Statements of Jeffrey A. Romoff and W. Thomas McGough, Jr., Before the Pennsylvania House of Representatives Insurance Committee
PITTSBURGH, Aug. 25 – Following are statements of Jeffrey A. Romoff, President and CEO of UPMC, and W. Thomas McGough, Jr., Senior Vice-President and Chief Legal Officer of UPMC, before the Pennsylvania House of Representatives Insurance Committee today.
Statement of Jeffrey A. Romoff
Good morning. I am Jeffrey Romoff, President and CEO of UPMC. Attending with me is Mr. W. Thomas McGough, Jr., UPMC’s Senior Vice President and Chief Legal Officer.
On behalf of UPMC, our Board of Directors, and our 54,000 employees, thank you for this opportunity to discuss the significant changes that are occurring in health care in Western Pennsylvania, while addressing some of the misconceptions about the nonrenewal of our contract with Highmark. Mr. McGough will then add some of the specifics.
Few would argue about the many positive contributions UPMC has made to our community.
- We are recognized worldwide for delivering among the finest health care that exists anywhere and have been named by US News & World Report to the Honor Roll of America’s Best Hospitals for more than a decade. There are only a handful of cities in the entire country that can claim a health system that is ranked as one of the nation’s best in 15 of 16 medical specialty areas – and Pittsburgh is one of them.
- We create thousands of jobs that give our children career opportunities in Pittsburgh and attract talent from around the globe, and with 54,000 employees we are one of the two largest employers in the Commonwealth, creating an economic benefit to the region of nearly $20 billion dollars per year.
- Last year, our direct contributions to the community – uncompensated care, community services and support for research and education – exceeded $560 million. Put another way, for every dollar of profit we put aside to re-invest in the finest health care, we have put two dollars to work in meeting specific community needs.
- In an effort to introduce choice and competition in a closed health insurance market, twelve years ago we created the UPMC Health Plan, which offers direct and coordinated “front door” access to our doctors and hospitals. That health plan has been nationally recognized for its innovations in forging a healthy workplace and is ranked number one in customer satisfaction in Pennsylvania by JD Power and Associates.
As proud as we are of UPMC’s responsiveness to the needs of the community, we are equally proud of our responsiveness to the accelerating changes in the health care industry. Competitive pressure, legislative enactments, reductions in reimbursements, and the unquestionable need to provide our world-class services to a broader population at a lower cost have constantly challenged our organization. We have done more than react to those challenges – we have anticipated them and embraced them.
Today, we want to focus on three very significant changes in the way Western Pennsylvanians will receive and pay for health care, all changes for the good.
Recently, UPMC entered into contracts with four national health insurers to confront head-on the decades-old monopoly Highmark has had in the local insurance market, even though this act of contracting with national insurers creates increased competition for our own Health Plan. As a direct result of this competition, consumers and employers in Western Pennsylvania have been spared Highmark’s annual ritual of double-digit increases in health insurance premiums.
Some analysts have even suggested a price war has broken out. That is certainly a welcome change for employers and subscribers. Past double-digit increases have cost our community’s employers and Highmark subscribers as much as $1 billion in additional premiums each year. If this newfound competition substantially reduces these increases as most expect, the hundreds of millions of savings can be dedicated to wage and salary growth, consumer spending and corporate investment to create jobs. This is a truly remarkable achievement, which can reoccur on an annual basis with this new competitive market dynamic
Highmark is responsible for the second major change. In June, Highmark announced that it was going to acquire West Penn Allegheny Health System and transform itself into what it called then an “Integrated Delivery and Finance System,” or IDFS. We at UPMC know what an IDFS is, because that’s the business model we’ve been following since we created our Health Plan. The “I” in IDFS stands for “integrated,” meaning that the insurance arm of the organization acts as the “front door” to the doctors and hospitals employed or operated by the organization. Other successful examples of integrated systems include Geisinger Health System in central Pennsylvania and Kaiser Permanente in California.
Let’s be absolutely clear: By acquiring West Penn Allegheny and converting itself into an integrated system, Highmark has abandoned its neutrality as the region’s dominant insurer and is now attempting to replicate UPMC’s business model, with a compre¬hensive health care system, a medical school, and an insurance arm.
