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Lawsuit intensifies rivalry

Luis Fábregas
| Thursday, July 26, 2001, 12:00 p.m.

West Penn Allegheny Health System on Wednesday intensified its rivalry with UPMC Health System by filing its own lawsuit to attempt to thwart the merger between UPMC and Children's Hospital of Pittsburgh.

In the lawsuit, filed in U.S. District Court, West Penn Allegheny is following the lead of Highmark Blue Cross Blue Shield and accusing UPMC of violating antitrust laws.

Highmark, the dominant health insurer in western Pennsylvania, and three smaller insurers filed a similar lawsuit in June to block the $700 million merger announced in April.

West Penn Allegheny, formed two years ago by the union of Allegheny General Hospital and West Penn Hospital, says the Children's merger would give UPMC unfair control of the region's only pediatric specialty hospital.

And it would stifle competition at a time when UPMC already controls 15 of the region's leading hospitals, West Penn Allegheny believes.

'In our view, they talk altruistic but walk monopolistic,' said Tom Chakurda, senior vice president of communications at West Penn Allegheny.

The strained relationship between West Penn Allegheny and UPMC dates back to UPMC's opposition of the West Penn-Allegheny General merger. The transaction, which emerged as a result of the collapse of the Allegheny Health, Education and Research Foundation, posed a threat to UPMC's regional dominance.

West Penn Allegheny and Highmark are primarily concerned that Children's remain accessible to all patients regardless of their health insurance coverage.

The 19-page lawsuit alleges that a Children's-UPMC union would shut out other hospitals from competing with UPMC. West Penn Allegheny says UPMC could do that by selling access to Children's together with access to other UPMC hospitals. That would, in turn, provide an economic incentive for insurers to shift their members to UPMC hospitals, the lawsuit says.

UPMC officials called the lawsuit 'predictable and not surprising' because of Highmark's longstanding relationship with West Penn Allegheny. Highmark loaned West Penn $125 million to help finance its merger with Allegheny General.

In a meeting yesterday with editors of the Pittsburgh Tribune-Review, UPMC President Jeffrey Romoff said the Justice Department has examined the merger and determined there are no antitrust concerns.

Romoff said allegations of UPMC using Children's as leverage are unfounded.

'We would not have had a deal with Children's had not we made hard and fast assurances that Children's current policy of accepting all children from all insurance companies will continue to exist.'

Romoff, accompanied by board Chairman Richard Fischer and Executive Vice President John Paul, said the system will not bundle Children's services to other systemwide services.

'Any insurer that has a contract with Children's, if they elect not to have a contract with the rest of the UPMC Health System, that's OK. There will be no requirement to have a contract with the rest of the health system.'

Fischer, a retired Alcoa executive, said antitrust allegations raised by Highmark are inconsistent with the policies of UPMC's 60-member board and the system's management.

'Children's management and their board of directors had the good sense to preserve their mission, which includes access,' Fischer said. 'We have addressed those in good faith in the negotiations, and we're close to definitive agreements of embodying all of these points. There are additional steps and safeguards we're talking about to help assure that, to allay any concerns.'

Fischer refused to say if UPMC has plans to negotiate any further with Highmark, which has offered to foot the $250 million cost of a new Children's Hospital. The new Children's building, to be located on the campus of UPMC Montefiore hospital, is one of the key components of the UPMC merger.

Romoff said Highmark has engaged in the same practices it accuses UPMC of doing. For instance, he said Highmark has arbitrarily excluded UPMC hospitals from its CommunityBlue product, a lower-cost plan the insurer established a few years ago.

Highmark said it asked UPMC to participate and it refused.

In the newest lawsuit, West Penn Allegheny says UPMC has not allowed UPMC Magee-Womens hospital to be part of the CommunityBlue network.

To bolster its claim about access, West Penn Allegheny says that before the merger announcement, it had been in negotiations with Children's for the pediatric facility to manage pediatric services at West Penn Allegheny's six hospitals. Those talks have been called off.

West Penn Allegheny's flagship hospital, Allegheny General Hospital, scratched its pediatric trauma services three years ago. West Penn Allegheny officials say the cost to duplicate those services again, including the cost of equipment and salaries, would be prohibitive.

In the lawsuit, West Penn Allegheny cites several other attempts by UPMC to gain control of the market using improper tactics. That includes forcing a dozen UPMC-affiliated physicians to resign from the medical staff at Forbes Regional Hospital, which is part of the West Penn Allegheny system.

The lawsuit also says UPMC attempted to use Children's unique competitive significance through newspaper ads that were deemed false and deceptive by a federal judge.

'Those actions belie their present rhetoric,' Chakurda said.

Luis Fábregas can be reached at lfabregas@tribweb.com or (412) 320-7998.

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