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Renewal of contract with Highmark would cost UPMC $500M

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Thursday, Feb. 6, 2014, 12:01 a.m.

UPMC disclosed for the first time on Wednesday the financial pain it would feel if it renewed a contract with Highmark: $500 million annually in lost revenue.

The hospital giant has maintained that Highmark, the state's biggest health insurer, would siphon tens of thousands of patients a year from UPMC for Allegheny Health Network, which the insurer spent more than $2 billion to establish as a competitor to UPMC.

“That would decimate UPMC as you know it today,” Chief Financial Officer Robert DeMichiei said during an interview with reporters to discuss UPMC's financial results in the October-December quarter. The lost revenue would amount to about 5 percent of the system's yearly total.

A renewed contract would allow Highmark to advertise its health plans as offering less-costly in-network access to UPMC, Western Pennsylvania's largest hospital network, but in reality, the insurer would steer members away from UPMC by charging them lower co-pays to use Highmark-owned hospitals, DeMichiei argued.

“I find it hard to understand the business sense of what they're arguing,” Highmark spokesman Aaron Billger said.

UPMC stands to lose $2 billion a year in claims paid by Highmark by not renewing a contract and losing Highmark members, he added.

Billger also said a renewed contract would allow patients to “pick the hospital that they find the most value in.”

Highmark's turnaround plans, filed with state regulators last year as part of the approval process to buy and rejuvenate West Penn Allegheny Health System, call for the insurer to move 41,000 patients a year from UPMC and some community hospitals to Allegheny Health Network.

DeMichiei said he has estimated the loss of that number of patients a year would equate to $500 million annually.

UPMC's strategy has been to let its reimbursement contract expire and persuade Highmark customers to switch insurers. After the contract expires at the end of this year, UPMC Health Plan, Aetna Inc., United Healthcare and Cigna Corp. will offer full in-network access to UPMC.

Highmark members will continue to have in-network access to several of UPMC's specialty and rural hospitals, such as Children's Hospital of Pittsburgh, Western Psychiatric Institute and Clinic, UPMC Bedford and UPMC Northwest.

UPMC Health Plan's membership has grown in the last year, DeMichiei said on Wednesday. Total membership as of January was 2.29 million, up 10 percent from a year earlier. Membership from employer groups was 486,473 in January, up 9 percent from the same point last year.

That increase in insurance customers, along with higher patient volume in its hospital business and profits from its commercial services division, boosted UPMC's pre-tax operating income to $57.5 million in the October-December quarter. In the same period last year, UPMC reported $12.5 million in pre-tax operating income.

After taxes and costs related to the acquisition of UPMC Altoona, operating income was $43 million, up from $15.9 million a year earlier.

Revenue was $2.9 billion, up from $2.5 billion.

Net income, which includes non-operating gains from investments, was $156.8 million in the quarter, which is the second quarter in UPMC's July-June fiscal year. Net income in the same period a year earlier was $66.4 million.

Alex Nixon is a staff writer for Trib Total Media. He can be reached at 412-320-7928 or

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