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No resolution as the battle grows between Pittsburgh's leading providers

| Sunday, July 3, 2011

The calls continued right up until the last minutes.

Shortly before Highmark Inc. announced last week that it would acquire West Penn Allegheny Health System, the former board chairman of the ailing health care system said, doctors there fielded offers from UPMC trying to lure them away.

"As they have sensed a weakness on our part, they are back making cash offers to our docs to go over to UPMC with the idea of weakening us and sending us down the chute," David L. McClenahan, former chairman and current West Penn Allegheny board member, told the Tribune-Review.

"I believe it is a vast, comprehensive attack on us," he said.

UPMC officials say it's the other way around. West Penn Allegheny doctors are inundating the region's largest health care provider with phone calls about jobs, said UPMC spokesman Paul Wood, proving they lack confidence that the health system will survive even with Highmark's deep-pockets profit of $462.5 million in the past fiscal year.

"West Penn Allegheny's operational and financial problems are their own making," Wood said.

The escalating war between Pittsburgh's leading health care providers enters a new phase in the weeks and months ahead. At stake are billions of dollars in revenue and the lives of millions of people across Western Pennsylvania.

Next year critical

As the conflict among UPMC, Highmark and West Penn Allegheny intensifies, consumers are caught in the middle. Jittery employers are scrambling to get the best deal in health insurance coverage from a larger pool of insurers with UPMC contracts. Employees will find out over the next year how much these changes affect premium costs.

UPMC has not said how its contracts with four national insurers will compare with what Highmark pays the hospital system. Highmark pays UPMC $1 billion a year under contracts set to expire June 30, 2012, and UPMC wanted a $400 million annual increase, Highmark CEO Dr. Ken Melani said. UPMC disputed the figures, saying officials never mentioned numbers during negotiations.

"Employers are very concerned about the cost implications and the disruption to their employees," said Tom Tomczyk, a health benefits experts and principal at Buck Consultants, Downtown. "They are very frustrated. They are wondering, 'Do I have to change my thinking and give up access for more affordable or better cost?' "

Consumers can expect turf battles for alliances with community hospitals and doctors across Western Pennsylvania — from Erie, where UPMC took over Hamot Medical Center last year, to independent providers such as Jefferson Regional Medical Center in Jefferson Hills.

Melani said Highmark wants to contract with every provider, including UPMC, and has reached out to hospitals and doctors in the region about partnerships, though not necessarily about owning them. He declined to name providers, but it's believed that Highmark will make an aggressive move to work with Erie's St. Vincent Medical Center.

UPMC officials say it would be unrealistic for them to contract with Highmark if doing so means it would help fund rival West Penn Allegheny.

Consumers can expect aggressive marketing and advertising campaigns to sway patients and bait employers. UPMC has started running full-page newspaper ads naming its own insurance plan and the insurers that contracted with its hospitals. Those ads will continue.

"The true test will be if those insurers can be competitive from a price standpoint," Tomczyk said.

As a Blue Cross and Blue Shield member, Highmark cannot put its name on the West Penn Allegheny hospitals, but Melani said Highmark planned to discuss the matter with the association. The insurer continues to talk with the Cleveland Clinic about collaborations in clinical areas.

Even if a hospital provides a high level of care, patients expect it to look nice as well, Melani said. Highmark will put up $50 million right away to maintain West Penn Hospital, and it plans to spend millions of dollars in aesthetic improvements at Forbes Regional Hospital in Monroeville, which sits a short distance from the $240 million UPMC East, a 156-bed hospital under construction.

As Highmark looks to take over West Penn Allegheny, some old wounds are festering. The hospital system sued the insurer in 2009, saying that Highmark and UPMC worked together to put West Penn Allegheny out of business. Highmark and UPMC appealed the case to the U.S. Supreme Court, which is expected to decide by fall whether to hear arguments.

"We have a difference of opinion but that has nothing to do with this transaction," Melani said.

For now, West Penn Allegheny has no plans to drop the suit, McClenahan said. If the acquisition goes through as expected, all litigation between Highmark and West Penn Allegheny would cease -- because the claim against the insurer would be "overwhelmed" by the financial lifeline it is providing, he said.

The case against UPMC would continue, he said.

Shifting strategies

Behind the headlines, the three leading players are struggling with a philosophical shift in how Americans pay for health care: from a payment system that rewards hospitals for driving up volume to one that would give hospitals a greater incentive for keeping people healthy and keeping costs down.

"We were providing access, but we weren't providing an affordable product," Melani said about the insurer's dealings with UPMC.

The Trib has reported this year on how hospitals' money-making incentives hurt patients, as part of its "Code Green: Bleeding Dollars" series examining topics that contribute to skyrocketing health care costs. The series, which can be found at or , reported that:

• Pennsylvania hospitals charged more than $1.25 billion a year to treat patients who were readmitted for complications or infections that might have been avoided.

• Hospitals across the country receive billions of dollars a year to aggressively treat dying patients, even when the patients want to be left alone.

"The financial incentives have been completely skewed" over the years, said Dr. Gail Gazelle, assistant clinical professor at Harvard Medical School and an expert on end-of-life care. Changing those incentives is a "positive thing," she said, but experts have to watch that they do not go so far in the other direction that patients are denied care when they need it.

Without a change in its strategy, Highmark eventually would have been eliminated from the market, Melani said.

As prices rose at UPMC compared to other hospitals, the insurer could not charge members less for choosing to go to less expensive providers. When Highmark proposed changes to UPMC, he said, the hospital system rebuffed the offer.

If UPMC could eliminate West Penn Allegheny, Melani said he believed it would set sights on taking down Highmark as well.

"What's the real strategy here?" Melani said. "Well, now that you think you put West Penn-AGH out of business, or virtually out of business ... this looks like a put-Highmark-out-of-business strategy."

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