Doctors and patients caught in hospital-health plan standoff

It's not unusual for a powerful insurer and a large hospital system to threaten each other during contract negotiations, both sides dangling the prospect of the hospital going out of network. What is unusual is the step Pittsburgh-based Highmark took to gain leverage in negotiations against the 19-hospital University of Pittsburgh Medical Center.

In the middle of contentious negotiations to replace a deal set to expire in June 2012, Highmark announced June 28 that it was buying UPMC's major competitor, six-hospital West-Penn Allegheny Health System. The organization has gone through bankruptcy once (in 1998) and was considered by many local experts to be heading for a grim future again because of systemic financial problems.

Physicians face a dilemma. On one hand, it's heartening that someone is keeping alive the struggling West Penn-Allegheny Health System, thus preserving hospital competition in Pittsburgh. Highmark's "affiliation agreement" will result in an infusion of $475 million into the facilities during the next four years.

On the other hand, if Highmark and UPMC never work out a new contract, doctors say the disconnect in the city's health care system could harm patient care and break physicians' relationships with patients, if those patients aren't willing to pay more to see an out-of-network doctor.

Leo McCafferty, MD, a Pittsburgh plastic surgeon and president of the Allegheny County Medical Society in Pennsylvania, said some physicians think an insurer shouldn't own a hospital, and others think a health system like UPMC shouldn't own a health plan, which it does. But more important than that argument is the preservation of competition in the city.

"The city can at least handle two health care systems in this region," Dr. McCafferty said. "Competition raises the level of care. If you're competing, you're innovating."

The Allegheny County Medical Society surveyed nearly 500 physicians, both independent and employed, about the situation between Highmark and UPMC. More than half said patients were "expressing concern" about the dispute. Sixty-five percent said they expected to lose patients, and 80% said patients would have less access to care if the two sides don't reach an agreement.

"The general feeling among physicians is that we have two large, very successful organizations that have a right to do business the way they see fit, but also have a responsibility to the community," Dr. McCafferty said. "They're each directed by very bright people at the top, bright leadership management teams. We feel those teams should be able to come together and figure out an innovative solution to this issue."

From boardroom to courtroom

Solutions, however, are not emerging.

UPMC launched a campaign telling patients that it soon would be out of the Highmark network. Ads included a website prominently featuring the names of the insurers for whom UPMC would still be in network.

UPMC spokesman Paul Wood said the "Keep Your Doctor" campaign was meant to educate the public, not stir the pot.

But in response to the ad campaign, Highmark sued UPMC on July 13 in U.S. District Court for Western Pennsylvania, alleging that UPMC had violated its contract and staged an illegal attack on the Highmark brand.

"All facets of the Keep Your Doctor campaign have a singular purpose -- to smear Highmark and tarnish its reputation, and to lure away its current plan members and encourage them to enroll with UPMC Health Plan or other insurance providers," Highmark's lawsuit alleges.

UPMC countered by asking that the case be moved in front of the judge handling another lawsuit -- a 2009 case filed by West Penn-Allegheny against Highmark that alleged antitrust violations.

In that case, West-Penn Allegheny alleged that the insurer, with UPMC's help, conspired to push WPAHS out of the market to create a monopoly.

It's unclear how the new case would be affected if the 2009 lawsuit filed by WPAHS is dropped or otherwise settled out of court.

WPAHS spokeswoman Kelly Sorice said the system is still working on a definitive affiliation agreement with Highmark, and that the lawsuit probably would be addressed as part of that deal.

Two battling giants

According to court documents, UPMC holds a 55% share of the area's hospital market, and Highmark holds between 60% and 80% of the health insurance market.

Among UPMC's 50,000 employees are more than 2,700 physicians, and those physicians would be out of network along with the system's hospitals.

Highmark says UPMC wants a 41% increase in reimbursement, which it estimates would cost about $400 million and drive up premiums for its members.

The current situation is not so different than the two companies' last contract standoff in 2002: UPMC demanded a 21% rate increase and $300 million in cash, demands that Highmark called "extortion." UPMC reportedly ended up with a smaller rate increase and closer to $250 million in grants and loans to spend on the purchase of one hospital and construction of a new children's hospital.

This year's battle is noteworthy in part because Highmark's purchase of WPAHS is part of a trend of insurers getting back to the business of direct caregiving -- an area that most health plans have avoided since the managed care backlash of the 1990s. Most health plans haven't gone as far as to purchase a hospital, but nonetheless, analysts are watching to see how the deal plays out, because it could determine how other insurers' moves into clinical care are received.

If the courts don't resolve the situation, there are state regulators who might referee. The state's insurance commissioner, Michael Consedine, has the authority to intervene on behalf of consumers, but not until closer to expiration of the Highmark-UPMC contract in 2012, insurance department spokeswoman Melissa Fox said.

"There's still a lot of time between now and then for them to come to an understanding and meeting of the minds," she said.

State Sen. Don White, chair of the state Senate's Banking and Insurance Committee, announced on July 19 that he plans on holding hearings over the problems between Highmark and UPMC.

"The decisions made by these two entities impact health care in western Pennsylvania to a degree unrivaled by any other," he said in his announcement.

In a July 25 "open letter," WPAHS's chief medical officer and 17 other affiliated physicians called for a third-party mediator to help work out a deal in the interest of patients:

"The bottom line is patient care, not profits," the letter said. "Without question, uninterrupted patient care must be the highest priority in the resolution of this business arrangement between these two nonprofits."