Pennsylvania Gov. Tom Corbett (AP Photo/Marc Levy)

PITTSBURGH (AP) — Health insurance giant Highmark Inc. received conditional approval Monday from Pennsylvania regulators to take over the financially troubled West Penn Allegheny Health System as part of its plan to compete with UPMC, western Pennsylvania’s dominant network, for patients and their health care dollars.

Pennsylvania’s insurance commissioner, Michael Consedine, called the takeover a landmark transaction, while proponents of the deal hope it will slow the growth of health care costs and improve health care in western Pennsylvania. Highmark is the nation’s only Blue Cross Blue Shield licensee to own a health system or hospital, according to the Blue Cross and Blue Shield Association.

The department’s approval comes amid a feud between Pittsburgh-based Highmark and UPMC, the University of Pittsburgh Medical Center’s health system. An insurance contract between the two is scheduled to expire in 2015.

In a statement, Gov. Tom Corbett said the decision was in line with his administration’s aim to improve health care access, quality and affordability.

The conditions of the approval are designed to protect the public, community hospitals and Highmark policyholders while preserving fair competition and the financial stability of Highmark, the Insurance Department said.

The conditions also require communication to patients and subscribers about the potential termination of the UPMC contract in 2015, the department said. Another condition is intended to ease access to Highmark’s network for unrelated medical providers, community hospitals and insurers, it said.

A consultant to the Insurance Department said there is “substantial uncertainty” as to whether Highmark can shift enough patients from the UPMC health system to turn around the finances of the five-hospital West Penn health system. Another consultant determined that the proposed parent company appeared to be well-capitalized and unlikely to jeopardize Highmark’s financial stability.

Highmark notified the Insurance Department in 2011 of its planned $475 million takeover of the West Penn health system. The deal also requires Highmark to pay West Penn bondholders $635 million, making its investment $1.1 billion. To date, Highmark has spent $283 million on the West Penn system, the Insurance Department said Monday.

A Highmark spokesman did not immediately respond to a request for comment. At the end of 2012, Highmark reported a surplus of $4.1 billion to the state Insurance Department.

Under the existing contract, Highmark’s 3 million subscribers are able to use UPMC’s 3,200 doctors at in-network rates. UPMC offers various health insurance plans and running more than 20 academic, community and specialty hospitals and 400 outpatient sites. It employs more than 3,200 physicians and runs rehabilitation, retirement and long-term care facilities.

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