Some have suggested that UPMC opposes Highmark’s effort to transform itself in this fashion. On the contrary, we relish competition, commend Highmark, and believe its decision can be a benefit to this region.
Think about it: In recent years we have had a monopoly insurer, Highmark, and a single successful integrated medical system, UPMC. When Highmark completes its transformation, we will have four competing insurers – Aetna, Cigna, HealthAmerica, and United Healthcare – and two well-funded medical systems competing as IDFS’s – UPMC and Highmark/West Penn Allegheny. Also of course, there are more than a dozen other community hospitals and hundreds of doctors unaffiliated with either integrated system. This is a sea change in terms of competition in both our health care and insurance markets.
The competition among insurers will keep premiums as low as possible assuring substantial community and corporate savings. The competition between UPMC and Highmark/West Penn Allegheny will foster development of better ways to keep people healthy. Competition will drive out administrative inefficiencies and it will further motivate both organizations to serve the patients, physicians and community in cost-effective ways.
Also, Highmark is the only regional organization with the billions of dollars available in premium reserves that will be required to sustain this competition and innovation. It will now have “skin in the game” – substantial “skin” after publicly committing to assume more than $1 billion in debt and unfunded pension liabilities of West Penn Allegheny.
This legislature and the appropriate federal and state regulators must determine whether it is the best way to spend Highmark’s $4 billion in subscriber funded reserves. Whatever the outcome of this decision, UPMC welcomes the competition that accompanies the much needed changes in the market.
Which brings us to the third, inevitable change that will occur as a result of Highmark’s transformation. Because Highmark has abandoned its neutrality as the region’s gatekeeper for healthcare, UPMC cannot – and will not – renew the contracts that allowed Highmark to maintain its dominance in this market.
Our Board has been decisive on this issue: In light of Highmark’s decision to convert itself from a neutral insurer into a competing integrated system, UPMC will not renew its contracts with Highmark. This is not a negotiating ploy, but rather an inevitable decision dictated by the realities of competition.
Again, to be clear, there will be no contract with Highmark. To do otherwise would put our entire world-renowned enterprise at the mercy of a self-interested integrated system with billions of dollars of new commitments to fund, and thereby jeopardize the very access to the finest quality care that UPMC offers. If UPMC cannot support its programs, then they cannot be available. We cannot and will not put UPMC at risk.
In addition, by renewing its contract with Highmark, UPMC would also be renewing Highmark’s monopo¬listic lock on the insurance market, a state of affairs that no one except Highmark finds acceptable. Remember that only a short time ago one of the most pressing issues in this region was the skyrock¬eting cost of health insurance.
As indicated earlier, these three changes – the entry of the national insurers into this market, Highmark’s acquisition of West Penn Allegheny, and the expiration of Highmark’s contracts with UPMC – can and should all be for the better. But that can happen only if everyone works to minimize the disruptions that could otherwise occur. On that point, however, Highmark has been notably and regrettably resistant.
Highmark has refused to take responsibility for the changes its self-transformation has triggered and will not even discuss with UPMC how to minimize the disruptions that could result from those changes. This is an area of immense frustration to us as it must be to the members of this panel.
We hear on a daily basis from patients, doctors, and employers who want to know how the new insurance competition, the transformation of Highmark into an integrated system, and the non-renewal of Highmark’s contracts will affect them. Highmark not only refuses to sit down and talk about the open questions, but has also filed a lawsuit against us in an attempt to prevent us from communicating with consumers about how they might keep their doctors when the UPMC/Highmark contracts expire.
We urge this committee to tell Highmark to work with UPMC to manage these changes in an orderly and timely fashion, minimizing uncertainty and confusion for our patients. And now my colleague Mr. McGough will brief you more fully on the specifics of the issue.
Statement of W. Thomas McGough, Jr.
Thank you for this opportunity to address the Committee regarding the competitive implications of Highmark’s decision to acquire West Penn Allegheny and transform itself into an integrated delivery system.
Recently, Highmark has been calling its proposed transaction an “affiliation,” which might suggest Highmark has changed its plans since it announced on June 27 that its goal was to combine with West Penn Allegheny to form one integrated system and compete directly with UPMC’s integrated system. If Highmark has changed its plans in that regard — if it isn’t going to save the jobs or make good on the pensions or assume the bond obligations or rebuild the facilities — then it should say so today. It is vitally important that Highmark both clearly describe and ultimately fulfill its commitment.
