The efforts of Highmark, Pennsylvania's largest health insurer, to acquire the struggling hospital operation West Penn Allegheny Hospital System has brought into sharp focus the acrimonious relationship between the insurer and the region's dominant hospital operator, University of Pittsburgh Medical Center (UPMC).
Under the terms of a preliminary agreement announced last month, Highmark will pump as much as $475 million into the ailing hospital operator over the next three years. The insurer has provided an immediate $50 million dollar grant and will also make an investment of $75 million to establish medical education programs at WPAHS.
If the deal is completed, it would put Highmark in direct competition with UPMC not only as a hospital operator, but in competing for insured lives, as UPMC has run its own health plan since 1998 that today has more than 1.5 million members.
The move by Highmark to acquire WPAHS comes as it enters the final year of a ten-year contract with UPMC, which is set to expire June 30, 2012. Negotiations on a new contract broke off this spring and are unlikely to resume any time soon.
According to published reports, UPMC was seeking reimbursement increases as high as 40 percent for any new contract with Highmark, a contention that is flatly denied by UPMC.
"That was never even discussed in the negotiations," said Paul Wood, vice president, public relations, UPMC (pictured below). "The negotiations broke off before we could exchange data and we could begin discussing that."
Instead, Wood said, UPMC ended the talks early in the process. "Because of (Highmark's) announced intention to become a payer-provider, we made the decision that we would not have a contract," he said. "There will not be an extension of the current contract. Period."
Officials at Highmark, however, aren't willing to close that door just yet and say the company is interested in maintaining choice for its members in the marketplace. That presumably means access to UPMC's facilities and 2,800 doctors in western Pennsylvania, where Highmark currently has more than 3 million members.
"We continue to look for common ground and a reasonable contract with UPMC," said Aaron Bilger, a Highmark spokesman. "We would like to get back to the negotiating table with them."
Further, Bilger noted, it is Highmark's intention for WPAHS to contract with any and all health plans, to the exclusion of none.
Meantime, as the bitter feud between the dominant insurer and hospital-provider group in the region plays in the local press, area residents and state regulators are worried about access to care and that many may need to change their doctors if the two can't reach an accord.
Pennsylvania Insurance Commissioner Michael Consedine is not able to intervene in the matter, though he has urged the two parties to tone down the rancor to consider the negative effect it is having on the public.
Jan Jennings, president and CEO of Pittsburgh-based healthcare consultancy American Healthcare Solutions, said much of the blame for the uncertainty lies at the feet of UPMC.
"(The dispute) is really unfortunate and shows a reckless disregard for the subscriber," Jennings said. "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."
Those other insurance players that have gained a foothold in the market include Aetna, Cigna, United HealthCare and Healthcare America, all of whom have signed contracts with UPMC since February as UPMC opened its network to large insurance carriers in an attempt to broaden competition in the market.
About the only thing both organizations agree on, at least in their public statements, is that competition and choice of both health plans and provider groups is good for the market.
"It is important to have choice," said Kenneth Melani, MD, Highmark's president and CEO in a press conference announcing the insurer's plans for WPAHS. "It is important to have a second system and to have options so that people who want a second choice, who want another option, doctors, patients, nurses, whoever it may, be have somewhere to go when they need an option or second alternative."
As Highmark and UPMC prepare to battle it out for both health premiums and healthcare dollars, West Penn Allegheny stands as the one organization that has gained the most. With it's credit rating trashed and hundreds of millions of dollars in debt, affiliating with Highmark and its deep pockets will allow the hospital to make needed improvements and be a more viable competitor to UPMC.
"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 said the $50 million dollar grant will be put to use immediately across the system, with specific investments aimed at improving the facilities clinical capabilities of its West Penn and Forbes regional facilities.