JUST DEEP POCKETS, OR BIDS FOR CONTROL? IN W. PA., INSURER, SYSTEM, DOCTORS SQUARE OFF OVER AHERF BID
When it comes to capturing market share-or stopping your competitor from doing so-traditional rivalries often are shoved under the rug.
Such a turnabout is under way in Western Pennsylvania, where some hospitals, physicians and insurers have chucked the last vestiges of their usual roles in a pitched battle over control of the market.
The market's dominant insurer, Highmark Blue Cross and Blue Shield, is fronting the money to two-hospital Western Pennsylvania Health System in Pittsburgh to acquire the remaining four hospitals of bankrupt Allegheny Health, Education and Research Foundation.
Highmark's proposal is being challenged by a 2,000-physician medical society with backing from Pittsburgh's largest health system, 12-hospital UPMC Health System in Pittsburgh.
Lawyers from the Washington office of Epstein Becker & Green, representing the Pennsylvania Society of Internal Medicine, met with officials from the U.S. Justice Department and the Federal Trade Commission last week to press them to stop Highmark from making a $125 million loan to WPHS, a medical society spokesman confirmed. The results of the meeting, which likely centered on antitrust concerns, weren't disclosed.
Earlier this month, the internists filed a written antitrust complaint with the feds and the Pennsylvania attorney general's office, asking them to bar Highmark from lending WPHS the money. The doctors want regulators to guarantee that the expanded WPHS would offer fair terms to all insurers and that Highmark would not discriminate against competing hospitals.
WPHS was the only bidder to respond with a definitive proposal to buy the struggling AHERF hospitals, led by 569-bed Allegheny General Hospital. The two sides signed a letter of intent earlier this month, but a final sales agreement has yet to be inked (March 8, p. 6).
Nancy Grover, a WPHS spokeswoman, said the systems reached an oral agreement on the basic terms of a definitive agreement last week. A written agreement may take several more weeks, but the goal is to close by May 31, she said.
Highmark's role as WPHS' banker has made the hospital system acquisition unusual. At the root of the internists' complaint is the alleged advantage Highmark would obtain as the lender to WPHS.
The WPHS-Highmark combination would create a "vertically integrated monopoly," said Robert Sklaroff, immediate past president of the internal medicine society and an internist in Philadelphia.
Executives at Highmark, WPHS and AHERF declined to discuss terms of the multimillion-dollar loan, citing continuing negotiations.
But Highmark officials have stressed that their bridge loan-a common type of financing usually in force a year or less, until long-term-debt arrangements can be made-would give the insurer no say in the governance or day-to-day operations of the new system.
Highmark's investment in the WPHS-AHERF deal would help ensure that a strong tertiary-care provider remained as an alternative to UPMCHS in Western Pennsylvania. Highmark questioned the motives of those criticizing its lending role, which falls below the $150 million limit that would trigger a review by the state insurance department.
"Is it really in the best interest of the physicians who are members of the Pennsylvania Society of Internal Medicine to try to scuttle the (WPHS) proposal for Allegheny's hospitals?" asked Michael Weinstein, a Highmark spokesman.
The internists' complaint concludes by asking regulators to ensure that Highmark not be allowed to either gain "share in the market for hospital services (for the expanded WPHS) or to punish (UPMCHS) . . . for competing with Highmark" in the insurance marketplace.
Executives of UPMCHS, the University of Pittsburgh hospital system anchored by 840-bed UPMC-Presbyterian in Pittsburgh, confirmed that the university system has financially supported the internists' legal action to block the Highmark loan and the doctors' 2-year-old legal battle to undo the 1996 Blues merger that created Highmark.
"UPMC is funding their own interests because they would just as soon see their competitor (AHERF) go down the drain," said William Hanna, an independent healthcare consultant in Wexford, Pa.
Equally important, he added, is the bloody fight for the health insurance market between Highmark and UPMCHS. Highmark controls about 65% of the commercial health insurance market in Western Pennsylvania. In 1996, UPMCHS launched an insurance subsidiary for Medicaid that was later extended to cover commercial lives.
Mobile Apps | Modern Healthcare
Beyond the Byline: Texas COPA law may pave the way for more hospital M&A - Transcript