Con­tract stand­off continues be­tween com­pet­ing UPMC and High­mark sys­tems

Modern Healthcare - - NEWS - By Cather­ine Hol­lan­der —with Me­lanie Evans Cather­ine Hol­lan­der is a San Fran­cis­cobased free­lance writer.

A bit­ter con­tract dis­pute be­tween the dom­i­nant hospi­tal sys­tem in Pitts­burgh and the re­gion’s largest in­surer may fore­shadow sim­i­lar fights across the coun­try, as health sys­tems and in­sur­ers in­creas­ingly move into each other’s ter­ri­tory.

The con­tract be­tween UPMC, a not­for-profit health sys­tem that runs 22 hos­pi­tals and has a large in­sur­ance arm, and High­mark, a Blue Cross and Blue Shield in­surer serv­ing 4.2 mil­lion mem­bers in Penn­syl­va­nia, ex­pires at the end of 2014. UPMC says it will not re­new the agree­ment be­cause High­mark pur­chased a re­gional health sys­tem in 2013 and is now a com­peti­tor. If the con­tract ends, High­mark mem­bers are ex­pected to face high out-of-net­work costs for see­ing UPMC doc­tors.

The dead­lock shows no signs of eas­ing. “The fidu­ciary duty of UPMC’s board is not to al­low man­age­ment to en­ter into a con­tract that would di­min­ish all the great things that UPMC does for this com­mu­nity,” said Paul Wood, a UPMC spokesman. “As long as High­mark has a vested in­ter­ested in shift­ing pa­tients from where they would pre­fer to go—UPMC—and into their own hospi­tal sys­tem, there can­not be a con­tract.”

But last week, Al­legheny County an­nounced it would con­tinue its con­tract with High­mark through 2015 for its 6,700 em­ploy­ees, re­gard­less of what hap­pens in the con­tract dis­pute. County Ex­ec­u­tive Rich Fitzger­ald said in a writ­ten state­ment that he hopes this “makes it clear to UPMC that we want to see a con­trac­tual re­la­tion­ship be­tween these two or­ga­ni­za­tions.”

Sim­i­lar de­ci­sions by other ma­jor em­ploy­ers could in­crease pres­sure on UPMC to reach an agree­ment. Ac­cord­ing to High­mark spokesman Aaron Bill­ger, “there are nu­mer­ous large, fairly prom­i­nent ac­counts in the mar­ket­place that will be do­ing the same. They’re not pub­lic yet.” High­mark must also con­tend with the on­go­ing turn­around of its provider net­work, Al­legheny Health Net­work.

West Penn Al­legheny Health Sys­tem ended its fis­cal 2013 with an op­er­at­ing loss of $386 mil­lion on rev­enue of $1.5 mil­lion, though losses were in­flated by an ac­count­ing charge of $214 mil­lion, said El­iz­a­beth Allen, in­terim chief fi­nan­cial of­fi­cer for Al­legheny Health Net­work, which in­cludes West Penn Al­legheny.

High­mark and UPMC have long been the dom­i­nant in­surer and provider, re­spec­tively, in the Pitts­burgh area. Now they’re both in­te­grated-de­liv­ery sys­tems, with their own in­sur­ance arms and provider net­works. UPMC started of­fer­ing in­sur­ance through the UPMC Health Plan in 1998 and cur­rently has 2.3 mil­lion mem­bers. Last year, High­mark ac­quired the strug­gling West Penn Al­legheny for $1 bil­lion. Both High­mark and UPMC are of­fer­ing plans on Penn­syl­va­nia’s fed­er­ally run health-in­sur­ance ex­change.

High­mark and UPMC each have made sub­stan­tial in­roads into the other’s busi­ness. To­day, UPMC re­ceives roughly 20% of its pa­tient-ser­vice rev­enue from High­mark pa­tients. But the sys­tem’s CFO, Robert DeMichiei, es­ti­mated in Fe­bru­ary that UPMC would lose $500 mil­lion in rev­enue an­nu­ally if it main­tained its con­tract with High­mark as pa­tients shifted to High­mark’s eight-hospi­tal sys­tem.

Liz Ken­non, a Pitts­burgh in­sur­ance bro­ker who works with small businesses, said em­ploy­ers are ea­ger for a res­o­lu­tion. “Now that we’re start­ing our July re­newals for our small groups, it’s be­com­ing a big is­sue, be­cause we don’t know what’s go­ing to hap­pen,” she said. While High­mark’s pre­mi­ums tend to be cheaper than UPMC’s, many cus­tomers want ac­cess to UPMC doc­tors.

The Pitts­burgh Busi­ness Group on Health re­ported last month that 81% of the 36 Pitts­burgh-area businesses it sur­veyed would ei­ther drop High­mark in­sur­ance or of­fer both High­mark and an­other health plan that con­tracts with UPMC to give their work­ers the op­tion of stay­ing with UPMC providers if the split takes place.

Doc­tors are also caught in the mid­dle. “Many of them are un­com­fort­able that em­ploy­ers or in­di­vid­u­als will have to make choices among in­sur­ance com­pa­nies and the af­fil­i­ated hospi­tal sys­tems that will limit (pa­tients) to those net­works,” said John Krah, ex­ec­u­tive di­rec­tor of the Al­legheny County Med­i­cal So­ci­ety.

An­titrust lit­i­ga­tion be­tween High­mark and UPMC dragged on for more than four years un­til a judge or­dered them to drop it in De­cem­ber. The in­sults traded by the two or­ga­ni­za­tions through ad­ver­tise­ments be­came so nasty that Gov. Tom Cor­bett cre­ated a task force last Au­gust to mon­i­tor them. In March, bi­par­ti­san leg­is­la­tion was in­tro­duced in the state Se­nate that would re­quire in­te­grated-de­liv­ery net­works like UPMC to con­tract with “any will­ing in­surer.”

Last week, High­mark and UPMC an­nounced that they would con­tinue of­fer­ing small-em­ployer plans that don’t meet the re­quire­ments of the Af­ford­able Care Act for at least an­other year, al­low­ing them to of­fer less-costly plans.

Such con­flicts be­tween for­mer part­ners that now have com­pet­ing in­te­grated-de­liv­ery sys­tems could well be­come more com­mon across the coun­try as providers and health plans move from fee-for-ser­vice to mod­els that re­ward man­ag­ing the health of en­rolled pop­u­la­tions, said Josh Seidman, vice pres­i­dent of pay­ment and de­liv­ery re­form at re­search firm Avalere Health.

Sources: High­mark and UPMC web­sites

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