Why would Highmark want to kill West Penn? : Steve Twedt and Bill Toland

Published: 06th May 2009
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When Doug Ross, a Seattle-based health care attorney who specializes in antitrust law, first heard about the West Penn Allegheny Health System suing the University of Pittsburgh Medical Center and Highmark, a question immediately came to mind.
"What's in it for Highmark?" he asked.
In other words, why would the region's largest insurer want to eliminate West Penn Allegheny, as the lawsuit alleges?
Logic would argue that an insurer would want thriving independent health systems competing for its business. A monopoly, or near-monopoly, would give UPMC more leverage to dictate rates and control the local health care business.
"From [Highmark's] perspective, the competition between the providers is a good thing, not a bad thing," said Randy Picker, a University of Chicago law professor who specializes in antitrust matters. "The insurance company is going to get a better price if they have two providers than if they have to deal with a monopolist."

The nonprofits' comments, and the lawsuit itself, illustrate the unique, changeable and occasionally fractious relationship over the years between Highmark and the region's two major health systems.
Last summer -- a year after WPAHS officials accused Highmark of giving UPMC hospitals more favorable reimbursements -- West Penn Allegheny and Highmark signed a five-year contract that appeared to put animosities behind them.
"We are most gratified to have come to this agreement," West Penn Allegheny's new CEO Dr. Christopher Olivia said at the time.
"Maintaining our long-standing relationship with West Penn Allegheny was very important to us and our members," said Dr. Kenneth Melani, president and CEO of Highmark.
Last week's filing in U.S. District Court takes a much different tone.
Highmark, according to the complaint, agreed "to pay inflated reimbursement rates to UPMC while depressing rates for UPMC's competitors, especially West Penn Allegheny. Highmark has in turn passed on the costs of UPMC's rates to employers, consumers and patients by charging higher premiums."

The motivation, according to the lawsuit: A "secret deal" hatched seven years ago in which UPMC "agreed to ensure Highmark's continued dominance in the health insurance sector with the prospect of being able to raise premiums." In return, the complaint said, UPMC demanded Highmark "join in the campaign to eliminate its sole viable competitor, West Penn Allegheny."
UPMC would supply the hospitals, doctors and nurses; Highmark would get to set rates as high as the market would bear.
"If any of this plays out, it could imply that employers have paid overinflated prices for health care," said Christine Whipple, executive director for the Pittsburgh Business Group on Health, who believes the allegations underscore the need for greater transparency in determining health care costs. "It's really disturbing to see this out there."
Both UPMC and Highmark have denied the accusations by West Penn Allegheny.

"This is never about putting anyone out of business. It's not," said Highmark spokesman John McDermott. "We have supported competition among health care systems in the community and brought access and choice of facilities for our members."
And yet the Pittsburgh health care market is highly concentrated, a fact neither UPMC nor Highmark could reasonably dispute. Both companies have more than 50 percent of their respective markets.
It's one of the reasons the state Department of Insurance was loath to approve a proposed merger between Highmark and Philadelphia's Independence Blue Cross without first winning concessions from the two Blues.
At this point, "They're just allegations," said Sam Marshall, CEO of the Insurance Federation of Pennsylvania, who noted a plaintiff can put nearly anything in a lawsuit.
"But we've been saying for [years] that it's very difficult to compete against Highmark, and that the lack of competition hurts consumers."
He also offered an answer to the question of what's in it for Highmark.

The insurer might not benefit from actually putting West Penn Allegheny out of business, Mr. Marshall said, but it might benefit if an agreement with UPMC had the effect of keeping other insurers out of the Western Pennsylvania market. Paying inflated reimbursement rates to UPMC would be a small price for Highmark's sheer market penetration.
If West Penn's relationship with Highmark has been acrimonious at times, its relationship with UPMC has been downright nasty, as one health system gleefully lures physicians from the other or sets up new facilities near established ones run by the other.
The animosity and saber-rattling was evident from the start, 10 years ago, as West Penn Health System and Allegheny General Hospital sought a merger -- which UPMC tried to block.
They may be nonprofit entities working for the community's greater benefit in the eyes of the Internal Revenue Service. But they compete for the local health care consumer as intensely as Apple and Microsoft battle for market share.
By suing two of Pittsburgh's biggest and most visible entities, the West Penn Allegheny Health System steps into the fast-growing arena of healthcare antitrust law.
Both courts and regulatory agencies such as the Federal Trade Commission and U.S. Department of Justice have taken a keen interest in this area, although the cases more commonly pit general hospitals against specialty hospitals, or physician groups against each other.

The FTC handles antitrust cases among hospitals but has no authority over insurers, which are regulated by the state. The Justice Department can look into such matters.
In August 2007, UPMC learned it was part of a Justice Department investigation into "any potentially anticompetitive agreements" affecting the local health insurance and hospital market. West Penn is part of the same investigation, having learned of it in January. A Justice Department spokesman would not comment or verify ongoing investigations.
The state Department of Insurance also can play a role in examining antitrust issues.

"We take the allegations seriously," said state Insurance Commissioner Joel Ario. "If true, the charges would be a violation of the Unfair Insurance Practices Act, and be in violations of insurance law."
There is a range of remedies for violating the unfair practices act, typically in the form of financial penalties.
As a civil matter, antitrust attorney Mr. Ross said one issue likely to come up is the four-year statute of limitations. West Penn Allegheny's complaint alleges a UPMC-Highmark conspiracy since "at least" 2002.
Unless the health system can show that something new or different has transpired in the past four years, "It might be too late," said Mr. Ross.
If the conspiracy allegations were true, one question to be answered is why UPMC's Health Plan actively campaigned against the proposed merger of Highmark and Philadelphia's Independence Blue Cross, a merger that collapsed earlier this year.
If UPMC Health Plan and Highmark have a tacit agreement to not compete against each other for commercial business, as the lawsuit claims, then why was UPMC so opposed to Highmark's goal of creating one of the biggest health insurers in the country?

Some conspiracy theorists have suggested the opposition was for show, an effort to "cover its tracks" and hide the partnership with Highmark.
But many think UPMC Health Plan's opposition to the Highmark-IBC merger was genuine, noting UPMC lobbied state officials and elected representatives, hired experts to testify at hearings, and was one of many voices in the chorus that doomed the merger.
So if antitrust lawsuits are so fraught with challenges and so expensive to litigate, what's the end game for West Penn? The answer may be cash.
Mr. Ross said most civil antitrust cases end with a settlement, including those against Highmark and other Blue Cross-Blue Shield insurers.
Highmark's 2007 annual report, issued last year, noted that the insurer was a defendant in several class-action and civil suits. One alleged Highmark, Keystone Health Plan Central and others "conspired [to] underpay providers." A settlement was reached.
Also in 2007, Highmark agreed to a $10 million settlement with a doctors group that alleged that it (and most other major American insurers) had engaged in unfair business practices, including violations of the federal Racketeer Influenced and Corrupt Organizations Act. That settlement was related to a $128 million settlement between 900,000 physicians nationwide and two dozen other Blue Cross and Blue Shield insurers earlier that year.

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