By Jack J. Chielli & Jeffrey Barg

Highmark President John S. Brouse (left) and UPMC President Jeffrey A. Romoff are apparently the only
major players left standing after a fenzied period of
market-driven medicine.

Published August 1998

Related coverage of Highmark & UPMC

• PSIM works for ACP merger, against Blues merger

• Highmark's Blues on Call phone nurse triage program

• Blocking the merger juggernaut

• Insurer MD credentialing rationed

• Tri-State ups ante with Best Healthcare

• Attorney General passes on Blues merger

• React to this article in the Discussion Forum.

Western Pennsylvania’s frenzied entrance into the brave new world of market-driven medicine has seemingly left only two major players standing: Highmark Blue Cross Blue Shield and UPMC Health System.

Over the past several years University of Pittsburgh Medical Center has formed a hospital network, later acquired many of the network’s members as well as hospitals outside the network and has started selling health insurance. Two competing hospital networks, Pyramid and Community Health Partners, have disbanded and AHERF has filed for Chapter 11 bankruptcy protection because of unsustainable losses from its eastern hospitals. No national hospital chains have entered the area.

Over the same time period Blue Cross of Western Pennsylvania has made forays into owning and/or managing physician practices, has merged with Blue Shield of Pennsylvania and has beaten back managed care challenges from Health America and U.S. Healthcare. No new national health insurers have entered the area.

Throughout this period UPMC and Highmark have vacillated between forming a special relationship and becoming cut-throat competitors. Thus in June of 1995 Blue Cross began encouraging physicians in its managed care plans to refer patients to six hospitals, five of which were part of UPMC’s hospital network, Tri-State Health System. In October of 1996 Highmark gave UPMC a 20 percent share of its Medicare HMO, SecurityBlue. But in December of 1997 Highmark unveiled a new line of managed care products called CommunityBlue that excluded UPMC Health System hospitals. And in July of 1998 they competed head-to-head for the first time for insurance enrollees among University of Pittsburgh employees as well as for enrollees among 4300 Pittsburgh city employees and their dependents.

Now Highmark has cried foul. They have claimed that UPMC’s hospital buying spree and entry into managed care constitutes an antitrust violation. Specifically, Highmark contends that UPMC is forcing specialty facilities such as Children’s Hospital and Magee-Womens Hospital out of Highmark’s plans. Highmark has encouraged large employers in the area to raise these concerns with the U.S. Justice Department, according to Michael Weinstein, senior issues analyst for Highmark.

UPMC spokesperson Jane Duffield characterizes Highmark’s campaign as "a marketing ploy aimed at protecting their market share by raising concerns among their . . . clients." She continues: "It’s ironic that an organization with 70 percent share of the region’s health insurance market is accusing anyone else of a monopoly."

Both have hired antitrust attorneys to monitor the activities of the other and both claim that consolidations have allowed the other to raise prices in a monopolistic manner rather than lower prices due to economies of scale.

In some ways it appears that this competition between UPMC and Highmark, including the reciprocal charge of monopolistic practices, is the region’s only hope for the benefits of real competition. And yet it is uncertain that this competition will produce lower prices for health care purchasers or higher quality care. It is already reducing choice of hospitals and physicians for consumers. In addition, hospitals and physicians are likely to be increasingly at the mercy of UPMC and Highmark as they carve up the market.

Gordon MacLeod, M.D., clinical professor of medicine and professor of health services administration at University of Pittsburgh, voiced concerns back in 1995 that serve as a harbinger of these problems. In a commentary appearing in the May 1995 issue of Physician’s News Digest, he wrote: "It is high time for the medical community to call upon Blue Cross [of Western Pennsylvania] to harness its monopolistic tendencies, to reduce its tremendous cash reserves, to lower premiums to its subscribers, and to return participatory governance to a community oriented tax-exempt non-profit corporation." Today he worries that both institutions are infringing on consumer choice and jeopardizing their social missions, which include teaching and research in the case of UPMC.

He believes that the root of the problem is the deregulation of HMOs in 1988, a system he helped to set up during the Nixon administration. He offers as perhaps the best solution a shifting of tax-deductibility for health insurance from businesses to consumers, so that individual consumers would be able to freely choose their health plan, hospital and doctor.

Physicians are exploring a variety of ways to confront the extraordinary market power of Highmark and UPMC, including restructuring an existing association of University of Pittsburgh medical faculty, a new regional medical society, and regulatory and legal remedies.

