The Amazon of health care
In their offices atop the U.S. Steel Tower, executives of the University of Pittsburgh Medical Center can peer over mountains and see far beyond the borders of their namesake city.
To the east lies Harrisburg and Williamsport, where the PinnacleHealth and Susquehanna health care systems have come under their domain. Beyond those two waits Philadelphia and the possibility of a medical empire that stretches the breadth of the Keystone State.
To the south lies the fertile ground of Maryland and the District of Columbia, gateway to the wealth and prestige of the world’s largest economy.
These days, it all seems within reach.
“We’re now in Harrisburg with UPMC Pinnacle. We’re now in Williamsport with UPMC Susquehanna. We believe we will go completely across the state and into neighboring states,” with a focus on Maryland, UPMC CEO Jeffrey Romoff said recently after announcing a $2 billion building spree and partnership with Microsoft in Pittsburgh.
Those expansionist aspirations go beyond mere market penetration. UPMC’s goal, Romoff said, is to become “the Amazon of health care.”
“Look at retail. The name Neiman Marcus, the name Macy’s, the names Sax and Bloomingdale’s are the key names in retail. Where did Amazon come from? Amazon came from nowhere more than 10 years ago, and now retail is Amazon. Those other names are still there, but they’re less prominent and less important,” Romoff said.
“We expect that UPMC will leap over the others that are our peers and we will redefine the future of health care,” he said.
It sounds exciting – unless you’re Neiman Marcus, Macy’s, Sax or Bloomingdale’s, the latter three of which have closed stores in Pittsburgh in recent years.
Lack of competition within the retail industry is one thing; lack of competition within the often-opaque and life-altering world of medical care is something else entirely.
Regions across the country are grappling with similar consolidations in the health care industry, said David Taylor, president of the Pennsylvania Manufacturer’s Association. These mergers take place in the name of efficiency – an easy sell in an era of ever-rising costs of medical coverage – but raise questions about quality of care. If there’s only one shop in town, it doesn’t have to compete for customers by offering better services.
There are now 39 hospitals in the UPMC system. The Pittsburgh-based non-profit owns hospitals from western Pennsylvania and Erie, to Altoona, Jamestown, New York, Bedford, Carlisle, Harrisburg, York and Lancaster. UPMC is the largest nongovernmental employer in the state with nearly 80,000 employees, $14.3 billion in operating revenue and $13 billion in total assets. Romoff earns $6.9 million in compensation. The Pittsburgh Post-Gazette reported he is one of seven executives with salary and benefits topping $2 million and 24 staffers with compensation of a million or more in the fiscal year that ended June 30.
“Why does Romoff do all of this? Because he can,” said Robert P. Strauss, a professor of economics and public affairs at Carnegie Mellon University. “He’s enamored with gaining power and he is driven by a commitment to excellence.”
Questions arise
UPMC’s expansion has prompted questions about competitive medical care in Pennsylvania. Can a hospital system become too large? Will competition in Pennsylvania’s health care industry disappear under UPMC’s blanket coverage? And what’s the benefit, ultimately, for the patients of smaller hospitals that become affiliated with UPMC?
The UPMC-PinnacleHealth affiliation was approved and finalized in September, a UPMC spokesman said.
Talk at the state Capitol swirls around the potential of UPMC acquiring Penn State Hershey Medical Center or possibly Temple University Health System in Philadelphia. Rep. Dan Frankel, D-Squirrel Hill, whose House district includes major UPMC facilities, said, “I’m told that they’re targeting Philadelphia. I wouldn’t be surprised. I’ve heard a rumor that Temple Health System could be acquired,” Frankel recently told The Caucus.
Far from swooping in uninvited and gobbling up health care systems, smaller hospitals are asking UPMC to affiliate with them, said Paul Wood, vice president and director of communications.
“UPMC is constantly being approached by hospitals and organizations throughout the state and beyond who want to explore opportunities to become part of our successful integrated health system and expand world-class care into their communities. While we are routinely in discussions, we cannot publicly comment on them, and there is nothing new to announce at this time.”
UPMC calls the recent actions with Pinnacle-Health System “affiliations.” Under the agreement, states a UPMC financial document, UPMC would become the parent and sole member of Pinnacle and Pinnacle would be renamed UPMC Pinnacle.”
Hospital and health system partnership transactions continued on an upward trajectory in the first quarter of 2017, with an 8 percent increase, according to the web page of Kaufman, Hall & Associates, LLC, a consulting agency that provides financial and capital assistance to health care institutions. Health system deals increased from more than 60 in 2010 to more than 100 in 2016.
“The interesting question is where are the anti-trust regulators at the state and federal level?” said Strauss. “The anti-trust regulation of hospital locations has been weak for years.”
Despite federal and state complaints leading to a Third Circuit Court of Appeals rejection of a proposed merger between Penn State Hershey Medical Center and PinnacleHealth, Strauss said, “We’ve mostly had an anything goes environment in Pennsylvania. Where is the legal mechanism and the law enforcement to make sure all laws are being followed?”
