Western Pa. health titans battle over tens of thousands of patients
UPMC could lose $1.2 billion in annual revenue in its contract fight with Highmark Health Services.
With that kind of money at stake, why would Western Pennsylvania's largest hospital network gamble its financial future by ending its relationship with the state's largest health insurer — essentially slapping the hand that feeds it?
Because UPMC believes it will win the war for dominance of the region's health care market by convincing patients they should drop Highmark insurance to keep access to UPMC hospitals and doctors.
“It's pretty simple, really,” UPMC spokesman Paul Wood said. “Patients much prefer the world-class care provided to them by their UPMC doctors and hospitals over a simple piece of plastic in their wallet.”
Yet as big and deep-pocketed as UPMC may be, Highmark is bigger. The company, now UPMC's biggest competitor for insurance customers and hospital patients, believes it can rally the public to press for a contract renewal before the current one expires Dec. 31, 2014.
“Our expectation is that we will get a contract with UPMC,” Highmark spokesman Aaron Billger said. “It is in the best interest of the community to have direct access to UPMC.”
Why would Highmark, which needs to boost patient volume at its newly acquired West Penn Allegheny Health System, want patients to continue using UPMC medical services?
The risk of losing tens of thousands of premium-paying insurance customers who want UPMC as an in-network option is just too great, experts say.
“If they don't have UPMC in their network ... then Highmark insurance becomes a lot less desirable,” said Steve Foreman, an associate professor of health care administration at Robert Morris University.
Though Highmark declined to comment on its strategy, its chief legal officer, Thomas VanKirk, told reporters in February that maintaining a long-term UPMC contract is essential to the insurer's financial viability because it is investing more than $1 billion to get its own hospital system up and running.
Between now and Dec. 31, 2014, consumers and employers should expect UPMC and Highmark to try to win them over with competing arguments, said Steve Zaharuk, a health care industry analyst for Moody's.
“If UPMC is no longer a part of Highmark's network, do employers say ‘OK, I'm just going to switch my business to one of those other insurers,' ” Zaharuk said. “That's what UPMC would have the market believe is going to happen.”
The two companies have taken their dispute to the airwaves recently in an attempt to sway the public.
UPMC began running television ads in the Pittsburgh-area market about a week ago — including during basketball's NBA playoffs — warning people they could lose in-network access to UPMC hospitals and doctors if they don't pick the right health insurance plan.
“The purpose of the ads is to make sure people know that at the end of 2014, our contract with Highmark expires,” said UPMC spokeswoman Susan Manko. She declined to say what the ads cost.
Highmark began running radio and TV spots in this market at the end of April, days after its acquisition of West Penn Allegheny was approved by state regulators.
“We're saying it's the start of a new day, that there's an alternative” to UPMC, said Highmark spokesman Michael Weinstein. He would not provide the cost of the ads, which stopped running Thursday.
Highmark has an ace in the hole — cost, Zaharuk said. Highmark's argument is: “We're going to show members that we're going to have just as good health care through West Penn Allegheny but at a lower cost.”
“They're both making a big bet on that,” he said.
UPMC and Highmark's businesses depend on each other. UPMC last year received $1.2 billion from Highmark for treating the insurer's members, according to UPMC financial statements. That's 12 percent of its total operating revenue of $10 billion.
Approximately 48,000 of UPMC's 185,800 hospital admissions last year — about a quarter of the total — were Highmark members.
“If you have a dominant insurer and a dominant hospital (in the same community), neither can really live without the other,” said Mark Pauly, a professor of health care management at the University of Pennsylvania's Wharton School. “So threatening divorce really is not credible.”
The competitive dynamics in Pittsburgh are unique, Pauly said. Nowhere has a dominant insurer converted itself into a hospital operator, he said.
As a UPMC competitor looking to turnaround West Penn Allegheny's poor finances, Highmark has said it needs to boost admissions at its hospitals by 41,000 a year, according to filings with the state Insurance Department.
Highmark plans to take most of those admissions from UPMC, the company has said. That will happen either by convincing consumers to chose a less-expensive insurance plan that excludes UPMC, such as its Community Blue health plan, or by setting up plans that include UPMC but have cost tiers. Presumably seeking treatment at UPMC would be in a higher cost tier than West Penn Allegheny.
Highmark is experimenting with tiered plans in central Pennsylvania, where it introduced Community Blue Premier Flex this year.
It is that “tiering and steering” that UPMC objects to. Wood argued that UPMC cannot participate in an insurance network that actively seeks to harm it financially.
“Highmark has publicly stated they need to force 41,000 UPMC patients to go to its own West Penn Allegheny,” he said. UPMC's board of directors this month approved a resolution stating it could not have a new contract with Highmark.
James McTiernan, a health care consultant with Triad Gallagher, a Downtown benefits consulting firm, said Highmark is likely to successfully convince employers to continue offering its health plans if the costs are lower than insurers that offer full access to UPMC.
Employees may not be happy to lose UPMC, he said, even if it costs less. “They will have to balance cost with employee relations.”
McTiernan predicts the two will reach a contract, either because Highmark steers patients to West Penn Allegheny or because UPMC convinces consumers to switch insurers.
If Highmark is winning the battle, UPMC may negotiate to stanch the bleeding of patients, he said. If Highmark is losing too many customers, it might offer UPMC favorable contract terms to keep the hospital system in-network.
It all comes down to money, McTiernan said: “They may have no choice.”
Alex Nixon is a Trib Total Media staff writer. Reach him at 412-320-7928 or firstname.lastname@example.org.
Add Alex Nixon to your Google+ circles.
Subscribe today! Click here for our subscription offers.
Show commenting policy
TribLive commenting policy
You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.
We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.
While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.
We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers.
We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.
We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.
We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.
We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.
- Reliable alternative to water could ease economic, environmental issues for gas drillers
- Washington County family’s American dream ruined as water wells fail
- Patients unsettled as Highmark contract with UPMC ends
- Energy Spotlight: Melissa Pagen
- Warehouse will double Leed’s space in Westmoreland Business and Research Park
- Renewable energy companies use new clout in statehouses
- Craft breweries proliferate in Pa., nationally with room to keep growing
- 1-person crews wanted on trains
- Cheap oil jamming rails to mean higher power bills
- With eased relations, visits to Cuba expected to be more flexible
- Pair of W.Pa. practices team for Medicare program