Health goliaths UPMC and Highmark remain at odds

| Friday, Aug. 26, 2011

In his first public statements since UPMC walked away from negotiations with Highmark Inc. this spring, Jeffrey Romoff made it clear on Thursday that Pittsburgh's No. 1 hospital system has no intention of restarting talks with the region's largest health insurer.

Romoff, UPMC's chief executive officer, told members of the state House Insurance Committee in Pittsburgh that Highmark's $475 million plan to acquire West Penn Allegheny Health System would make it a direct competitor. Highmark could steer its 3 million Western Pennsylvania members away from UPMC's hospitals and doctors, he said.

"In light of Highmark's decision to convert itself from a neutral insurer into a competing integrated system, UPMC will not renew its contracts with Highmark," Romoff said. "This is not a negotiating ploy, but rather an inevitable decision dictated by the realities of competition. Again, to be clear, there will be no contract with Highmark."

Dr. Kenneth Melani, Highmark's CEO, testified that the insurer wants to renew its contract with UPMC.

Melani was asked if he would support legislation to prevent Highmark from steering patients away from UPMC if the insurance company acquires West Penn Allegheny Health System. He answered no.

Seated behind Melani, Romoff showed no reaction. The two men did not interact during the hearing.

Lawmakers concluded that any hope of bringing the health care titans together would require legislative action.

Rep. Anthony DeLuca of Penn Hills, the Democratic chairman of the Republican-led committee, said after the meeting that he would begin drafting a bill to break the standoff.

"I plan on taking testimony from today back to Harrisburg to craft legislation so millions of Western Pennsylvanians will no longer be caught in the middle of this dispute," DeLuca said.

The state Department of Insurance has no authority to force Highmark and UPMC into contract negotiations, said Randy Rohrbaugh, executive deputy insurance commissioner. Though by law the department could delay termination of the contract with UPMC's hospitals by several months, it cannot delay the contract termination with UPMC's 2,700 doctors.

The contracts allow Highmark to reimburse UPMC about 30 cents on the dollar for what the hospital system charges for services. When they expire on June 30, Highmark subscribers will have in-network access to UPMC hospitals for another year. Children's Hospital of Pittsburgh, UPMC Hamot in Erie and UPMC Mercy have separate agreements for several more years.

The contract with UPMC doctors has no one-year "run out" period. UPMC doctors would be out-of-network on June 30, meaning Highmark would absorb those additional costs or require subscribers to pay full price.

Melani said absorbing those full charges could cost Highmark $2.5 billion a year, which would wipe out the insurer's nearly $4 billion reserve in under two years.

To prevent Highmark members from paying additional money to continue seeing UPMC doctors, Rep. Dan Frankel, D-Squirrel Hill, said lawmakers should consider amending state law to require the nonprofit organizations to engage in binding arbitration to settle their dispute.

Frankel suggested trying to negotiate separate terms for Magee-Womens Hospital, Hillman Cancer Center and Western Psychiatric Institute and Clinic -- to keep those institutions independent of the contract dispute -- similar to the deal arranged for Children's Hospital.

During questioning from the committee, Romoff and Melani talked about increasing health care competition in Western Pennsylvania, though from differing perspectives.

Romoff tried to convince lawmakers that having UPMC cut ties with Highmark would improve the region's health care system because two independent companies would compete over quality and cost. If Highmark members want in-network access to UPMC, they can find another insurance provider, he said, which would benefit insurance rates here.

"People all over the country do that every year," he said.

Melani said the insurer wants to buy West Penn Allegheny to reduce UPMC's dominance in the market. A dominant health care provider too easily drives up prices, he said.

"The market needs competition," he said.

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