In an investor call Thursday to discuss results from fiscal 2013, which ended in June, Heppenstall stressed that employers are not dropping UPMC from their health plans—which he called a “pleasant surprise.”
“We think over the long term, this will be a positive to UPMC and its payer mix,” he said.
UPMC currently has a contract with Highmark that expires at the end of 2014. It also offers its own health plan, and contracts with commercial insurers.
Yet one thing UPMC is refusing to do—despite pressure from the Allegheny Health Network—is renew its Highmark contract. Highmark customers currently account for about 21% of UPMC's revenue.
Robert DeMichiei, UPMC's senior vice president and chief financial officer, said on the call that employees have been pushing for continued coverage for UPMC facilities, and major employers—including the city of Pittsburgh—have responded by offering dual options that either include both the UPMC and Highmark plans, or a Highmark plan as well as one offered by a national insurer that contracts with UPMC.
“We don't see this as a significant risk to patient volume, but a transition to a new distribution model,” DeMichiei said.
His remarks come two days after Fitch Ratings downgraded the outlook on UPMC debt from stable to negative, citing increased competitive pressure from the Allegheny Health Network and uncertainty about how it would replace lost volume from Highmark customers.
Highmark, meanwhile, is prepared to fight for UPMC. Officials from the Allegheny Health Network held a news conference Thursday to push for legislation that would require hospitals operating as part of an integrated delivery network to contract with "any willing insurer."
A July memo from state Rep. Jim Christiana to members of the Pennsylvania House of Representatives said amendments to the Health Care Facilities Act are necessary to ensure that hospital consolidation doesn't lead to "collusion or other anti-competitive behavior leading to higher prices or restricted access." It added that if a "mutually agreeable" contract could not be reached between the provider and insurer, one would be imposed on them through mandatory binding legislation. The requirements would also apply to hospital-owned physician practice organizations in an integrated delivery network.
UPMC fired back in a statement that such legislation would amount to “coercion” and goes against the spirit in which the Pennsylvania Insurance Department approved the merger.
A contract with Highmark “would instantly extinguish insurance competition and provider competition, and restore the double-digit premium increases which have plagued this community, kept wages down and stalled job growth,” it said.
UPMC reported operating income of $132 million on revenue of $10.2 billion (PDF) in fiscal 2013 compared with $351 million in operating income on $9.6 billion in revenue the prior year.
Fitch similarly pointed out that the system's profitability underperformed compared with prior years, and operating margins are expected to remain slim as competition increases and government reimbursement shrinks.
Like many of its peers across the country, UPMC reported nearly flat admissions growth in medical/surgical volume while observation cases increased 15.7%.
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(This article has been updated to clarify the scope of the legislation that Allegheny Health Network is supporting.)