Should Harrisburg Become Involved in Highmark/UPMC Dispute?

Should Harrisburg Become Involved in Highmark/UPMC Dispute?
June 20, 2014

Matthew Glans

Matthew Glans (mglans@heartland.org) joined the staff of The Heartland Institute in November 2007... (read full bio)

The Pennsylvania General Assembly is considering legislation that may force a major health care provider to sign an access contract with an insurer that has become a direct competitor.

Highmark and the University of Pittsburgh Medical Center (UPMC) are two health care companies that dominate Pittsburgh and the Western Pennsylvania region. UPMC is the state’s largest employer and one of the key providers of health care in western Pennsylvania, while Highmark is the primary health insurer in the Pittsburgh market, possessing a 90% market share.

For several years, a contract between Highmark and UPMC gave Highmark’s policyholders access to UPMC doctors and facilities at in-network rates. This decade-long relationship was mutually beneficial: Highmark was able to offer its customers access to UPMC’s quality services, while UPMC gained additional insured consumers. This contract is due to expire December 31.  

The relationship between Highmark and UPMC began to sour in 2013, when Highmark purchased the West Penn Allegheny Health System, a direct competitor of UPMC, for $1.1 billion. The new Allegheny Health Network posed a new competitive threat for UPMC, which decided not to renew its access contract with Highmark. Once the contract expires, Highmark consumers will no longer receive in-network rates for services at UPMC.

This change will directly affect patients. Many likely will need to choose between keeping Highmark as their insurer or moving to another insurer that can provide access to UPMC services and doctors. Many critics of UPMC’s decision to end the contract have pointed out that hundreds of patients—some of whom may be in the middle of treatment—will be required to switch doctors.

Legislators in Harrisburg have responded with proposed legislation that would force UPMC to contract with Highmark. Representatives Jim Christiana, a Republican, and Dan Frankel, a Democrat, introduced House Bills 1621 and 1622 on October 2, 2013. The bills make several changes that will force UPMC to contract with Highmark.

In an article in Law 360, Dan Packel said the bills are necessary to curb market power a provider might gain through consolidation.

“The legislation, contained in House Bills 1621 and 1622, seeks to curtail market power that providers gain through consolidation, by preventing consumers from being denied access to hospitals based on insurance coverage. It would also prevent dominant hospitals or related physician practices in any given marketplace from demanding unreasonably high rates for health care services. Specifically, the measures would mandate all hospitals and hospital-owned physician practices that are part of an integrated delivery network—health care systems that affiliate with an insurance plan—to contract with any willing insurer,” wrote Packel.

But many groups questioned why state government was becoming involved in a private contract dispute between two companies and choosing a winner in Highmark. In an editorial in the Patriot News, Stephen DeMaura, president of Americans for Job Security, a pro-business issue advocacy organization based in Virginia, argued the proposals could have a strong negative effect on competition. He noted one of the biggest supporters of the bill, the Service Employees International Union, stands to benefit greatly from the forced contract.

“The two bills would kill market competition and limit affordable consumer choices by forcing two entities that offer both health insurance and healthcare into a contract. Not surprisingly, the legislation has the backing of the Service Employees International Union, which represents healthcare workers,” wrote DeMaura.

David Williams of Taxpayers Protection Alliance (TPA) argued in a Human Events piece that the two bills give unnecessary power over the health care market to the government. “Sadly, the legislation being spearheaded in Harrisburg by State Senator Vulakovich and Representative Christiana goes down a similar ‘government knows best’ path. Their legislation not only undermines free market principles, but it also kills market competition and limits affordable choices for consumers and many of the most vulnerable among us. Lastly, it meddles with Pennsylvanians’ healthcare options by choosing to empower regulators, not providers.”

Williams also noted forcing Highmark and UPMC into a contract sets a troubling precedent. “If these bills move forward in the state legislature it could have similar consequences as ObamaCare and could establish a devastating precedent for the rest of the country. Competition is not only beneficial to the private sector; it’s essential for state and national economies. To put it in terms every Pennsylvanian can understand; imagine the outrage that would exist if the federal government forced Hershey and Mars into a contract.”

Matthew Glans

Matthew Glans (mglans@heartland.org) joined the staff of The Heartland Institute in November 2007... (read full bio)