Highmark's efforts to acquire struggling hospital operator West Penn Allegheny Health System has brought into sharp focus the acrimonious relationship between the insurer and the region's dominant hospital operator, University of Pittsburgh Medical Center.
Under the terms of a preliminary agreement, Highmark will pump as much as $475 million into the ailing hospital operator over the next four years. The insurer has provided an immediate $50 million grant and will also make an investment of $75 million to establish medical education programs at WPAHS.
If the deal were completed, Highmark would be in direct competition with UPMC not only as a hospital operator, but also as an insurer: UPMC has its own health plan, with more than 1.5 million members.
The move to acquire WPAHS comes as Highmark enters the final year of a 10-year contract with UPMC. Negotiations on a new contract broke off this spring and are unlikely to resume any time soon.
According to published reports, UPMC was seeking reimbursement increases as high as 40 percent for any new contract with Highmark, a contention flatly denied by UPMC officials.
"That was never even discussed in the negotiations," said Paul Wood, vice president of public relations at UPMC. "The negotiations broke off before we could exchange data and we could begin discussing that."
Instead, UPMC ended the talks early in the process. "Because of (Highmark's) announced intention to become a payer-provider, we made the decision that we would not have a contract," Wood said.
Officials at Highmark, however, aren't willing to close that door and say the company wants to maintain choice for its members. That presumably means access to UPMC's facilities and 2,800 doctors in western Pennsylvania, where Highmark currently has more than 3 million members.
"We continue to look for common ground and a reasonable contract with UPMC," said Aaron Bilger, a Highmark spokesman. "We would like to get back to the negotiating table with them."
Further, Bilger noted it's Highmark's intention for WPAHS to contract with any and all health plans.
As the bitter feud plays in the local press, area residents and state regulators are worried about access to care and that many may need to change their doctors if the two can't reach an accord.
Jan Jennings, president and CEO of Pittsburgh-based healthcare consultancy American Healthcare Solutions, said much of the blame for the uncertainty lies at the feet of UPMC.
"(The dispute) is really unfortunate and shows a reckless disregard for the subscriber," Jennings said. "UPMC has put 30 percent of their market share at risk and they are gambling that people will switch from Highmark health insurance to UPMC health insurance or a couple of others that have crept into the market."
The other insurance players that have gained a foothold in the market include Aetna, Cigna, United HealthCare and Healthcare America, all of which have signed contracts with UPMC since February, when UPMC opened its network in an attempt to broaden competition.
More competition benefitting the market is about the only thing both organizations agree on.
"It is important to have choice," said Kenneth Melani, MD, Highmark's president and CEO. "It is important to have a second system and to have options so that people who want a second choice, who want another option, doctors, patients, nurses, whoever it may be have somewhere to go when they need an option or second alternative."
As Highmark and UPMC prepare to battle it out for both health premiums and healthcare dollars, West Penn Allegheny stands as the one organization that has gained the most. With its credit rating trashed and hundreds of millions of dollars in debt, affiliating with Highmark and its deep pockets will allow the hospital to make needed improvements and be a more viable competitor to UPMC.
"With financial stability, West Penn Allegheny will be able to invest significantly in new technology and new programs and we'll be in a much better position to recruit physicians," said Dan Laurent, WPAHS spokesman. "UPMC has had significant leverage in the recruitment of physicians over the past decade and this will even the playing field."
Laurent said the $50 million grant would be put to use immediately across the system, with specific investments aimed at improving the facilities and clinical capabilities of its West Penn and Forbes regional facilities.