Political arm twisting kept the parties negotiating [Pittsburgh Post-Gazette]

July 03--HARRISBURG -- Of the billions of text messages sent each day in this country, few could have been more important to the Pittsburgh region than the one sent at 8:41 a.m. Wednesday by W. Thomas McGough Jr., UPMC's chief legal officer, to state Sen. Don White, the Indiana County Republican who chairs the Senate'sBanking and Insurance Committee.

"We have a deal," it said.

That deal -- a new contract between UPMC health system and health insurer Highmark Inc., that runs through the end of 2014 -- was the fruit of on-and-off negotiation between the two companies, overseen by a handful of Western Pennsylvania legislators and, in recent weeks, mediated by a liaison from the governor's office, David Simon, executive vice president and chief legal officer of Jefferson Health System, near Philadelphia.

The deal came together after a year of feuding between the two health giants, and a year of hand-wringing among patients and employers, uncertain whether Highmark customers would have access to UPMC hospitals beyond mid-2013.

The meetings between Highmark and UPMC were "not voluntary," said Sen. Jay Costa, D-Forest Hills, who also sits on the Senate'sBanking and Insurance Committee. "The negotiations were taking place because we were putting them in a room together."

The warring between UPMC and Highmark -- waged in courtrooms and board rooms, in newspaper ads and on the radio, and in government hearings held in Pittsburgh and Harrisburg -- got personal, at least outwardly, and created a complex negotiating environment, Mr. White said.

Even so, the periodic meetings among Highmark, UPMC and key legislators have been happening since 2011, with incremental progress being made, usually on ancillary issues -- such as whether Highmark customers would continue to have access to UPMC physicians beyond this year, an issue that was resolved, affirmatively, in December 2011.

By March, the rough framework of Wednesday's deal was in place, but there were still major sticking points, including the duration of the new contract and whether Highmark would allow its policyholders to be sent to UPMC's new, yet-unopened Monroeville hospital, UPMC East. Mr. White was pushing for an expiration date of Jan. 1, 2014. Mr. Costa wanted 12 more months; Highmark would have preferred something longer still.

With the parties at loggerheads, both Mr. Costa and Mr. White said the governor's office was instrumental in forcing UPMC and Highmark back to table once more.

Governor gets involved

On April 2 -- the day after then-Highmark CEO Ken Melani was fired -- Republican Gov. Tom Corbett, Mr. White and Mr. Costa, along with Annmarie Kaiser (Mr. Corbett's secretary of legislative affairs) and Todd Shamash (the governor's deputy chief of staff and health care expert), met with UPMC and Highmark officials.

Mr. Costa said the meeting was instrumental from a political standpoint, although it didn't stir any breakthroughs from a business standpoint.

"That meeting helped move it forward," he said. "We needed the support of the administration to extend [the contract] longer than Jan. 1, 2014." And the legislators needed the weight of the governor's office to show the parties, particularly UPMC, that the Legislature was serious about some of the bills on the table, one of which would have forced the two parties into binding arbitration.

"Quite frankly, the governor's desire to see this brought to closure was key," Mr. Costa said.

While neither the legislators nor the governor presented a "stick," or threatened any hard deadlines, it was important for both Highmark and UPMC to know that "we were prepared to move on some legislation," perhaps by the end of May, Mr. Costa said.

Rep. Tony DeLuca, D-Penn Hills, ranking Democrat on the House Insurance Committee, said the House was willing to do its part, legislatively. "We have told them, and the other side has told them -- the Senate side -- that if they can't get together, they're going to have legislation," he said.

Mr. Corbett, whose office has been involved in informal Highmark-UPMC talks since late 2011, indicated as much in remarks made Wednesday.

"I encouraged them that they need to address this issue, they need to get it done with the assistance of the Legislature backing me up -- [and] that if they did not get this done, we would get it done for them," he said.

"And I don't think anybody wants to see government get into what is really a business relationship, and I think they took that to heart and were able to resolve this."

Mr. White, according to one of his colleagues, Sen. Jim Ferlo, D-Highland Park, was "trying to pound UPMC and Highmark into some kind of accommodation," threatening to revisit the Purely Public Charities act, a 1997 law that makes it easier for organizations to obtain certain tax-exemptions.

Mr. White said he was willing to apply that pressure only after being convinced, months ago, that Highmark was serious about its proposed acquisition of West Penn Allegheny Health System. "I thought Highmark was bluffing on the West Penn deal," he said.

When it became clear to Mr. White that the marriage between Highmark and WPAHS wasn't a sham, it likewise became clear that Highmark and UPMC were going to need political intervention.

Between that month-ago meeting and today, UPMC and Highmark officials were a regular presence in the state Capitol building, and Highmark in particular was busy operating in two theaters -- pushing to get a deal done with UPMC, but also urging lawmakers to use whatever legislative means necessary to compel an agreement.

"Highmark had a full-court press all over Harrisburg this last week," said Sen. Kim Ward, R-Westmoreland. The company "was pushing for passage of the legislation that would have forced arbitration."

Dan Onorato, Highmark's executive vice president of communications and former Allegheny County executive, was supposed to meet Wednesday morning with Ms. Ward, but he canceled at the last minute.

None of the parties interviewed by the Pittsburgh Post-Gazette identified a single breakthrough moment, but all indicated that the deal coalesced over the past two weeks, and that negotiations held last week in the governor's office were productive.

Personal feud resolved

The elephant in the room, of course, is whether this deal would have, or could have, come together with Dr. Melani still in charge at Highmark. He was fired April 1 after getting into a fight with his girlfriend's husband. Dr. Melani was replaced on an interim basis by J. Robert Baum, the current Highmark board chairman.

Jan Jennings, president and CEO of American Healthcare Solutions, Downtown, said the timing of Dr. Melani's ouster in relation to the new contract -- one month separated the two events -- is more than coincidental.

"It is pretty well known that the relationship between [UPMC CEO Jeffrey Romoff ] and Dr. Melani got personal, and not in a positive way," he said. "So with Melani out of the way, why wouldn't Jeff Romoff want the money in Highmark's treasury?"

Personal feuds aside, Dr. Melani may not have been inclined to sign off on the deal from a purely business standpoint. In 2011 Senate hearings on the topic, Dr. Melani said he would have preferred a longer-term contract with UPMC, and presumably, as of his ouster, he still thought that way. And agreeing to boost Highmark's reimbursement rates to UPMC over the next three years, bringing them more in line with the region's other health insurance carriers, leaves one insurer in the region with choice access rates to UPMC's hospitals -- UPMC Health Plan, a point Dr. Melani also raised in those hearings.

Whether Dr. Melani would have thought this was an acceptable contract, the new blood -- new to both the negotiations and to the company -- did. Mr. Onorato has been with the company for just four months, and Highmark's new chief legal officer, Thomas L. VanKirk -- who also has been involved with talks -- has been with the company since March.

UPMC'sMr. McGough and Deborah Rice, Highmark's executive vice president and head of health services, also were frequently involved in talks, as was UPMC'sDavid M. Farner, senior vice president and chief of staff to Mr. Romoff.

One source with knowledge of the negotiations said that, on the Highmark end, Mr. Onorato and Mr. VanKirk weren't as instrumental as has been suggested. "They certainly have political sensibility," the source said. But "the business people make the decisions, and these guys just assist."

Mr. Costa disagreed, praising his former political colleague. "Dan was very instrumental in this," he said.

Bill Toland: btoland@post-gazette.com or 412-263-2625. Post-Gazette staff writers Karen Langley, Rich Lord and Steve Twedt contributed.

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