PITTSBURGH — Two health-care juggernauts are locked in a battle for patients in western Pennsylvania that could foretell the future of American health care.
On one side is UPMC, a health system that built its brand on cutting-edge research and university-affiliated hospitals. On the other is Highmark Health, best known as one of the country’s biggest health insurers.
They could be mirror images of each other, flipped upside down. UPMC started out in the hospital business, then created its own health insurance plan and built a $20 billion-a-year enterprise. Highmark, which reported $18.2 billion in revenue last year, announced in 2011 that it would branch from insurance into hospitals.
In response, UPMC threatened to stop accepting Highmark insurance at its doctors and hospitals. Agreements and state intervention smoothed over the divorce, which won’t be complete until next year, but people have had to pick sides: Highmark patients with UPMC doctors have had to switch plans, or switch doctors. UPMC health plan members have to pay out-of-network prices at Highmark’s facilities. In the meantime, people have been bombarded by dueling ad campaigns and endless local news stories about the rift.
The competitive clash has turned Pittsburgh into a testing ground for forces that are transforming health care nationally, as waves of consolidation blur traditional boundaries in the $3.3 trillion health-care system.
Such combinations are advertised as a path to greater efficiencies and more-coordinated care. But the competition between the two health systems has brought abrupt and painful change to many people in western Pennsylvania.
“I call it ‘the war,’ ” said Sue Kerr, 47, a Highmark member with a UPMC doctor who is frustrated by a transition that she says neither company has made easy. “You should consider switching providers, switching insurances — switch this, switch that. I was like, ‘We paid for this.’ ”
Kerr was aware of the split, but it was not until she became ill that it truly hit home. Sick with a virus in December, Kerr called her UPMC doctor to ask whether she should go to the urgent-care center she typically used, only to learn that it was no longer in her plan’s network. In pain from tendinitis last fall, she was referred to UPMC specialists who were not covered. It has been a rude awakening for Kerr, who, like many in Pittsburgh, had hoped that these two health systems that say they are patient-focused would find a way to get along.
Beyond the disruption to patients, simply bringing disparate health-care players under one roof does not guarantee better or more-affordable medical care, caution health policy experts.
Like other mergers rippling through health care, the integration of health insurance and hospitals is supposed to cut out waste, align incentives and contain costs. But industries that were formerly enemies do not always mix well: Hospitals typically want to keep their beds full, while insurers want to cut costs.
“We don’t have effective competition in this market; we have these two huge entities, circling each other looking for some kind of opening,” said Martin Gaynor, a former director of the Bureau of Economics at the Federal Trade Commission and a professor at Carnegie Mellon University.
The experiment is far from over, but it is unclear whether the combinations have delivered their promised results.
Pittsburgh’s premiums for employer-sponsored health care are below the national average, but that was also true before the head-to-head competition began, according to a national survey of medical expenditures taken by the federal government.
Meanwhile, medical spending per person in Pittsburgh grew 20 percent from 2012 to 2016, faster than the 15 percent growth nationally, the Health Care Cost Institute found, in an analysis of data from national employer-sponsored insurance plans.
Linda Blumberg, a senior fellow at the Urban Institute, said that if the dynamic between the two systems were truly creating efficiencies to bend the cost curve, she would expect the trend in Pittsburgh to deviate from the rest of the country.
“That’s just not the case,” Blumberg said in an email.
The fight broke into the open in 2011, when Highmark, facing a request for a big rate increase from UPMC, announced that it would acquire a financially troubled hospital system, today known as the Allegheny Health Network, to preserve competition in the region.
UPMC saw Highmark step on its turf and punched back, announcing that it would shut Highmark’s health plan members out of its network once their contract expired.
Under pressure from state officials, the contract was extended and an agreement was brokered postponing the final split of the two systems until mid-2019. But the competitive dynamic changed almost immediately. Instead of insurer vs. hospital, Pittsburgh split into two distinct health-care silos.
Suddenly, people’s choice of health plan became far more integral — determining in which system they would give birth, get flu shots or have surgery.
Highmark and UPMC say they both represent the logical next step in the evolution of health care, but their strategies are very different.
From his corner office atop the U.S. Steel Tower, UPMC chief executive Jeffrey Romoff is building an empire.
“There’s nothing in health care, that we know of, that UPMC doesn’t have an entry into that marketplace,” he said, comparing UPMC to the tech giant Amazon.