University of Pittsburgh’s medical faculty have formed a new organization, the Faculty Association of the School of Medicine (FASM), to better represent the interests of physicians vis-a-vis the University and UPMC. The FASM was formed in response to a proposal that the University Practice Plan be absorbed by UPMC and to 10 percent salary cuts. Despite opposition by Interim Dean George Michalopoulos, the faculty has elected a seven-person oversight committee to look into the practice plan bylaws, and six of the seven members of the committee are officers of the FASM, according to MacLeod. But the ultimate impact of the committee or the FASM is still unclear. And to date the FASM represents a minority of the faculty and none of the UPMC Health System physicians who have not received faculty appointments.

Elsewhere, the growing market power of Highmark and UPMC Health System has led to discussions among eight western Pennsylvania county medical societies about forming a regional medical society. David S. Zorub, M.D., president of the Allegheny County Medical Society, is credited with bringing the idea of a regional medical society to the forefront and pushing for meetings with members from surrounding medical societies. His idea is based on the results he said he has seen in California, where large physician groups have merged and exerted influence over decisions in the managed care market.

"Working together you can affect the decisions of providers," he said. "A regional medical society will have the ability to go directly to the purchaser of health care whose employees are affected or go directly to the insurance plan or the health system and say, ‘This is not a proper procedure you put forth; we will not treat patients under those terms.’"

While exerting that type of pressure here is unheard of, physician organizations can do an end run around managed care companies by working with their customers to evaluate plans, Zorub said. "The business community wants what is best for their employees," he said. "The clinicians are the only ones who truly know quality health care."

Highmark’s new nurse triage program, Blues on Call, represents the most pressing example of a regional issue needing a coordinated response from western Pennsylvania physicians, according to Zorub.

Another issue that forms the basis for creating a multi-county medical society is hospital acquisitions and mergers, according to William P. Diefenbach, M.D., president of Erie County Medical Society. This latest transformation in the health care marketplace crosses county lines and has a direct effect on physicians in rural, outlying counties, who have seen their influence at risk of being greatly reduced. Diefenback pointed out that it is one thing to have a physician consult with another physician or specialist to map out a treatment plan. "It is quite another when a hospital system [as a procedural matter] directs patients to their tertiary location. Physicians in the outlying areas have lost control of their patients."

County societies have very little to do about mergers other than complain, Diefenbach said. "From a regional standpoint we can put pressure on the hospitals that are merging and take back some control over what is taking place with the practice of medicine."

Another approach to combating the market power of Highmark is a regulatory one. Robert B. Sklaroff, M.D., president of the Pennsylvania Society of Internal Medicine (PSIM) and chairman of Philadelphia County Medical Society’s Standing Committee on Medical Economics, has waged a one-man war against the Blues consolidation through various regulatory channels and the courts. Sklaroff first opposed the merger as a Blue Shield corporate member back in October 1995, decrying the diminished governance role physicians would have in the consolidated entity and the daunting market power it would have. Since then Sklaroff has steadfastly opposed the merger through formal and informal complaints to regulators, both state and federal, and through lawsuits. He has rallied physicians and other health care professionals, Highmark’s competitors, hospitals, consumer groups, health care purchasers, unions, journalists and various politicians to support the effort at different junctures. And while he was unsuccessful in stopping the merger and has yet to reverse it, he has (1) influenced then-state Attorney General Thomas W. Corbett, Jr. to file comments with the state Insurance Department questioning the planned consolidation’s anticompetitive impact and impact on the Blue’s social mission, culminating in an agreement signed by the Blues limiting their room to maneuver for three to four years; (2) postponed the consolidation for more than a year; and (3) gained a Commonwealth Court order to the Insurance Department to hold full public hearings on the merger if it finds that any objecting party has legal standing and there are questions of fact pertaining to the merger.

The Insurance Department appears to be in no hurry to even determine whether or not they will hold hearings. Over two-and-a-half years after the consolidation plans were first presented to the Insurance Department, one year after the Commonwealth Court decision remanded the matter back to them, and over six months after hearing oral arguments from PSIM’s attorney and others, the "matter is in front of the commissioner . . . [and] there is not a set timetable to make this important decision," said Insurance Department spokesperson Angela Yarbrough.

In the meantime, Sklaroff has continued his calls on the U.S. Justice Department to intervene on antitrust grounds and has initiated two more filings from PSIM with the state Insurance Department: first he requested information on Highmark under the state’s Right to Know Act and second he filed a formal complaint under the Unfair Insurance Practices Act claiming: "Highmark is using its monopoly in the western Pennsylvania marketplace to conduct predatory pricing; to institute a pricing system for employers based on access to Highmark programs; to force purchase of point-of-service plans; to enter into ‘most favored nation’ clauses in spite of agreements not to do so, signed with the Attorney General; to threaten hospitals’ network contracts; to force hospitals to participate in any and all Highmark products; and to control the market through division of markets with other Blue Cross plans," states a PSIM release.