Empire Building: Clash of the Titans

UPMC battles AHERF, then Highmark for supremacy and comes out on top / Fourth in a series

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Jeffrey A. Romoff doesn't participate in anything competitive. Not sports, not table games, not even spelling bees when he was a kid -- nothing that leaves a winner and a loser. He prefers being goal-driven.

EMPIRE BUILDING
Jeffrey Romoff and the ascent of the University of Pittsburgh Medical Center


Lake Fong, Post-Gazette

Jeffrey A. Romoff, 60, has spent 32 years with the University of Pittsburgh Medical Center, the past 13 as president. Under his guidance, the sprawling health system has become Western Pennsylvania's biggest employer with 2005 revenues of $5.1 billion.
ALSO TODAY

A successful near-monopoly

THE SERIES

Part One: How a stagnant psychiatric institution led to UPMC's growth

Part Two: Organ transplants put UPMC on the map, confirm growth strategy

Part Three: Consolidation and controversy at UPMC

Tomorrow: 2002 - present -- UPMC's success continues unabated; the changes in Jeffrey Romoff's evolution are slower.

Tomorrow: Join an online chat with author Steve Levin about the series


Online Graphic:
UPMC's Hospitals and Facilities


A TIMELINE

1996

UPMC acquires South Side Hospital and Aliquippa Hospital.

1997

UPMC merges with St. Margaret Memorial Hospital near Aspinwall, and Shadyside and Passavant hospitals.

Jeffrey Romoff's third marriage, to Michele M. McKenney.

AHERF, the Allegheny Health Education and Research Foundation, starts to fall apart.

1998

Dr. Thomas Detre succeeded by Dr. Arthur A. Levine, scientific director of the National Institute of Child Health and Human Development.

UPMC hospitals account for about 43 percent of the acute care hospital beds in region.

Mr. Romoff has prostate cancer surgery at the Johns Hopkins Hospital in Baltimore.

1999

UPMC and several smaller backers join the federal government to form a $60 million venture capital fund to invest in biomedical start-up companies.

For the first time, UPMC listed in top group of best hospitals compiled annually by U.S. News and World Report. UPMC Presbyterian ranked 12th out of 188, joining heavyweights like Johns Hopkins, Mayo Clinic and Massachusetts General Hospital.

Ground breaking for the University of Pittsburgh Cancer Institute, known as the Hillman Cancer Center.

2000

UPMC hires region's largest group of oncologists -- Drs. Stanley Marks, Jeffrey Shogan and Shalom Kalnicki -- to shift bulk of their work from AGH to the Pittsburgh Cancer Institute.

The UPMC Sports Performance Complex opens.

2001

Children's Hospital of Pittsburgh agrees to merge with UPMC.

2002

Hillman Cancer Center opens.

Highmark Inc. and UPMC reach 10-year agreement.

Mr. Romoff's salary now $1.95 million.

Mr. Romoff's fourth wedding, this to Stefania Ferrarese.


"It's the end point that's interesting," he says.

The end point in 1996 was turning the University of Pittsburgh Medical Center into the region's dominant health-care player.

During his 23 years with UPMC, he and his mentor, Dr. Thomas Detre, had steered its transformation from a handful of underachieving research and clinical hospitals with $12 million in revenue and fewer than 600 employees to a $900 million empire with 9,000 employees.

But to gain regional dominance, Mr. Romoff and UPMC would have to go against two other contenders that had their own objectives.

Most notable was crosstown rival Allegheny General Hospital. It was owned by the Allegheny Health Education and Research Foundation, or AHERF, which at the time also ran six Philadelphia hospitals and the Allegheny University of Health Sciences medical school, which was known as Medical College of Pennsylvania and Hahnemann University. It had $1.9 billion in annual revenue in 1996 and was the largest health system in the state.

UPMC was still No. 1 in Pittsburgh, but it and AHERF both were courting some of the remaining large suburban and city hospitals that, depending on who won them over, could decide who was king of the hill locally. Particularly coveted were Forbes Health System and Shadyside Hospital.

It wasn't just growth for growth's sake. By expanding, UPMC and Allegheny General hoped to gain more leverage in deterring insurance providers from reducing reimbursements for care.

And if each acquired enough facilities, they could block a third major health system from emerging. Their biggest concern was that a for-profit system such as Columbia/HCA Healthcare Corp., then the nation's largest hospital operator, might swoop in, take either Shadyside or West Penn Hospital as its flagship, and launch a price war.

Also looming was an even bigger threat to UPMC's and AHERF's fiscal conditions. Wanting to eliminate duplication, insurance giants Blue Cross of Western Pennsylvania and Pennsylvania Blue Shield decided, in December 1995, to merge.

When it was completed a year later, the merger created insurance behemoth Highmark, covering 20 million people in four states and Washington, D.C., employing 12,000 and generating annual revenue of $6.3 billion.

UPMC had already begun planning for such an eventuality. In 1995, it had joined with several specialty and community hospitals it owned or was affiliated with to create the Tri-State Health System, an effort to consolidate services to control the escalating costs of managed care. It gave UPMC the beginnings of a united front to square off against insurance providers, particularly one that would become as big as Highmark.

