Most of us say "thanks" without thinking.
June 22--Should UPMC and Highmark indeed go their separate ways Jan. 1, both will survive the trauma.
But will either of them thrive?
Each of the Pittsburgh health care giants will sustain damage from the split, local and national experts say. Highmark Health, despite posting an operating loss and flat premium revenue in 2013, may be better prepared for a divorce given its multistate health insurance presence, its diversified business portfolio and its larger revenue base.
Yet, don't count out UPMC, which controls most of the region's hospital beds and doctors. The system is expecting the next six months will bring about a hoped-for -- but a not-yet-materialized -- mass exodus of Highmark customers, who could defect to its UPMC Health Plan or one of the national insurers active in the region in order to keep their full UPMC system access.
"There are so many variables at play here," said Kenneth T. Gacka, a director and corporate ratings expert at Standard & Poor's. Based in California, he graduated from the University of Pittsburgh and its Joseph M. Katz Graduate School of Business, and he worked in the health care sector locally.
"There's risks on both side of the equation, and there's a considerable amount of time before this all plays out," he said.
Despite all the market uncertainty, Mr. Gacka said, this much seems clear: Both companies stand to lose bread-and-butter business.
Highmark will take a hit on the insurance side, because area commercial customers who wish to keep full UPMC access would have to switch insurance companies. UPMC's hospital division would certainly lose patients, as those who keep their Highmark commercial insurance are forced to seek care in other systems.
"Commercial" insurance refers to all employer-provided and individually purchased health plans. (Government-subsidized plans -- Highmark's Medicare, Medicaid and Children's Health Insurance Plan customers, about 37 percent of the local market -- are generally unaffected by the contract rift.)
The commercial policyholders are the ones being tussled over.
Highmark says it is maintaining its grip on the market, while UPMC says that, by 2015, many customers will flip -- either because their employer will newly offer an alternative to Highmark or because their employer already does so and the patient will choose a new plan when the open-enrollment period begins in the autumn.
If everything breaks the way UPMC hopes, 92 percent of the commercial market will, at the very least, have a non-Highmark option that includes full UPMC access.
Whether patients actually select that option is a different story. "It all comes down to who is more successful competing for those same lives," Mr. Gacka said.
That competition could hinge, he said, on whether patients and business clients are shopping for value or for a network.
For value shoppers, Highmark thinks it has the edge in the long run, because its hospitals are lower-cost than UPMC's. But if the shoppers want a bigger care network, UPMC's is the biggest one around.
The insurance side
UPMC Health Plan, the insurance carrier arm of UPMC, has been building its commercial insurance customer base for years. The number of health policyholders stands at more than 483,000, according to the nonprofit's most recent quarterly statement. By the end of this summer -- when the numbers from the July enrollment period are tabulated -- enrollees should exceed half a million and a bigger jump should come at the end of this year, said UPMC spokesman Paul Wood.
Even though "Highmark has done everything it can to muddle the market and confuse employers, UPMC Health Plan is still expecting continued growth in commercial membership for the July 1 enrollment, but not necessarily the 'big shift,'" he said. "Most employers renew their employee health insurance plans in the fall for plan years starting Jan. 1, which is when everyone expects to see the big shift in the market occur."
Now 17 years old, UPMC Health Plan started out as a plan that was largely self-contained. UPMC has about 62,000 employees, while the University of Pittsburgh has about 11,000 in Oakland, and all of those employees -- if they want employer coverage -- must choose a UPMC Health Plan policy.
But the insurance plan has grown into a robust regional player, particularly over the last few years. That growth should accelerate as area business groups leave Highmark in hopes of preserving UPMC hospital access.
Aetna, UnitedHealth and Cigna -- the three national for-profit insurers on the scene, all of which have access to both UPMC and Allegheny Health Network hospitals -- also stand to see some commercial growth as Dec. 31 grows nearer, though that is somewhat dependent on how aggressively Highmark and UPMC price their own products.
If Highmark and UPMC Health Plan offer deep discounts on premium and plan administration costs to retain old business and attract new clients, the national insurers may sit out the bidding wars.
That's largely been the case since UPMC invited those insurers into the area starting in 2011. Despite offering full access to all of the major health networks, the national insurers (Aetna, Cigna, UnitedHealthcare and HealthAmerica, which is now part of Aetna) collectively account for only 7 percent of UPMC patient revenues, up from 6 percent a year ago.
"From our client base, we haven't seen a big movement in the market," said Jim McTiernan, a benefits consultant at Pittsburgh-based Triad USA, a division of Arthur J. Gallagher & Co.
