The Pennsylvania Insurance Department has released two reports from consulting groups tasked to assess health insurer Highmark's proposed acquisition of West Penn Allegheny Health System in Pittsburgh, according to a Pittsburgh Post-Gazette report.
Blackstone Advisory Partners in New York City and Compass Lexecon in Chicago reviewed the deal. Their reports are critical to the insurance department's deliberations on the transaction, which is set to expire April 30.
Here are a few key points from the consultants' reports.
• Blackstone said the parent organization of the proposed Highmark-West Penn deal is projected to have $327 million of total assets and $80.1 million of capital when the transaction is finalized. Based on these numbers, the consultants said the parent entity "appears well capitalized and is unlikely to jeopardize Highmark's financial stability," according to the report.
• Blackstone also said Highmark members will "bear the primary cost of the transaction," however, and that potential savings are uncertain. The group's report also suggests the insurance department consider tying executive compensation to how much or how little the transaction benefits Highmark policyholders.
• Compass Lexecon's report said there could be overstatements of cost savings in the proposed deal. For instance, Highmark projects that if University of Pittsburgh Medical Center facilities and providers are out-of-network in 2015, after their contract extension expires, 90 percent of Highmark members' use of UPMC providers will shift to West Penn Allegheny or other Highmark-affiliated hospitals. But if Highmark falls short and does not achieve these projections, savings would be overstated.
• The Compass Lexecon report also said the success of the Highmark-West Penn deal would critically depend on the entity's ability to attract patients away from UPMC and to West Penn. That said, the report also noted that Highmark's goal to draw 30,000 inpatients from UPMC to West Penn hospitals by fiscal year 2016 "relies on unfounded assumptions and is unreasonable in view of the economic evidence," according to the report.
A Highmark spokesperson said the health insurer was "pleased with the overall conclusions of the report" based on initial readings, according to the report. A spokesperson for West Penn said the health system is also encouraged by the consultants' conclusions.
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Blackstone Advisory Partners in New York City and Compass Lexecon in Chicago reviewed the deal. Their reports are critical to the insurance department's deliberations on the transaction, which is set to expire April 30.
Here are a few key points from the consultants' reports.
• Blackstone said the parent organization of the proposed Highmark-West Penn deal is projected to have $327 million of total assets and $80.1 million of capital when the transaction is finalized. Based on these numbers, the consultants said the parent entity "appears well capitalized and is unlikely to jeopardize Highmark's financial stability," according to the report.
• Blackstone also said Highmark members will "bear the primary cost of the transaction," however, and that potential savings are uncertain. The group's report also suggests the insurance department consider tying executive compensation to how much or how little the transaction benefits Highmark policyholders.
• Compass Lexecon's report said there could be overstatements of cost savings in the proposed deal. For instance, Highmark projects that if University of Pittsburgh Medical Center facilities and providers are out-of-network in 2015, after their contract extension expires, 90 percent of Highmark members' use of UPMC providers will shift to West Penn Allegheny or other Highmark-affiliated hospitals. But if Highmark falls short and does not achieve these projections, savings would be overstated.
• The Compass Lexecon report also said the success of the Highmark-West Penn deal would critically depend on the entity's ability to attract patients away from UPMC and to West Penn. That said, the report also noted that Highmark's goal to draw 30,000 inpatients from UPMC to West Penn hospitals by fiscal year 2016 "relies on unfounded assumptions and is unreasonable in view of the economic evidence," according to the report.
A Highmark spokesperson said the health insurer was "pleased with the overall conclusions of the report" based on initial readings, according to the report. A spokesperson for West Penn said the health system is also encouraged by the consultants' conclusions.
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