve WPAHS's finances, including a $30 million grant to prevent a bond debt default, an advance of $25 million for hospital improvements, $10 million to pay WPAHS's advertising bills and an offer to convert a $100 million loan to a grant.

The recent implosion of the Highmark-WPAHS deal, particularly the alleged requirement that WPAHS declare bankruptcy, may be related to Highmark's recent change in leadership. After former CEO Kenneth Melani, who resisted a bankruptcy filing, was fired and William Winkenwerder took over, the new CEO tried to renegotiate the merger agreement to include debt reduction, Reuters reported.

Although he conceded that trust between Highmark and WPAHS "has been tested and frayed," Winkenwerder said a restructured bankruptcy is still needed to gain state approval and to establish "a fiscal foundation for the future success of this entity," the Post-Gazette noted.

To learn more:
- read the Pittsburgh Tribune-Review article
- see the Pittsburgh Post-Gazette article
- check out the Reuters article