‘It’s not pretty’: Could UPMC, High­mark feud be an omen for mar­kets en­ter­ing con­sol­i­da­tion?

Modern Healthcare - - NEWS - By Me­lanie Evans

Pitts­burgh’s two health­care gi­ants have brawled pub­licly, legally and po­lit­i­cally for two years about the end of an agree­ment that gave many pa­tients ac­cess to both of them.

All the while, em­ploy­ers lob­bied to ex­tend the deal. State politi­cians and reg­u­la­tors in­ter­vened to bro­ker a truce. None suc­ceeded.

Now, UPMC and High­mark have un­til the end of July to fi­nal­ize plans that will ce­ment the bound­aries be­tween them.

Other U.S. mar­kets are likely to see on­go­ing mar­ket con­sol­i­da­tion as hos­pi­tals, med­i­cal groups and health plans con­tinue to merge. Fierce com­pe­ti­tion sim­i­lar to the bat­tle over price, qual­ity and rep­u­ta­tion that’s shap­ing up in Pitts­burgh may fol­low. Thus, the UPMC and High­mark fight for mar­ket share of­fers oth­ers a glimpse of pos­si­ble health­care dis­rup­tions to come.

“It’s not pretty,” said Mark Pauly, a health­care econ­o­mist and pro­fes­sor at the Univer­sity of Penn­syl­va­nia.

UPMC is Pitts­burgh’s dom­i­nant hospi­tal op­er­a­tor, with 13 hos­pi­tals, 3,400 em­ployed physi­cians and 60% of the area’s med­i­cal and sur­gi­cal busi­ness.

High­mark, one of the na­tion’s largest in­sur­ers, holds 60% of the Pitts­burgh area’s health plan mar­ket and ac­quired the city’s smaller health sys­tem, West Penn Al­legheny, in 2013. Both must spell out by July 31 where and for how long High­mark pa­tients will have ac­cess to UPMC hos­pi­tals and doc­tors af­ter their decade-old con­tract ex­pires in De­cem­ber.

Em­ploy­ers may stay with High­mark, but in do­ing so, forgo long-stand­ing re­la­tion­ships with UPMC providers. “When the dust clears, it may end up be­ing OK, but the tran­si­tion is painful,” Pauly said.

High­mark’s suc­cess at mar­ket­ing a nar­rower net­work in Pitts­burgh may be an in­ter­est­ing test case as such net­works pro­lif­er­ate across the U.S., Pauly said. “How much of their free­dom are their em­ploy­ees will­ing to give up to save money?” he asked. “People don’t have un­qual­i­fied loy­alty to any in­surer or, for that mat­ter, any hospi­tal.”

Other ma­jor U.S. health sys­tems have re­cently en­tered deals that in­crease their mar­ket clout as well. For ex­am­ple, in Texas, Catholic Health Ini­tia­tives has rapidly struck a se­ries of deals to build a siz­able sys­tem in the Hous­ton area.

The Pitts­burgh stand­off was sparked by High­mark’s de­ci­sion to en­ter the hospi­tal busi­ness in 2011. UPMC re­fused to re­new its con­tract af­ter High­mark an­nounced plans to ac­quire ri­val West Penn Al­legheny Health Sys­tem. Else­where in the U.S., ac­qui­si­tions are eras­ing the lines be­tween health in­sur­ance com­pa­nies and health sys­tems.

For Pitts­burgh em­ploy­ers, the bat­tle be­tween UPMC and High­mark could quickly shift more of the mar­ket into nar­row net­work health plans. UPMC’s re­fusal to con­tract with High­mark go­ing for­ward has prompted High­mark to ag­gres­sively mar­ket its nar­row net­work.

A con­sor­tium of school districts and com­mu­nity col­leges that jointly self-in­sure for health plans with about 43,000 mem­bers would save $10 mil­lion, or 3.5% an­nu­ally, un­der High­mark’s nar­row net­work, said Janice Klein, di­rec­tor of busi­ness for the Mount Le­banon School District and the con­sor­tium’s chair­woman.

High­mark ap­proached the con­sor­tium and made a mul­ti­part of­fer: re­duced rates, tours of High­mark hos- pitals, meet­ings with High­mark of­fi­cials and a con­tract ex­ten­sion through 2018. The con­sor­tium agreed. Tax­pay­ers and em­ploy­ees save money un­der the deal, she said.

Em­ploy­ers have had lit­tle lever­age in the dis­pute, Klein and other mar­ket play­ers said. Klein’s con­sor­tium— which spends $280 mil­lion an­nu­ally on health­care—has no power to sway the ad­ver­saries. “Their de­ci­sions are not based on our needs,” Klein said.

The city’s em­ploy­ers mon­i­tored the dis­pute with hope for a res­o­lu­tion, and some even stalled de­ci­sions on 2015 health ben­e­fits, said Jes­sica Brooks, who joined the Pitts­burgh Busi­ness Group on Health in Jan­uary as its ex­ec­u­tive di­rec­tor. Large em­ploy­ers may have new op­tions from na­tional in­sur­ers that en­tered Pitts­burgh’s mar­ket with broader-net­work health plans, but not all em­ploy­ers will find the op­tions af­ford­able.

Penn­syl­va­nia’s at­tor­ney gen­eral took UPMC and High­mark to court last month to de­mand they set­tle terms for their breakup. An out­line of those terms was re­leased by the at­tor­ney gen­eral and gover­nor in June, with fi­nal plans due by the end of the month.

But un­cer­tain­ties for em­ploy­ers re­main. Said Mar­lin Woods, man­ag­ing prin­ci­pal and cor­po­rate ben­e­fits bro­ker for Ben­e­fits Plus, a con­sult­ing com­pany for em­ployer health-ben­e­fit man­agers, “They feel just as lost and con­fused.”

Penn­syl­va­nia Gov. Tom Cor­bett and and state At­tor­ney Gen­eral Kathleen Kane an­nounce terms of UPMC’s split with High­mark.

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