The West Penn Allegheny Health System has sued UPMC and Highmark in U.S. District Court, charging the region's leading hospital system and health insurer with antitrust violations that have illegally raised prices for consumers in the region.

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 health care, as in all industries, monopolies hurt everyone except the monopolists because they tend inevitably to increase the price and reduce the quality of the product," he said.

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.

In its lawsuit, the West Penn system alleged that since 2002, UPMC has refused to contract "on reasonable terms" with other health insurers and has refused to sell its own insurance subsidiary, "thus relegating [health insurance] companies such as United and Aetna to marginal participation in the Pittsburgh market." In return, the lawsuit charged, Highmark has shut down its low-cost Community Blue plan and has paid inflated rates to UPMC while "depressing rates to UPMC's competitors, especially to West Penn Allegheny."

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 suit also said that early in the 2000s, UPMC "sought to destroy West Penn Allegheny by unlawfully raiding key physicians from [its] hospitals through excessive compensation levels and land purchases at inflated values," and by spreading false information about how shaky West Penn Allegheny's finances were.

As a result of UPMC's and Highmark's arrangement, the lawsuit charged, UPMC has enjoyed vastly inflated profits, while West Penn-Allegheny's profits have suffered. "For example," the suit said, "for fiscal year 2006, UPMC's profits were $512 million, while West Penn Allegheny's net income was $21 million. While UPMC is five times as large as West Penn Allegheny, its profits were 25 times those of West Penn Allegheny's. Similarly, Highmarks' surplus rose from $2.8 billion in 2005 to $3.5 billion in 2007."

The suit also referred to a $125 million loan that Highmark had made to West Penn Allegheny, and said that at a certain point, "UPMC insisted -- and Highmark agreed -- that Highmark would refuse to cooperate with any restructuring of West Penn Allegheny's finances, including Highmark's loan."

In a statement released this morning, UPMC said it "unequivocally denies the allegations raised in [West Penn-Allegheny's] frivolous lawsuit. As it is well known in this community, UPMC and Highmark have been -- and remain -- fierce competitors.

"Efforts by [West Penn-Allegheny] to distract from its own operational failings by filing this lawsuit accusing UPMC of misdeeds are simply a tactic to divert attention from their own operating and financial difficulties," UPMC officials said. "UPMC did not cause [West Penn Allegheny's] recent $73 million financial misstatement or the [Securities and Exchange Commission, Department of Justice and Health and Human Services Department] investigations into their management practices."

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.

In March, the West Penn system acknowledged it was being investigated by the federal Justice Department and the Health and Human Services Department's inspector general's office for "potentially erroneous evaluation and management claims." That followed an announcement that the Securities and Exchange Commission was looking into a $73 million write-down by the West Penn system last year, which it blamed on a miscalculation of anticipated patient revenue.