Penn Group pediatrician Leon Brostoff, M.D.

By Paul Kengor, Ph.D.

Published June 1997

• Health America sells Penn Group MDs

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As huge provider networks aligned with health insurers solidify, can exclusive contracting be far off? To this question Children’s Hospital has answered with a resounding yes, at least concerning advanced pediatric care. In an unprecedented move, Children’s placed a full-page advertisement in area newspapers with a bold caption: "While everybody’s busy drawing lines in the sand, just who’s watching the children?" Children’s has apparently drawn its own line to forestall contracting boundaries expected between the two competing hospital networks—Tri-State Health System and Pyramid Health—to direct the flow of covered lives in the region.

In reaction to these expected boundaries, 15 pediatricians from the 115-physician Penn Group Medical Associates, sold by HealthAmerica to Allegheny Health, Education and Research (AHERF) recently defected to Children’s. Children’s Hospital officials point to several aspects of the deal between HealthAmerica and AHERF as fosterning exclusive contracting. (Although Children’s is a member of Tri-State, it joined only after signing a non-exclusionary contracting agreement.)

Serving as a backdrop to the Penn Group defection, the University of Pittsburgh School of Medicine is proceeding with the consolidation of its physician practice plans into one organization, to be transferred to the control of the University of Pittsburgh Medical Center System. The majority of Children’s Hospital pediatricians are faculty members at the University’s medical school. Future contracting freedoms of those pediatricians are likely to be a source of anxiety for AHERF and the public alike. Complicating matters further are Children’s current negotiations with Tri-State’s rival network, Pyramid Health—of which Allegheny General Hospital is a member.

These developments prompt questions about Children’s ability to sustain a long-held network-neutral stance, about the likelihood of duplicative pediatric tertiary care services emerging in the region for fear of exclusive contracting and about physicians’ ability to weather the dynamics of network accretion surrounding them.

In April, HealthAmerica sold the 115-physician, nine-office Penn Group to AHERF, making HealthAmerica a bare-bones insurer and marking its exit from the business of providing health care to subscribers. Eighteen pediatricians were part of the group, serving nearly 25,000 children. Children’s Hospital of Pittsburgh acquired 15 of those 18 pediatricians. Of the remaining Penn Group doctors, says HealthAmerica’s CEO Robert Mayer, the "vast majority" have signed with AHERF but "a couple haven’t."

According to Children’s officials and Penn Group pediatricians, under the preferred provider relationship offered by HealthAmerica to AHERF and as part of the purchase agreement, patients of Penn Group pediatricians would have had limited or no access to Children’s Hospital. Further, Children’s contends that HealthAmerica stipulated that it would disenroll from its network any physician who did not sign a contract with AHERF. If true, the pediatricians would have lost 25,000 previous patients they had with HealthAmerica. "Those patients would all have to find new pediatricians. That would likely be extremely upsetting to those patients," says Dave Tkach, executive director of Children’s Community Care, a subsidiary of Children’s Hospital of Pittsburgh.

"HealthAmerica and Allegheny did this without our consent," says Leon Brostoff, M.D., a Penn-Group pediatrician who did not sign with AHERF. "Our choice was to go along or leave. I was on the executive committee [of Penn Group] and we were aware [the deal] was happening, but we had no substantive input." He adds, "I’m a human being and shouldn’t be sold like a piece of furniture."

The Penn Group pediatricians were cautious in the first place. As part of their previous contract with HealthAmerica, if there was to be any transaction affecting their status, the pediatricians had a clause in their contract that said they must approve of a sale or they can back out of it. "We saw another opportunity and decided to take advantage of it," Brostoff concludes. "I wanted my patients to have a choice of where to receive medical services."

Children’s had learned that some of the Penn Group pediatricians were bothered by the impending deal, says Tkach. Before the sale closed, Children’s sent letters to the homes of the 18 pediatricians requesting meetings. "The [AHERF] sale closed April 1," relays Tkach. "We had individual deals closed with all 15 by March 29. They all turned in their resignations by April 1." Of the three Penn Group pediatricians who did not sign contracts, says Tkach, one works part time, another elected to go on sabbatical, and the third is double boarded as an internist and pediatrician.

The 15 pediatricians will join Children’s Community Care, which has 13 primary-care offices in the area and 36 primary-care pediatricians (now 51). The Penn Group pediatricians acquired by Children’s have offices in Oakland, Penn Hills, Monroeville, West Mifflin, Upper St. Clair, Moon, Cranberry, and Wexford. Those physical sites are now owned by AHERF. As a result, Children’s Community Care will move Penn Group pediatricians into offices that are close to their current Penn Group offices in order to serve their current pediatric patients.

Under the terms of the agreement, Penn Group pediatricians, all of whom have admitting privileges at Children’s, will continue to have a close relationship with the hospital as well as unlimited access to Children’s for their patients.

Further, Children’s Community Care has a preexisting contract with HealthAmerica and feels the 15 pediatricians should be included under that contract, says Tkach. Children’s intent is to allow the 15 to sign with any insurer, not limited to or from HealthAmerica. Children’s sent an April 4 letter to HealthAmerica asking that the 15 be added, but has received no response. According to Tkach, HealthAmerica simply needs to move the pediatricians from one provider number to another. If HealthAmerica does not respond, says Tkach, "We’ll just perceive they’ve been added to the group unless HealthAmerica responds otherwise. Right now we’re proceeding as if they’ve been added and everything is okay."

