Premier Medical Associates deal to save West Penn Allegheny Health System $26M over next five years

Highmark has been finding ways to help West Penn Allegheny Health System outside its commitment to spend $400 million to buy the financially ailing hospital network.

For example, Highmark’s tie up with Premier Medical Associates will wind up saving WPAHS $26.4 million in contractual obligations. In addition, Highmark fronted the ailing hospital network $25 million in April for future services that will be rendered to the insurer’s members.

On Jan. 4, Highmark announced an affiliation with Premier, the biggest independent physicians’ group in western Pennsylvania. The deal will cancel WPAHS’s contract to pay Premier a total of $30 million through 2017 to “develop ambulatory services consistent with the system’s strategic initiatives in the Forbes service area,” according to WPAHS’s audited financials, which were released last week.

The $30 million payment was part of an agreement WPAHS reached in July 2010 with Premier following failed efforts by the University of Pittsburgh Medical Center to buy the doctors’ group.

Premier’s doctors are a key source of referrals to WPAHS’s Forbes Regional Hospital in Monroeville, and hospital administrators have said the sale of the practice to UPMC would cripple Forbes financially.

A total of $26.4 million was still owed to Premier as of June 30, but Highmark President and CEO Dr. Ken Melani said Wednesday the debt has been canceled by the insurer’s affiliation with Premier.

The audit identified a net deficit of $99 million and an operating loss of $51.7 million as of June 30, a financial position that raised “substantial doubt about WPAHS’ ability to continue as a going concern,” according to KPMG LLP.

As part of the agreement with Premier, Highmark on Wednesday announced plans to open a medical mall in Monroeville and 10 outpatient centers in western Pennsylvania.

Highmark spokesman Aaron Billger declined to disclose specifics about the centers, but said the insurer had “very few of these outstanding advances” similar to the one extended to WPAHS.

The advance payment was made in April at the request of WPAHS, Billger said, and Highmark decided the funding was a “necessary business action.”

Advance payments by insurers are not unusual, according to WPAHS spokeswoman Kelly Sorice.

“It happens frequently,” she said. “We’ve booked advances before.”

In 2006, United Healthcare paid WPAHS $35 million to provide discounted services to its members for 10 years as part of a bigger push by the insurer into the region. But the carrier’s products didn’t catch on as well as hoped, and the deal was canceled in 2010.

The terms of Highmark’s $25 million advance to WPAHS were not finalized as of June 30, according to the audit, and Billger would not disclose the length of the agreement.

Joseph Friedman, a partner at the Downtown office of Thorp Reed & Armstrong LLP and the firm’s practice leader of managed care litigation, said discounted rates are part of advanced payment agreements between insurers and providers.

“They’re common, but not universal,” Friedman said. “It’s subject to negotiation.”

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