Highmark-West Penn merger sets precedent for payer-provider deals


The U.S. Department of Justice's recent approval of the affiliation agreement between Highmark and Pennsylvania's West Penn Allegheny Health System--a takeover of WPAHS by the insurer--should provide guidance for future payer-provider relationships requiring federal support.

DoJ last month concluded the "affiliation agreement likely will not reduce competition in the markets for hospital, physician or health insurance services," according to a column written by Christi Braun and Farrah Short, who practice out of the Washington, D.C., office of Mintz Levin. They cited the following reasons the anti-trust agency cleared the merger:

  • Because the hospital market in the region is highly concentrated, there is not likely to be another hospital system with which Highmark can partner and vertically integrate, they wrote.
  • West Penn won't likely enter or expand with another health insurer in the region.
  • West Penn still will need to increase its patient volume--an incentive for it to offer competitive rates over other health insurers.
  • "[T]he affiliation agreement is not likely to facilitate horizontal collusion between health plans because other health insurers are actively trying to enter the market and win market share from Highmark."

The DoJ observed that other market developments are likely to improve competition, including national insurers obtaining more competitive contracts with WPAHS competitor University of Pittsburgh Medical Center, Braun and Short noted. UPMC even issued a statement, agreeing with DoJ's observation that competition in the market increased. The health system, however, maintained it would not renew its contract with Highmark because of the merger between the insurer and its rival, the Pittsburgh Post-Gazette reported.

Allegheny County chief executive said Western Pennsylvania is a unique market, compared to most in the United States, when he testified last month before the Pennsylvania Insurance Commission, urging approval of the Highmark/WPAHS affiliation proposal.

However, any payers and providers considering future affiliations would be wise to review the scenarios DoJ noted, as those parties may face challenges to what might appear to be an anticompetitive takeover.

2012 is likely to see several such arrangements, according to a recent PwC Health Research Institute report. In the report, PwC predicts more insurers and providers will merge in 2012. This prediction for a very active year is based, in part, on the activity from 2011, which saw several significant payer-provider mergers and acquisitions.

Despite DoJ's closing of its investigation into one of the more controversial affiliations between a payer and provider in the Highmark takeover of WPAHS, the Justice Department stated its intent to continue to monitor deals very closely. "The division remains mindful that vertical acquisitions and affiliations between health insurers and hospitals with market power can potentially reduce competition. The division will continue to monitor developments in the Pittsburgh healthcare market as part of our broader commitment to vigilantly enforce the antitrust laws and thereby protect competition in our nation's healthcare markets."

For more information:
- read the Mintz-Levin report
- see the DoJ statement

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