During the first six months of 1996, UPMC continued its expansion, merging with South Side Hospital, St. Margaret Memorial Hospital near Aspinwall, and hospitals in Braddock and Aliquippa. Shadyside Hospital also decided that UPMC was a better fit than AGH because of the Pitt system's "shared vision and philosophy,'' said Shadyside President Henry Mordoh.

The triangle of UPMC, AHERF and Highmark presented Mr. Romoff with the kind of challenge he relished: Change was coming, and nothing, he said, "needs to be forever."

He demands that employees be innovative because six months in medicine is a lifetime, and, "What looked right at that time is not right now." They should be comfortable with what he calls the "element of ambiguity" inherent in jobs requiring change and creativity.

But that creates a disquieting work environment, according to George Board III, who retired recently from UPMC as vice president of government relations after nearly three decades.

"He still praises staff for a job well done, [but] no matter how good you are, you always can do better," Dr. Board said.

Separations
There was change at home, too.

Mr. Romoff had married Maxine Ketterer, in 1984, 13 months after the death of his first wife, Vivian. The second marriage ended in July 1996; the divorce documents are sealed, and neither Mr. Romoff nor Ms. Ketterer would talk about the relationship.

Less than a year later, he married Michele M. McKenney, a UPMC vice president whose responsibilities at the time included overseeing four dozen multi-physician primary care and specialty practices. They met while planning UPMC's development of an organ-transplant center in Sicily. They wed in Rome, with Sicilian Cardinal Salvatore Pappalardo performing the ceremony.

While UPMC was expanding overseas, AHERF was not sitting idly by in Pittsburgh. Its president, Sherif Abdelhak, was following the same "expand or die" doctrine that Mr. Romoff espoused. AHERF missed out on Shadyside Hospital but acquired Forbes Health System and contracted to manage Philadelphia's Graduate Health System.

By the end of 1997, AHERF had 14 hospitals, two Philadelphia medical schools merged into one and nearly 30,000 employees. But while AHERF was outwardly growing, it was disintegrating from within.

Its primary Pittsburgh facility, Allegheny General Hospital, lost $40 million on operations in 1996 -- a loss that wasn't disclosed until more than a year later, in a footnote to bondholders. And AHERF was late filing its taxes and financial statements the following year, with auditors eventually discovering that its 1997 assets were overstated by $127 million. The health system declared bankruptcy in 1998 and collapsed, the nation's largest-ever failure of a nonprofit institution. While Allegheny General would be saved from creditors, AHERF disappeared.

The fight was over -- UPMC had undisputed dominance. With a work force of 23,000, it had surpassed the federal government as the region's largest employer.

UPMC's growth necessitated a redefinition of its role and relationship to Pitt. Nationally, universities and their medical centers were separating operations because of changes in health care reimbursements. As part of the local restructuring, about $200 million in insurance fees paid to a medical practice plan composed of Pitt doctors and dentists would go to UPMC. It, in turn, would pay a negotiated amount to Pitt each year to subsidize the medical school and other health-science operations.

Pitt and UPMC formally separated in 1998. That same year, Mr. Romoff's mentor, Dr. Detre, stepped down as senior vice chancellor for health sciences, six years after he said he wanted to retire.

The long search for his successor ended in May that year, when Dr. Arthur S. Levine, scientific director of the National Institute of Child Health and Human Development, was hired as medical school dean and senior vice chancellor for the six schools of health sciences.

Mr. Romoff now was the public face of UPMC. It was not one that some people liked to see. He lumbered about Oakland with a perpetual frown. "He had the reputation of being a hatchet man" from the years when Dr. Detre sent him to tell hospital employees they were fired, said James G. Holland, a retired Pitt professor of psychology and former president of the University Senate and Faculty Assembly.

"Even after that period, he still was seen as somebody who wields power very directly and can do it very personally, too," Mr. Holland said.

On newscasts and in public forums Mr. Romoff came across as arrogant and boastful. He denied that UPMC "acquired hospitals," saying that the "synchrony" they found by merging saved some of them from bankruptcy. UPMC, he said, was the medical community's "white knight," not a "voracious gorilla" that ate up smaller hospitals.

UPMC had a public relations problem. It appeared to many as opportunistic and uncaring, a predator stalking a herd's stragglers. It regularly was castigated in letters to the editor for its perceived effort to monopolize the region's health care.

The PR nadir came in the midst of a UPMC advertising campaign that featured the line, "Choose your health care as if your life depended on it." Mr. Romoff chose to have prostate cancer surgery in 1998 at The Johns Hopkins Hospital in Baltimore. The reason, UPMC's spokeswoman said at the time, was "the high visibility of his position made it necessary to maintain privacy."

Mr. Romoff now simply says that Johns Hopkins had a better urology department. A year after his surgery, he created a comprehensive prostate and urologic cancer center at UPMC and hired one of Johns Hopkins' leading surgeons as its co-director.

