Health system feud now a federal case

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Years of verbal volleys, grabs for physician practices and disputes over reimbursement rates came to a head this week as the West Penn Allegheny Health System filed suit in federal court against rival University of Pittsburgh Medical Center and insurer Highmark.

West Penn Allegheny accuses the region's leading hospital system and health insurer with antitrust violations that it says have illegally raised prices for consumers in the region while trying "to destroy West Penn Allegheny."

The suit lays out various acts against West Penn Allegheny dating back to 2002 that health systems officials say were meant to ensure Highmark's continued dominance in return for higher payment rates for UPMC and Highmark's help to "eliminate" West Penn Allegheny.

Both Highmark and UPMC issued statements yesterday rebutting the charges, and one local hospital industry consultant described the filing as an apparent act of desperation by West Penn Allegheny.

"West Penn is running out of options," said Jan Jennings, president and CEO of Pittsburgh-based American Healthcare Solutions. "You don't sue UPMC and Highmark, with the deep reserves of cash they both have, unless you're desperate."

In a statement, UPMC said it "unequivocally denies the allegations" in the lawsuit, saying the filing is an attempt by West Penn Allegheny "to divert attention from their own operating and financial difficulties."

A year ago, West Penn Allegheny had to take a $73 million write down based largely on an overestimation of patient revenues. Last month, West Penn Allegheny reported operating losses of $9.1 million and a net loss of $5.6 million for the quarter ending Dec. 31.

Highmark officials said they were "very surprised and disappointed" by the lawsuit. They cited a long history of providing financial support for health care institutions, including a $125 million loan to West Penn Allegheny "and more than $50 million in grants to help improve clinical care and services and help strengthen the system's administrative and information systems."

"Without Highmark's support, there was a distinct possibility that Allegheny General and its sister hospitals would not have survived," the company said.

The suit alleges that UPMC and Highmark have "engaged in mutual back-scratching designed to preserve Highmark's monopoly in health insurance and to permit UPMC to build a monopoly in sophisticated ... health care in this region," said David L. McClenahan, board chairman of the West Penn Allegheny Health System in a release.

The lawsuit follows a similar complaint West Penn Allegheny filed with the U.S. Department of Justice three years ago that Mr. McClenahan said the federal agency is still investigating.

Highmark has passed its higher rates on to employers, consumers and patients in the form of higher premiums for its coverage, the lawsuit said.

"The basis of the lawsuit illustrates a growing concern I hear -- that market dominance by an insurer and/or provider network is inherently counterproductive to ensuring a fair and competitive playing field in the health care marketplace," said state Sen. Don White, R-Indiana and head of the Senate's Banking and Insurance Committee.

That committee was one of several responsible for vetting the proposed merger between Highmark and Philadelphia's Independence Blue Cross, which died earlier this year.

"It is logical to believe both insurers and providers with dominant market shares hold commanding positions when negotiating reimbursement rates for services," Mr. White said.

Mr. Jennings, whose consulting firm provides financial, strategic and leadership development services for clients, agreed that West Penn Allegheny's demise "would be unfortunate for the community" and he has described UPMC's plans to build a hospital in Monroeville not far from the West Penn-Forbes Regional hospital as "absolutely absurd."

But he sees the new lawsuit as a dire sign for West Penn Allegheny. "I would guess that the hoped-for outcome would be some sort of out-of-court settlement that would result in meaningful competition in Pittsburgh. I can't judge the arguments. I just know these kinds of cases in general are very hard to prove.

"I see West Penn Allegheny as having reached a very desperate stage. It is sort of like the last straw to sue your competition on some sort of antitrust basis."

The suit asks the court to order Highmark "to contract with West Penn Allegheny on fair and equitable terms" and that UPMC be ordered to divest its health insurance affiliate, UPMC Health Plan, and discontinue its joint ventures with independent community hospitals. It also seeks unspecified monetary compensation and punitive damages.

Lawsuits between health insurers and hospitals or physicians groups aren't unheard of, and in fact, Highmark sued UPMC nearly a decade ago to block UPMC's acquisition of Children's Hospital. At the time, Children's then-president and CEO, Ron Violi, called Highmark "a spoiler and a sore loser." West Penn filed a similar lawsuit, trying to block the UPMC-Children's merger, and dropped it in 2001.

Often, squabbles of this sort are about reimbursement rates. In 2002, as a service contract between UPMC and Highmark was about to expire, the two squared off over reimbursements, each claiming it was being treated unfairly by the other -- UPMC said it was being under-reimbursed while Highmark was raising its rates; Highmark said UPMC was being reimbursed amply.

Elsewhere, the American Medical Association and four other medical groups sued WellPoint Inc. last month, accusing the Indianapolis-based health insurer of underpaying providers for out-of-network services. The month before, the AMA sued Aetna Inc. and Cigna, claiming the same.

And in 2007, Brooklyn's Brookdale University Hospital and Medical Center sued the Health Insurance Plan of Greater New York, alleging the that insurer conspired with doctors to wrongfully deny coverage for patients, according to The New York Times. Brookdale, like West Penn Allegheny, was financially distressed at the time of its federal civil racketeering lawsuit.

The response from HIP was quite similar to UPMC's, saying Brookdale's suit was "profoundly dishonest and defamatory," and an effort to "distract attention from its own financial distress and possible mismanagement."

Two years later, that suit is still ongoing.


Post-Gazette Staff Writer Mark Roth contributed to this report. Steve Twedt can be reached at stwedt@post-gazette.com or 412-263-1963. Bill Toland can be reached at btoland@post-gazette.com or 412-263-2625.


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