The University of Pittsburgh Medical Center Health System's appetite for expansion has put it on a collision course with Highmark Blue Cross and Blue Shield, the dominant health insurer in western Pennsylvania.
Now the friction between UPMCHS, the area's largest healthcare provider with a dozen hospitals and annual revenues of nearly $2.5 billion, and Highmark, the area's biggest payer with $7.4 billion in annual revenues and 65% of the insured market, has sparked a flame.
The trigger was UPMCHS' most recently announced deal-a merger with 263-bed Magee-Womens Hospital-outlined in a letter of intent last month. A deal is expected to close later this year.
In taking control of Magee, UPMCHS would further strengthen its already considerable grip on tertiary-care services in the market.
To add insult to perceived injury, UPMCHS' latest move comes at the expense of the independence of a locally revered institution. Founded in 1911, Magee is an acute-care and research hospital specializing in the care of women and infants.
As the latest in a steady stream of acquisitions, the Magee deal continues UPMCHS' methodical strategy to craft the largest and most powerful network of hospitals and providers in the area.
In response to UPMCHS' deal with Magee, Pittsburgh-based Highmark has said enough already.
In a rare public attack, Highmark questioned UPMCHS' high-profile growth strategy.
How would the Magee deal and others like it benefit consumers? asked Highmark spokesman Michael Weinstein. He challenged the promises of either improved quality or cost savings. "We're waiting to see how a high-cost facility-and they are the high-cost provider-can produce a lower-cost product," he said.
For its part, UPMCHS is letting its actions do the talking.
"Apparently competition is a problem for Highmark," said Jane Duffield, a UPMCHS spokeswoman who declined further comment and said system executives weren't available for questioning.
Behind the heated rhetoric is a more basic concern: UPMCHS is determined to tread on Highmark's insurance turf. And the challenge comes as Highmark is struggling to return to profitability.
In 1996 the insurer lost $50 million and last year would have lost $76 million if not for a one-time gain of $100 million from the sale of its interest in Keystone Health Plan East to Independence Blue Cross.
For some time, UPMCHS has barely kept secret its desire to bring an outside insurance partner into Pittsburgh to topple Highmark and thereby tip the balance of power from payers to providers.
For-profit Foundation Health Systems, based in Woodland Hills, Calif., among others, has reportedly had talks with UPMCHS about coming to Pittsburgh. But none has taken the bait so far.
In the meantime, UPMCHS in 1996 launched its own HMO, called UPMC Health Plan, and the system is beefing it up fast to do battle with Highmark.
First started to insure Medicaid recipients, the HMO expanded this year into commercial lines. So far this year, enrollment has quadrupled through the addition of UPMCHS employees and their dependents, which boosted the total by 75,000. And this summer the plan will be offered to Pittsburgh government employees in direct competition with products from Highmark and for-profit insurers HealthAmerica and Aetna U.S. Healthcare.
As has been the case with many other provider-owned HMOs, UPMCHS' brief insurance foray has been bloody. During its first year of operation, its HMO lost $5.3 million on revenues of $4.3 million, and in 1997 losses hit $13.3 million on revenues of $29 million, according to filings obtained recently by MODERN HEALTHCARE from the Pennsylvania insurance department.
Between its growing provider network and increasing insurance presence, UPMCHS is crimping Highmark's rollout of a budget HMO product called CommunityBlue, which will offer enrollees a reduced network of providers in exchange for about a 10% break on premiums.
Negotiations last year between Highmark and several of UPMCHS' hospitals to participate in CommunityBlue broke down over pricing, Weinstein said. And he asserted UPMCHS also influenced several affiliated hospitals that had expressed strong interest in joining the network to back out.
But Highmark isn't alone in questioning UPMCHS' strategy and tactics.
"Their expansion style has been very aggressive, and they are extremely predatory," said William Casey, chief executive officer of Conemaugh Health System, Johnstown, Pa.
Early this year UPMCHS said it would acquire 224-bed Lee Hospital, the cross-town rival to 355-bed Memorial Medical Center, Conemaugh's flagship.
Wasting no time, UPMCHS also moved to buy the obstetrics practices at Lee and then pursued the obstetrics practices at Memorial.
"They are trying to buy all of our key specialists out from under us," Casey said.
As for the ultimate result of UPMCHS' tough tactics, Casey said, "The jury is out on whether the strategic design of buying their referral network is going to pay dividends to them when it is clearly polarizing western Pennsylvania."