Some big-name clients such as Westinghouse and Education Management Corp. have left Highmark over the last few years. Over the next few months, Highmark seems certain to lose a few more corporate health insurance accounts, or individual customers, in its core Pittsburgh-area market.
In other words, Highmark's insurance arm -- though still dominant regionally -- is not as dominant as it once was.
Yet, in the grand scheme, it might not matter much to Highmark. For every customer the insurer loses in the Pittsburgh area, it picks up one or two elsewhere.
Thanks to the federal Affordable Care Act, Highmark has added more than 181,000 new policyholders in Pennsylvania, West Virginia and Delaware since last October. Some of those accounts were subsidized through the federal "Obamacare" marketplace, and the balance was purchased through Highmark directly at retail cost.
Highmark also will add another 550,000 policyholders when, and if, its proposed merger with Blue Cross of Northeastern Pennsylvania is approved by state regulators.
So while Highmark could lose tens or even hundreds of thousands of clients in the Pittsburgh region throughout 2014 because of UPMC defection, by next year it may have added more than 700,000 new lives through other avenues.
"Highmark's better positioned because they have other places to go get members," Mr. McTiernan said. The insurer's cross-country network of Blue Cross Blue Shield affiliates means Highmark's doctor and hospital network is nationwide, too.
Highmark can "grow their business nationally," he said. "UPMC doesn't have that luxury. Their patients are here. And if they lose access to patients, they can't create new ones."
The provider side
Of the two rival provider networks -- UPMC and Highmark's Allegheny Health Network -- UPMC carries the larger risk in a divorce. That's because regional Highmark customers who lose UPMC access will have to seek care in other networks, including Highmark's AHN, as well as suburban community hospitals.
In other words, UPMC's loss will be everybody else's gain. And UPMC has much to lose.
About 19 percent (about $1.5 billion annually) of its patient revenue comes from Highmark customers. Highmark is UPMC's second-biggest payer, behind Medicare. Highmark also pays the UPMC system millions a year in quality care bonuses, and it has already stopped paying chemotherapy-related fees that brought in about $180 million a year for UPMC.
UPMC won't lose all of that money, of course. Some Highmark customers will switch insurers, and in the world of health care not all customers are created equal. Every time a Highmark customer switches to a national insurer, it's an added bonus for UPMC because the national insurers pay higher reimbursement rates.
Even customers that stay with Highmark won't be a total loss to UPMC. Some use hospitals and services that are still in-network (Children's Hospital, or UPMC Altoona, for example). And some may find their physician or specialist is still in-network because of access rules still being ironed out between the two health care giants.
Still, the blow will be significant -- and more for some doctors than others.
If UPMC's health system were to lose those Highmark customers evenly across its various business lines, the cuts would be more manageable. But the losses won't be even. While UPMC as a system gets about 19 percent of its hospital customer revenue from Highmark, at some specialty practices, the Highmark customer load is 30, 40 even 50 percent.
If those percentages hold, belt-tightening won't be enough. Some doctors and clinics will have to be shed, while others will simply find that their contracts will not be renewed come Jan. 1.
"Some of my clients have already been notified" by UPMC that their affiliation contracts won't be renewed, said Mike Cassidy, a Tucker Arensberg health care attorney who represents Pittsburgh physicians and their practices.
That should mean more inpatient and specialty business for Allegheny Health Network.
Will AHN be able to handle the load? UPMC has been snapping up specialists and practices at an impressive clip over the last several years, and not even the formation of the Allegheny Health Network a year ago has slowed the pace. Today, UPMC has about 3,500 physicians, or 500 more than it did just two years ago, while AHN has 1,000 employed physicians.
If AHN is flooded with customers who used to favor UPMC, will AHN have the physician and surgeon capacity?
"Between Allegheny Health Network and independent community hospitals and physicians, we're more than able to accommodate those patients who are Highmark subscribers who would need to be transitioned" away from UPMC, said Tony Farah, Allegheny Health Network's chief medical officer.
How many patients will be "transitioned?" Depends on how the next six months play out, but Highmark estimates that at least 70,000 and as many as 300,000 regular UPMC patients would shift away from the UPMC system and into other hospitals, specialists and physicians in the Highmark provider network.
The flip side to AHN's potential undercapacity is that UPMC, in its hyperaggression to tie up practices and put them beyond AHN's reach, may have signed too many or paid the doctors more in guaranteed money than it can possibly earn back.
Mr. Cassidy said UPMC will find a way to get back into balance quickly, whether by aggressive belt-tightening, clinical layoffs or dramatic thinning of the administrative ranks. UPMC has "always been good at managing costs," he said.
Bill Toland: firstname.lastname@example.org or 412-263-2625.
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