UPMC might own most of the hospitals on the region’s Monopoly board, but those hospitals are more dependent on Pittsburgh insurer Highmark’s payments than previously known.
In its audited fiscal 2014 financial report, UPMC states that 31 percent of its $6 billion in net patient revenue, or about $1.9 billion, comes from non-Medicare Highmark insurance reimbursement payments. Only Medicare, with 33 percent, represented a larger slice of UPMC’s revenue pie.
That compares with the 19 percent of “gross patient revenue” that UPMC has reported in its unaudited quarterly financial disclosures for Highmark payments. Reporting gross patient revenue is a standard bookkeeping practice that bases the result on the amounts hospitals charge rather than actual payments.
What this means is that UPMC’s decision not to renew its in-network contract with Highmark might be a bigger stakes revenue gamble than was generally known.
“It’s the same thing we told the rating agencies when we met with them in late August,” said spokesman Paul Wood, referring to the top bond ratings reports that Moody’s Investor Service, Fitch Ratings and Standard & Poor’s issued this month. “If the rating agencies thought this was a significant issue, they would not have maintained their ratings.”
Not all of the 31 percent would be in play, of course.
Highmark will remain in-network for care at Children’s Hospital of Pittsburgh of UPMC, Western Psychiatric Institute and Clinic and oncology services and care at outlying UPMC hospitals, so that revenue will continue to stream to UPMC.
“We anticipate that … they will be putting more than half [of Highmark’s total payments including Medicare] at risk,” said Highmark spokesman Aaron Billger, adding that the insurer had a 92 percent renewal rate by customers in Western Pennsylvania during the July enrollment period.
Stephen Foreman, associate professor of economics and health administration at Robert Morris University, estimated that perhaps 20 percent of UPMC patient revenue from Highmark could be up for grabs. “That’s a huge, huge percentage of your business that is at risk.”
UPMC could sustain that financially, he said, but then he asked, “Is it going to be on the backs of the doctors and nurses?”
Mr. Foreman teaches UPMC nurses in RMU graduate courses. He said, “Their morale is not so great,” between forced overtime, unpredictable scheduling and high turnover. “Their workload is heavy, and the demands getting placed on nurses are really escalating.”
UPMC-employed physicians have their own vulnerabilities, especially those at the hospitals such as UPMC Presbyterian-Shadyside and UPMC Passavant that will be out of Highmark’s network come Jan. 1.
While UPMC reported an increase in its employed physician ranks, from 3,360 at the end of fiscal 2013 to 3,506 as of June 30 this year, “There are people whose contracts are expiring at the end of the year and [UPMC is] saying, ‘We don’t need you anymore,’ ” said Michael A. Cassidy, head of the health law practice group for the Downtown law firm Tucker Arensberg.
Just like any business, the health system will reduce staffing to reflect the expected reduced patient volume, he said. “I think they’re trying to plan appropriately. They’re not trying to hide it.”
For those physicians still under contract, “You have doctors who are going to lose up to 35 percent of their business,” said Amelia Pare, an independent plastic surgeon in the South Hills and chairwoman of the Allegheny County Medical Society board.
She said she knows that some of her UPMC-employed colleagues who will not be in Highmark’s network next year are nervous, but they cannot speak out because of loyalty clauses in their contracts.
“How are you going to meet your projected earnings if you’re going to lose 35 percent of your patients?” Dr. Pare asked. “The only way you do is to cut your expenses, and every doctor has five or six employees who rely on them.”
The picture should become clearer in coming months, when the open enrollment period that begins Oct. 1 gets underway.
“There are too many factors and variables, including how Highmark decides to behave, to determine what part of the 31 percent of UPMC’s Highmark-related net patient services revenue are ‘in play’ beginning next year and how that affects UPMC’s financials,” said UPMC spokesman Mr. Wood.
His own prediction: “It’s most likely to be neutral … and there’s even a realistic possibility it could have a positive impact.”
That would involve a scenario in which more employers and consumers switch from Highmark to one of the competing insurers — Cigna, United Healthcare, Aetna and Aetna-owned HealthAmerica — that have contracts with UPMC.
So far, those insurers have made slight inroads, increasing their share of UPMC’s net patient revenue from 10 percent in fiscal 2013 to 11 percent this year, according to UPMC’s audited financial report.
Just this week, the North Allegheny School District said it was switching from Highmark to United Healthcare “to ensure minimal disruption” to its employees. The Allegheny County School Health Insurance Consortium that represents all the other county school districts except for city schools has said it is staying with Highmark.
“You wonder how long this is going to play out,” Dr. Pare said. “Unfortunately, if you are an employer-owned physician, you don’t necessarily have a lot of control over it.”
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