West Penn's lawsuit dismissed

Health system accused UPMC, Highmark of conspiring on prices

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West Penn Allegheny Health System's ambitious antitrust suit against the two biggest players in Pittsburgh health care, rival University of Pittsburgh Medical Center and insurer Highmark Inc., was dismissed yesterday.

U.S. District Judge Arthur J. Schwab wrote that West Penn's federal suit -- which alleged a conspiracy between Highmark and UPMC to reduce competition, inflate prices and ruin West Penn in the process -- was "inconsistent," and that the court "has found that no conspiracy or agreement to form an illegal market allocation arrangement has been properly alleged."

"We respectfully disagree with the court's opinion," said West Penn spokesman Dan Laurent. "We are reviewing the decision and considering our next step." The next step could be an appeal to a higher court, but it won't be a resubmission of an amended complaint to the same court; the judge wrote: "Amendment in this case would be futile."

UPMC and Highmark also issued comments yesterday afternoon. UPMC spokesman Paul Wood said "UPMC is pleased with the court's decision today to dismiss WPAHS's unfounded claims." Highmark's Michael Weinstein said "the court's decision reinforces Highmark's position that WPAHS failed to provide sufficient facts to support its federal antitrust claims, that it did not suffer any injury under the federal antitrust laws. ... The lawsuit represented a misguided effort by WPAHS to rewrite history and overlooked our continuing support for WPAHS throughout the past decade."

In his opinion, Judge Schwab wrote that West Penn was "inconsistent" in describing damages allegedly inflicted by Highmark and UPMC. "On one hand, West Penn Allegheny alleges that it suffered financial hardship and has a need for capital, [while] also admitting that it has experienced an increase in unrestricted cash."

West Penn filed the suit on April 21, alleging that Highmark and UPMC illegally raised prices for local health consumers while trying to "destroy" West Penn Allegheny. The suit detailed actions by the two going back to 2002 that it said were designed to assure Highmark's ongoing dominance in the local insurance market while establishing higher payment rates and eliminating West Penn Allegheny to benefit UPMC .

From the beginning, both UPMC and Highmark contended the suit was baseless and both filed separate motions to dismiss. Highmark noted that it had provided WPAHS with a $125 million loan and more than $50 million in grants to improve clinical care and strengthen the health system's administrative and information systems.

"Like the typical conspiracy theorist, [West Penn Allegheny] concocts a story from incomplete and ambiguous information and from excerpts of statements, applies speculative thinking and draws conclusory inferences ... a factually skimpy and implausible conspiracy claim like this must be dismissed," Highmark attorneys wrote in their dismissal motion.

Rather than trying to destroy West Penn Allegheny, the insurer said, "Without Highmark's support, there was a distinct possibility that Allegheny General and its sister hospitals would not have survived."

UPMC described the suit as an attempt by West Penn Allegheny "to divert attention from their own operating and financial difficulties."

WPAHS had to take a $73 million write down in 2008 after overestimating patient revenues and has been operating in the red since. In July, WPAHS officials said the health system had lost $27 million in the first nine months of fiscal year 2009, although operating cash had stabilized. Year-end results are expected later this week.

Jan Jennings, president and CEO of American Healthcare Solutions in Pittsburgh, said at the time of the filing that "these cases are very hard to prove" and that it was an indication that West Penn Allegheny had "reached a very desperate stage. It is sort of like the last straw to sue your competition on some sort of antitrust basis."

As the suit proceeded in subsequent months, both West Penn Allegheny and UPMC have continued to hire away physicians from the other health system. But the judge said that talent raids don't constitute antitrust violations:

"West Penn Allegheny's claim for predatory or exclusionary hiring fails this test. West Penn Allegheny fails to allege any facts which could support a conclusion that UPMC hired plaintiff's physicians solely for the purposes of denying West Penn Allegheny of its services," he wrote.

As for the judge assigned to the case, Arthur Schwab, this is his second high-profile case in recent years. He also presided over the criminal case against Dr. Cyril H. Wecht, and was accused by Dr. Wecht's attorneys of showing bias in favor of the prosecution and doing extracurricular research on the case by questioning a lead FBI agent in the case about his disciplinary record (eventually, he was allowed to remain on the case, but later was removed from the retrial by the 3rd U.S. Circuit Court of Appeals in Philadelphia, which said he removal might achieve "a reduced level of rancor").

In his West Penn opinion, he wrote that he had "as recently as July 8, 2009, in an Investor Conference Call, again an item of which this Court has taken judicial notice, West Penn Allegheny boasted its continued recruitment of many key physicians from UPMC."

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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