Highmark Inc. announced Tuesday that it has reached an agreement to affiliate with West Penn Allegheny Health System Inc.
Highmark and West Penn had announced a preliminary agreement to affiliate in early July. Tuesday’s announcement said that the boards of both organizations had given final approval for the agreement.
The deal is subject to regulatory approvals, according to Highmark spokesman Michael Weinstein. In a few days the agreement will be filed with the Pennsylvania Insurance Department. The state’s attorney general and the Internal Revenue Service will review the agreement.
Highmark, based in Pittsburgh, serves 4.8 million health plan members in Pennsylvania and West Virginia.
Nonprofit West Penn operates five hospitals in the Pittsburgh area, including Allegheny General Hospital and a nearly 700-person, multi-specialty physician group practice.
The new system would create a 501(c)3 parent organization, Weinstein said. One part would be a health care insurance unit and another would be the provider’s business unit, he explained.
In 2007, West Penn issued more than $750 million in high-yield bonds. It was the largest speculative-grade tax-exempt bond issue by a health care nonprofit in U.S. history. Since then West Penn has had financial difficulties.
When the two organizations came to an initial affiliation agreement in June, Highmark gave West Penn $50 million. In a statement released Tuesday, Highmark committed to providing up to an additional $425 million to West Penn.
In July, Fitch Ratings placed on watch the BB-minus rating on $747.7 million of Series 2007A revenue bonds issued by the Allegheny County Hospital Development Authority on behalf of West Penn.