Showdown
In 1998 the overriding health-care issue locally was the growing clash between UPMC and Highmark.

Highmark owned 65 percent of the commercial health insurance business in Western Pennsylvania. UPMC earned about $500 million annually from Highmark in patient reimbursements.

Since 1995 the two had seemed to be potential business partners. That year, Mr. Romoff had engineered the switch of all Pitt employees' health insurance to one of Highmark's predecessors, Blue Cross of Western Pennsylvania. He dropped Health America as a health maintenance organization option for the employees.

UPMC member hospitals were not part of Health America's plan, which served about 30 percent of Pitt's 6,500 employees. Faculty members were enraged, accusing him and university officials of dropping Health America to ensure more referrals to UPMC.

Mr. Romoff denied that played any role in the decision, but at the same time, it was no secret that UPMC was angling for an exclusive relationship with Blue Cross of Western Pennsylvania, possibly via a merger.

Mr. Romoff demanded a lot, however. He wanted Blue Cross to guarantee that it would send a certain number of patients to UPMC each year, at the expense of other hospitals. And he wanted a percentage of the insurance payments. He feared that without such guarantees, UPMC might be held hostage to future Blue Cross demands for discounts in what it paid for medical services.

Blue Cross wasn't interested. With virtually all of the region's hospitals in its network, it had little to gain.

The 1995 agreement that made Blue Cross the sole insurance provider for Pitt employees had remained intact after the creation of Highmark in 1996. The next year, after Highmark steeply increased premiums, Mr. Romoff did what no other health system in the state had tried: He started an insurance provider, UPMC Health Plan, and contracted with many of the region's non-UPMC hospitals.

He also continued UPMC's expansion. In rapid succession in 1998, UPMC merged with Magee-Womens and with hospitals in Johnstown and Somerset County. It also announced plans for a 295,000-square-foot, $104 million cancer center in Shadyside.

While UPMC and Highmark forged a contract for services in 1999, it did not preclude squabbles between the two. That year, Highmark pledged $125 million to help AGH and its three suburban affiliates merge with the West Penn Health System in the aftermath of the AHERF bankruptcy.

UPMC publicly lobbied against that proposed merger, with Mr. Romoff saying it would be undercapitalized and bad for the community. Then UPMC sued, seeking to block Highmark's loan.

In 2000, Pitt dropped Highmark as its insurer, signing a three-year deal with UPMC Health Plan instead. That happened, Mr. Romoff said at the time, because of Highmark's arrogance and "nasty, brutish and short" negotiating style.

"They made it easy for us to be successful," he said.

And yet he didn't rule out a long-term relationship between UPMC and Highmark.

But as their 1999 contract neared expiration on June 30, 2002, the two seemed to drift farther apart. The acrimony was such that people stopped Mr. Romoff and the president and CEO of Highmark, John Brouse, at social gatherings to ask why the two companies couldn't get along. The two men agreed to let others handle the ongoing negotiations.

John Paul, UPMC's chief financial and chief operations officer, replaced Mr. Romoff at meetings. Mr. Paul, who declined to be interviewed for this story, enjoyed putting deals together on the golf course or behind the scenes. According to a former Highmark official, who asked not to be identified, Mr. Paul soothed the hurt feelings often caused by Mr. Romoff's public statements.

Throughout the negotiations, there was a public perception that Mr. Romoff and Mr. Paul dictated what UPMC's board of directors should do, that board members essentially served as a rubber stamp to their decisions. Not so, according to some members.

"Jeff and John Paul got their directives from the board," said board member William K. Lieberman. "They had to do what was appropriate to do in order for UPMC to continue its mission. I think it's fair to say that the board felt Highmark was doing things that directly challenged UPMC's mission. The board was 100 percent behind Jeff."

UPMC's and Highmark's public feud continued almost until they signed a new contract in 2002. Mr. Romoff wanted Highmark to pay $300 million for the construction of a new Children's Hospital in Lawrenceville, a demand Highmark termed "extortion."

Yet Highmark needed UPMC. Without it, some 3 million of its health care subscribers wouldn't be able to use UPMC's network of hospitals and physicians. Highmark realized that without an agreement, the UPMC Health Plan would be in a position to become the carrier with the largest hospital network.

The former Highmark official said Mr. Romoff's verbal jabs at Highmark impeded an agreement. "[Highmark officials] were insulted by his pompous verbosity,'' he said. A Highmark spokesman declined to make current officials available for comment for this story.

Highmark finally capitulated. Its agreement with UPMC included providing $232 million for Children's Hospital. Plus, the agreement allowed UPMC to keep its health plan, which in its four years had lost about $39 million.

UPMC had established itself as the region's medical juggernaut, bumping its market share of patients in Allegheny County to more than 40 percent, and to nearly 26 percent in the 29-county Western Pennsylvania region.

Its revenues now topped $3.5 billion and it was named one of the country's overall best hospitals for the third year running.

Jeffrey Romoff had remade UPMC. Now came the equal challenge of remaking himself.


Steve Levin can be reached at slevin@post-gazette.com or 412-263-1919.


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