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Highmark, UPMC far apart on contract

Luis Fábregas
| Wednesday, May 1, 2002

Highmark Blue Cross Blue Shield is rejecting a proposal from UPMC Health System to renew key hospital contracts that expire this summer but said it has not given up on reaching an agreement with the health care giant.

"The proposal in its present form would not effectively lead to a resolution of the issue," Dr. Kenneth R. Melani, Highmark's executive vice president for business development, said in an interview Tuesday. "But it serves as a basis for us to continue to have dialogue. We have an obligation to do that."

Highmark and UPMC have about two months to settle commercial insurance and managed care contracts that give consumers access to virtually all of UPMC's facilities, including its renowned transplant center in Oakland. Should both parties split, Highmark's 2.8 million members are likely to pay more to get care at UPMC hospitals.

Melani, who as recently as Monday spoke with UPMC executives, said UPMC is asking for three times as much as Highmark is willing to pay. UPMC, which gets about $300 million in payments every year from Highmark, wants at least $60 million more, Melani said. In addition, UPMC is asking Highmark for inflation adjustments and a lump payment of $300 million that would help finance a new Children's Hospital.

UPMC officials said they are willing to go back to the negotiating table but defended their request for higher payments and the $300 million lump payment because Highmark has about $2.2 billion in reserves.

"Our invitation to work with Highmark is on the table, and we will continue to negotiate in good faith with the hope of ultimately reaching a solution that will benefit the community," said UPMC spokeswoman Jane Duffield.

Duffield said Highmark's reserves are excessive, but Melani said Highmark wants to have at least three months of health care costs in its reserves to protect itself against uncertainties.

"We have to protect providers and customers," he said. "Who can today determine adequate reserves when you have the kind of environment we have today - companies going bankrupt, bioterroristic activities occurring, aging population. Should something go wrong, we can still pay that bill for you."

Highmark's Melani said the insurer would consider UPMC's proposal to renovate St. Francis Medical Center and turn it into a new pediatric facility, but the idea is far too premature and complicated. He said Highmark wouldn't consider doing that without approval of Children's and St. Francis, both of whom have said they are not aware of the proposal.

Melani expects that one of two things will happen: Either UPMC will go it alone, or one or both parties will cave in.

"I am concerned that we are still so far apart at this point in time," he said. "Either this is a classic negotiation that will stretch to the very last minute or clearly UPMC is committed to be on its own."

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