Health America’s Mayer states that HealthAmerica is a week or so away from wrapping up with Children’s a "long-term extension" involving 12 of the 15 pediatricians, meaning disenrollment is "not an issue" with those 12. Regarding the other three, he says, "There are some administrative issues that could temporarily have an impact on them, but we’re trying to work that out."

Allegations of selective contracting pressures are vehemently denied by both AHERF and HealthAmerica. There were no restrictions placed on the pediatricians regarding which hospitals they could use for patients or referrals, according to AHERF spokesperson Tom Chakurda. "No one at anytime placed any restrictions on them. Our intent is always guided by what is best for the patient and clinicians’ ability to provide for that. We’d do nothing to compromise that ability," Chakurda says. Mayer dismisses the claim about restrictions as "not true" and "an absolute misstatement." He chalks up the speculation to misperception. "It’s a very complex agreement, like most of these things are. You can read a lot into it that’s really not there. When you have change, people get upset and the [deal’s] initial stages made some of the [pediatricians] uncomfortable. There have been a lot of innuendoes, rumors, and misunderstanding."

Brostoff says that an analysis of other practices purchased by Allegheny General Hospital (AGH) shows a dramatic drop in patient referrals to Children’s. "Although there’s not technically a restriction," he admits, "they [AHERF] were likely to encourage us to use AGH instead of Children’s. I felt that they would in time, when there was a choice, direct my patients away from Children’s and toward AGH."

Of course, any network would prefer to minimize pediatric referrals outside the network as much as possible. AHERF’s Chakurda alludes to this point by mentioning Allegheny’s long-standing ability to provide for a wide spectrum of pediatric care, including pediatric trauma. Although Chakurda maintains that Allegheny has always pursued the goal of offering a full range of pediatric care, Allegheny may feel an intensified need to build up its own pediatric services in the face of UPMC’s impending control of the Medical School’s physician practice plans, which include Children’s pediatricians. That speculation was stated by Children’s Medical Director Donald Fischer, M.D., as reported by the Pittsburgh Business Times.

The practice plan consolidation, aimed at reducing administrative costs, would make Children’s academic pediatricians part of the University Practice Plan under the control of the UPMC System, according to Gordon MacLeod, M.D., clinical professor of medicine and professor of Health Services Administration at the University of Pittsburgh. Children’s pediatricians would still have a basis for remaining separate from UPMC, MacLeod believes, by their contracts with Children’s Community Care.

Nevertheless, it was public questions about future access to Children’s pediatricians that spurred Children’s Hospital to run the full-page ad declaring their resistance to exclusive contracting, according to Children’s spokesperson DeAnn Marshall. The ad was intended to quell confusion in the community regarding where Children’s fits in with the rival hospital networks, Marshall explains, since parents whose children are cared for by providers in the Pyramid network (of which Allegheny General Hospital is a member) may have feared that they would not be able to go to Children’s for pediatric care.

Although UPMC’s position is that the consolidated practice plan will accept all insurers, according to the Pittsburgh Business Times, Children’s is intent on stipulating in its agreement with the practice plan that it intends to maintain its ability to contract independently, including the Pyramid network, says Marshall.

UPMC’s uniform policy has been to contract with Blue Cross (now Highmark), rather than with HealthAmerica and U.S. Healthcare, but an agreement with Children’s could be struck that would be a departure from that policy, especially given Children’s tremendous reputation and public commitment they have garnered in the community, says MacLeod.

As for Highmark’s interest, the company has indicated to Children’s that it may consider credentialing some of the Penn Group pediatricians. "We may be interested in some of the 15 but certainly not all of them," says Ken Melani, M.D., executive vice president of Highmark’s health services group. "We have stayed firm in our position that it really has nothing to do with Penn Group itself or the other institutions. The fact that they went with Children’s now rather than AHERF doesn’t really matter to us. We determine who we contract with depending on how they fit with our needs and the model we are employing in certain locations."

MacLeod doubts that UPMC’s board would agree to restricting the contracting freedoms of Children’s pediatricians. Such a move would evoke public censure if it were to force Allegheny General to build another Children’s Hospital, MacLeod says.

Whether or not Children’s will be able to sustain their position as the premier tertiary pediatric center in the region depends in large part on whether any rivals appear on the horizon to effectively challenge it. AGH is currently in talks with about 30 pediatricians to buy their practices. Says Chakurda: "We’ve historically demonstrated that AGH has always had a pediatric component. This is a simple, natural extension of what we’ve always done. It reflects a commitment to provide a full spectrum of service to our patients."

In the wake of institutional posturing and jockeying, the 15 pediatricians made a move they felt was best for their individual freedom and their patients, rather than their pocketbooks. Tkach drives home this point: "These people did not get a better deal [with Children’s]. They all gave up $25,000 signing bonuses from Allegheny. They took lower salaries with us. They did this because they felt it was best for their patients. Someone said to me, ‘Boy, you must have broke your bank account getting these people.’ That’s not true. They did this out of concern for their patients."