Late last year, Romoff unveiled plans to invest $2 billion in three downtown specialty hospitals that will push the cutting edge of medical research and care in areas such as cancer treatment, vision restoration and transplants. In Bakery Square, Pittsburgh’s innovation district, UPMC employs 200 software engineers, designers, business analysts and others to develop and commercialize new health technologies. When Romoff sees a drug company shell out $11.9 billion for a groundbreaking cancer therapy, as Gilead Sciences did, he thinks UPMC should invent the next one.
Branching from a provider of care into a health insurer has given UPMC control of its fate, Romoff says, instead of leaving an elite hospital system in the vise of a powerful insurer. Having a large health plan gives the hospital a new incentive to avoid expensive care that is not best for the patient, since the hospital’s income is the health plan’s outlay.
Across town, at a slightly lower skyscraper is Highmark, where chief executive David Holmberg has a view of the health-care future rooted in his organization’s main business as an insurer.
While UPMC executives talk about attracting patients from around the country and the world to Pittsburgh for care, Holmberg says he wants to pay for health care, not research projects.
“I want to keep people healthy; I want to keep them out of the hospital. Think of it like a consumer market,” Holmberg said. “You can do things differently because you’re not worried about heads and beds. You’re not trying to fill up the hospitals.”
Allegheny Health Network’s hospitals had suffered from years of underinvestment before Highmark intervened. In contrast to UPMC’s emphasis on high-tech medicine, Highmark will spend more than $1 billion to build new facilities, including a suburban hospital, four small-scale neighborhood hospitals and community cancer centers. It has built partnerships, such as a cancer-care alliance with Johns Hopkins Medicine.
The vision of how to shift care out of expensive hospitals is evident in an expansive “health and wellness pavilion” in the suburb of Wexford, where a greeter in the lobby begins the admission process on an iPad.
From there, patients are directed to primary care, outpatient surgery, cancer or other services. Highmark is building a hospital next door and will put the urgent care next to the emergency department, so that people with less serious problems can be directed to a lower-cost site of care.
Both executives identify the same goal — delivering high-quality, affordable care. They say the competition between their companies has been good for the region.
Holmberg says that if Highmark had not stepped in to save Allegheny Health Network, health-care costs would have skyrocketed as UPMC’s dominance grew.
“In the midst of it, it was disruptive. ‘Oh, they were at each other’s throats’ — and that’s the way it appeared,” Romoff said. “But that’s what disruption is about. And let’s be clear about this: Without disruption, change is much, much slower.”
After years of warring ad campaigns and alarming rhetoric from both sides, the people of western Pennsylvania are tired of the fight.
Some people are switching health-insurance plans. Others are switching providers. Still others are finding refuge in national health plans that give access to both systems.
Bill McKendree, director of the Allegheny County Apprise program, which helps seniors choose Medicare plans, says confusion is common although people are finding solutions.
There’s an ongoing legal brawl over whether seniors with Highmark Medicare Advantage plans will be cut off from UPMC in mid-2019 or at the end of the year.
“What we’ve gotten used to as a community is this luxury of being able, regardless of who our insurer was, to tap into this incredible wealth of health-care services in western Pennsylvania,” McKendree said. “We’re starting to become aware of what other parts of America are also facing: limitations.”
The true test of whether the two big integrated systems can drive cost savings will come in 2019, when the split is final. But the competitive friction is causing both to focus on consumer convenience in new ways.
UPMC doctors write prescriptions for community health workers — employed by the insurance company — who help patients work to better manage chronic health conditions, such as diabetes. Highmark has a breathing-disorders clinic to help make a one-stop visit for the management of complex lung diseases that once might have involved a maze of appointments.
UPMC opened a cancer-specific emergency room to help patients whose acute health problems may be best helped by people familiar with their underlying disease and treatment regimen.
Highmark’s Wexford center has a staffed play area for children whose parents are seeing doctors at the center.
“The tension of UPMC vs. Highmark, as difficult as it might be around the local watering holes of Pittsburgh, it’s not necessarily a bad thing,” said Tom Scully, a general partner at Welsh, Carson, Anderson & Stowe, a major health-care equity investor.
Many patients have yet to be convinced.
Kerr, recuperating from a hysterectomy, is not sure where she will land. She is looking for a primary-care doctor at Allegheny Health Network. She is considering switching to UPMC’s health plan next year. But she’s unhappy — she doesn’t feel that either system is on her side.
“I suspect what we have is two Goliaths,” Kerr said.