Highmark’s planned acquisition of West Penn Allegheny deepens feud with UPMC
PITTSBURGH – The simmering dispute over a new contract between Western Pennsylvania’s largest private payer, Highmark Inc., and the dominant health system in the region, University of Pittsburgh Medical Center (UPMC), reached a full boil mid-year when Highmark announced plans to acquire UPMC rival West Penn Allegheny Health System.
Under the deal announced in late June and later approved by the boards of both Highmark and West Penn, Highmark provided an immediate $50 million infusion in the form of a grant to help prop up the struggling health provider. In total, Highmark has agreed to provide as much as $475 million over the next five years, which includes $75 million earmarked to establish medical education programs at West Penn.
The deal has now created two payer-provider companies in Western Pennsylvania and has helped to prop up a viable competitor to UPMC, in a market it has dominated for a number of years. The move by Highmark came, in part, as a way to make sure its members in the region would have access to a provider network, after negotiations for a new contract with UPMC fell apart in April. The current contract between Highmark and UPMC is set to expire in June 2012.
Once Highmark’s intentions were clear to also establish itself as a provider, “we decided we would not have a new contract,” said Paul Wood, vice president of public relations at UPMC.
Highmark, however, still held out hope that it could entice UPMC back to the negotiating table, this time from a position of strength. “We continue to look for common ground and a reasonable contract with UPMC,” said Aaron Bilger, a Highmark spokesman in late June. “We would like to get back to the negotiating table with them.”
For its part, UPMC has since signed a number of contracts with health plans that have a limited reach in the market. Since February, it has signed deals with Aetna, Cigna, United HealthCare and Healthcare America.
But as the two heavyweights battle it out over members – UPMC also runs a health plan with 1.5 million members – and patients, local industry watchers worry that patients in the Pittsburgh area could be left out in the cold.
“(The dispute) is really unfortunate and shows a reckless disregard for the subscriber,” said Jan Jennings, president and CEO of Pittsburgh-based healthcare consultancy American Healthcare Solutions, who lays much of the blame at the feet of UPMC. “UPMC has put 30 percent of their market share at risk and they are gambling that people will switch from Highmark health insurance to UPMC health insurance or a couple of others that have crept into the market.”
Meanwhile, the big winner in this looks to be West Penn, a hospital group that was hanging by a thread and had been forced due to its financial difficulties to begin cutting back on services.
“With financial stability, West Penn Allegheny will be able to invest significantly in new technology and new programs and we'll be in a much better position to recruit physicians,” said Dan Laurent, WPAHS spokesman. “UPMC has had significant leverage in the recruitment of physicians over the past decade and this will even the playing field.”
Laurent noted that the initial $50 million infusion would be put to use immediately across the health system, with specific investments aimed at improving the facilities and clinical capabilities of its West Penn and Forbes regional facilities.