UPMC Health Plan weighs merger
Friday, December 28, 2001
By Pamela Gaynor, Post-Gazette Staff Writer
UPMC Health System is in discussions that could lead to a sale of its upstart insurance subsidiary, formed four years ago to compete against Highmark Inc.
UPMC executives told board members this month that they had begun talks with United Healthcare, the nation's second-largest managed health care insurer behind Aetna Inc.
United is a subsidiary of Minnesota-based UnitedHealth Group, with $23 billion in revenue. United spokesman John Penshorn declined comment.
If UPMC Health Plan and United were to merge, it would create a formidable challenge for Highmark, which has long held the dominant position in the region's health insurance business.
UPMC board chairman Richard L. Fischer declined to discuss specific parties with whom the health system has had talks but said a sale wasn't the only possibility under consideration. He said the region's largest hospital and health care system also was reviewing possible joint ventures as well as the option of retaining and continuing to run its own health plan.
"Whatever action UPMC takes with regard to our insurance business will be taken by the executive committee of the health system board," said Fischer, who became UPMC's chairman after retiring as executive vice president of Alcoa.
He declined to specify a timetable for choosing an option, but said whatever course UPMC chooses "does not preclude a long-term relationship with Highmark or its successor organization if [Highmark] were to merge" with another insurer. Highmark and Philadelphia's Independence Blue Cross have recently held merger talks.
But Fischer also suggested that the strategic discussions surrounding UPMC Health Plan stemmed from the health care system's ongoing battle with the region's dominant insurer. The skirmishes turned heated four years ago when the pair were unable to reach an agreement on a merger or joint venture, prompting UPMC to strike out on its own in the insurance business.
"We entered the insurance business defensively because we were denied reasonable financial reimbursement by Highmark," Fischer said. "Our focus is clearly to be the best health care provider we can.
"What would best serve this community is having effective competition between insurers," he added. "We would welcome that."
Highmark spokesman Michael Weinstein said UPMC's desire for better reimbursement comes at a time "when the issue of health care costs is gaining a lot of local attention and national attention and the Pittsburgh area is reported to have some of the most expensive health care costs of regions all across the country."
Weinstein also said UPMC's stated dissatisfaction with payments from the insurer was puzzling, given that the Oakland-based giant accepted a two-year contract in 1999 and "must have felt comfortable at the time that the reimbursement was adequate."
That contract, under which UPMC's sprawling hospital and physician network participates in Highmark's flagship health plans, expires June 30.
Termination of the contracts would have far-reaching implications for health care in the region.
If UPMC's hospitals and physicians were not offered through Highmark, the insurer would lose a significant marketing edge that has helped it dominate the health insurance business here. Highmark's health plans -- in contrast with others offered by competitors such as Health America and Aetna U.S. Healthcare -- have always included virtually all of the region's hospitals and doctors.
Customers, in turn, would no longer have coverage for use of any and all medical providers -- at least, not without paying deductibles or co-payments beyond those that apply to doctors and hospitals within their health plan networks.
Presumably, any insurer bidding for UPMC Health Plan would insist on contracts with UPMC's hospitals and physicians.
Although UPMC has long met with skepticism about how long it could or would remain a player in the insurance business, the health system has continued to tout its success. With 350,000 members, UPMC Health Plan has been one of the nation's fastest-growing insurers. After early losses attributed to start-up costs, it also posted a marginal profit last year and has said it is on target to post another for 2001.
But hospital and physician sponsored health plans across the country have generally fared poorly. Analysts widely attribute their lack of success to the conflict of interest inherent in both providing health care services and having to pay for them.
From UPMC's standpoint, selling the insurance business or finding a partner could bring the kind of capital, information systems and growth opportunities that are increasingly necessary in the insurance industry.
"The mortality rate even among mid-sized HMOs is pretty high," said Cliff Shannon, executive director of SMC Business Council, which helps its 8,000 member companies purchase group health insurance. In that context, selling to a larger player would make sense, he said.
Nor are the discussions with United the first UPMC has held with insurers other than Highmark. As its hopes for a merger with Highmark faded, UPMC held talks with two California insurers, Kaiser Permanente and Foundation Health System, before starting its own health plan.
Healthplan lost $30 million two years ago; profit of $500,000 reported in news last month. Karen
[ B]UPMC Shadyside expansion [/B]
Thursday, December 27, 2001
By Pamela Gaynor, Post-Gazette Staff Writer
UPMC Shadyside yesterday said it has begun a $20 million renovation, fueled by the largest gift in its 135-year history.
The hospital said the renovation, which will include a new center for minimally invasive surgery, would not have been possible without a contribution made by Henry Posner Jr and his wife, Helen, in honor of their youngest son, Robert, who died last year.
Posner, 83, a longtime business associate and adviser to Allegheny County Chief Executive Jim Roddey, is chairman of the Green Tree-based Hawthorne Group, a privately held investment and management concern with interests ranging from communications to health care, real estate and railroads.
Officials did not disclose the size of the donation -- estimated to be about $12 million. However, they did say it was the largest single gift the hospital had ever received, a ranking previously held by the Henry Hillman family's $10 million contribution, announced in mid-1999, when construction began on a $104 million cancer research center bearing the Hillman name.
In addition to the five-suite minimally invasive surgical center, which will include robotic equipment, the hospital's renovation will include a new comprehensive pain care center and upgrades throughout its main, seven-story building. Among the upgrades will be new lighting, furniture and entertainment equipment in patient rooms and new monitoring and communications systems at nursing stations.
The main building, to be named Posner Tower, has been substantially unchanged since its construction in 1972.