Taking Highmark at its word, however, we know that it is going to commit billions of dollars to this transaction and integrate its insurance function with West Penn Allegheny’s health system. Once it does this, it will have no choice but to use its current monopoly over health insurance to make this new integrated system a success.
How will it do this? First, it will recruit top-flight doctors to staff out its enterprise. In fact, Highmark representatives are already soliciting UPMC’s doctors to join its new integrated system. Several of our doctors have been told by Highmark that it has budgeted $1 billion to hire doctors for the new enterprise.
Hospitals compete for physicians all the time, of course. But when the dominant health insurance company throws its considerable financial weight and economic power into that competition, the game changes completely. We’re perfectly happy to compete with Highmark/West Penn Allegheny for physicians, but we have no intention of helping them hold onto their insurance monopoly while they do it.
A similar dynamic will emerge in the competition for subscribers and patients. Up to this time doctors and hospitals have been able to look to Highmark as a neutral gatekeeper, allowing patients free choice of any provider in its network. But once Highmark has billions of dollars of skin in the game, it can’t afford to let subscribers and patients make unfettered choices; it will have to make sure that they choose the hospitals in Highmark’s system.
Other integrated systems like UPMC, Geisinger, and Kaiser Permanente use their health plans as “front doors” for their integrated systems, but Highmark would like to start down this road while holding onto its perch as the region’s dominant insurer, with a pre-existing subscriber base of more than 3 million people. If it can get a new “in-network” contract with UPMC, it can create the illusion of “choice” for its subscribers while pushing them, in ways both subtle and unsubtle, into its integrated system.
In an effort to change the subject, Highmark has argued that the expiration of its contracts with UPMC will end “access” for its subscribers to specialized UPMC facilities like Magee-Womens Hospital of UPMC, the Hillman Cancer Center, or Western Psychiatric Institute and Clinic. That is simply false. After the expiration of the contracts, those facilities, and every other UPMC facility, will continue to admit Highmark subscribers. The only difference will be that Highmark will not get the lower in-network rates it has received from UPMC for the past ten years. Highmark can, of course, decide how much of those increased rates to pass on to its subscribers, depending on how competitive it wants to be with other insurers, who frequently absorb out-of-network costs for those facilities themselves.
Highmark has also argued that, because it has competed with the UPMC Health Plan in offering in-network access to UPMC doctors and hospitals, UPMC should now be forced to renew the contracts giving Highmark in-network rates for those facilities. As superficially satisfying as this tit-for-tat argument might be, it is economic apples and oranges. The UPMC Health Plan has competed with Highmark to put patients into the UPMC system. It has not and never will compete to put patients into other integrated health systems. When Highmark creates its own integrated health system, it will be trying to put patients into that system. To allow Highmark to do that while maintaining its insurance monopoly makes no sense from UPMC’s standpoint, or from the standpoint of the community.
Highmark, without regard to the public’s interest, is asking this Committee to pressure UPMC into renewing Highmark’s contracts and its monopolistic lock on the insurance market. In assessing Highmark’s plea, UPMC would suggest the Committee try to answer at least four questions:
First, is Highmark really committed to spending the billions of reserve dollars necessary to transform itself into an integrated delivery and finance system?
Second, if so, how could a renewal of the contracts between UPMC and the Highmark/West Penn Allegheny system possibly be in the public’s long-term interest, given Highmark’s current insurance monopoly and its history of raising premiums to pad its reserves.
Third, how could such a renewal possibly be in UPMC’s interest, given the grave risks it would face in a skewed competition with an integrated health system that also controlled 65% of the insurance market.
Finally, won’t this community be better served when it has two well-funded, integrated health systems competing on a level playing field and at least four national insurance companies offering access to both of them.
UPMC is confident that those questions, answered honestly, will lead this Committee to conclude that a contract renewal with Highmark would perpetuate a completely unacceptable insurance monopoly and impose billions of dollars in additional health care costs on Western Pennsylvania. The right decision here is to let competitive forces bring this community better health care at a lower cost as quickly as possible.