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