Federal Trade Commission spokesman Elizabeth Lordan declined comment on Strauss’ assertions.
“We continue to monitor this market as well as other health care markets in Pennsylvania to ensure that consumers have access to high quality health care at reasonable prices,” said Joe Grace, a spokesman for Attorney General Josh Shapiro.
“The FTC has not filed a complaint in this matter (UPMC-PinnacleHealth),” agency spokeswoman Lordan said. “The FTC does not comment on or confirm the existence of investigations unless (or) until it files a complaint. If it files a complaint, the court documents are made public.”
The agency doesn’t issue reports on proposed mergers. “It either files a complaint (after an investigation) or doesn’t file a complaint,” Lordan said.
On why UPMC has not been dinged by regulators in its recent eastward expansion, Strauss said, “They (UPMC) have a plan, a technique and they are clever,” Strauss said. “They are not behaving as some benign, passive, religiously affiliated hospital.” Strauss described UPMC as a hardball player. “But I’m sure they are operating within the letter of the law,” he said.
There’s a plus to joining a giant like UPMC, Strauss said. Smaller hospitals absorbed by UPMC gain because of UPMC’s “excellence in research and innovation,” Strauss said.
Strauss knows first-hand about UPMC’s medical care. He and his wife “have been patients as long as I can remember,” Strauss said. “I’m very happy with the doctors but unhappy on the administrative side.
“But from an economic perspective…more competition from hospitals independent of each other is better,” Strauss said “It’s a fact when you have more institutions competing you get a better result.”
“The notion that you’re going to drive 300 miles away to go to a ‘competing’ hospital is crazy,” Strauss said.
The UPMC-Highmark war
The recent mergers have prompted concern in some quarters on whether Highmark insurance customers, long-term, will be able to maintain their insurance in UPMC affiliated facilities.
The issue begs the question whether consumers outside Southwestern Pennsylvania will see another chapter of the bitter drawn-out public relations and legal battle between UPMC and Highmark. While UPMC continues to accept Highmark insurance in UPMC-Pinnacle facilities, Frankel said, “Yeah, we’ll see how long that lasts.” He says he’s told his colleagues that issue is “coming to a neighborhood in your community soon.”
“As with all of UPMC’s affiliations,” Wood said, “UPMC honors all existing contracts with insurers as long as there is no competing insurer-affiliated provider in the market. In the case of Highmark, as long as there is no Highmark-affiliated provider in the market, UPMC is open to contracting with Highmark in that market. “
That means Highmark can’t have a competing hospital in the UPMC-Pinnacle region, at least according to UPMC.
UPMC also provides health insurance.
“We serve more than a 1 million members in Central Pennsylvania and the Lehigh Valley,” said Highmark spokesman Aaron Billger. “Highmark Blue Shield has had competition in Central Pennsylvania for a long time and is prepared for new market entrants. Our approach to connecting health care and health coverage is far different model than organizations new to the region.”
Billger stressed that Highmark “has a long term contract with Pinnacle.”
“Our focus is providing high-value, community-based care aimed at serving patients and health plan members where care is best for them,” Billger said.
‘PittGirl’
That spat seemingly triggered by Highmark’s purchase of West Penn Allegheny Health System in Pittsburgh caught the attention of top officials at the Capitol.
The feud was best characterized by “PittGirl” – Virginia Montanez, in Pittsburgh Magazine in 2013.
Here’s a shortened sample to give you the flavor:
“Each Sunday, tucked somewhere between the pages of A-1 and A-14 in the Pittsburgh Post-Gazette print edition, you’ll find a full-page Highmark ad outlining the evils of UPMC. Flip just a few pages and you’ll find a UPMC ad attacking the evildoers at Highmark.
“You’re a stupid-head! No, you’re a stupid-head, stupid-head!
“I understand why UPMC and Highmark are fighting,” PittGirl wrote. “I do. Highmark’s recent purchase of West Penn Allegheny Health System means that it is now a direct competitor of UPMC. Therefore, UPMC is (in a manner of speaking) taking its UPMC-branded ball and going home.”
PittGirl added:
- That sound you heard was the comment section floodgates opening and every single dingbat in Pennsylvania scrolling through the rest of this article to engage in a different kind of pointless fight.
Court Ruling
Highmark at least has a court ruling that might prove useful.
The Supreme Court ruled in November 2015 that seniors with Highmark’s Medicare Advantage plan coverage would continue to have so-called in-network access to UPMC hospitals and doctors. The Post-Gazette reported the ruling meant about 182,000 Highmark seniors using UPMC facilities do not have to pay higher, out-of-network rates through June 2019, when a consent decree between Highmark and UPMC ends.
But it’s not over, Strauss predicts. “I think the battle is ongoing.”
The Caucus investigative reporter Paula Knudsen contributed to this report.