Highmark, UPMC deal to revamp health insurance marketplace

The new agreement between Highmark Inc. and the University of Pittsburgh Medical Center promises to remodel western Pennsylvania’s health insurance marketplace, allowing insurers to compete on product, service and quality rather than price for the first time in years, experts say.

Highmark and UPMC reached an agreement that will keep UPMC’s doctors and hospitals as in-network providers for some 2 million Highmark members until Dec. 31, 2014. In the meantime, Highmark agreed to increase payments to UPMC in phases until its rates are roughly comparable to those paid by national carriers.

The rate of increase under the new agreement was not disclosed.

Highmark has historically paid lower-than-market rates to doctors and hospitals in return for a big number of subscribers. The agreement announced May 2 means that starting in 2015, pricing will mean less than it has in at least a decade.

The shift comes at a time of already intense competition among insurers, said Rick Galardini, CEO at Wexford-based JRG Advisors LLC. The bargaining going on among brokers and small businesses for the July 1 renewal period is unprecedented in his 41 years in the business.

“This is market share fighting, which is good for the consumer, but it destroys loyalty to an insurance company,” he said. “There’s a greater willingness to adjust pricing.”

Last year, UPMC opened its hospitals and doctors to national health insurance carriers, which had mostly been shut out of the Pittsburgh market because they didn’t have contracts with key UPMC hospitals. For the past decade, Highmark members have enjoyed in-network access to all UPMC doctors and hospitals, and UPMC’s move came after contract talks with Highmark broke down over its decision to acquire the ailing West Penn Allegheny Health System.

The contract extension gives Highmark much-needed breathing room to build a health care delivery system and tackle the competing goals of providing evidence-based, cost-efficient medical care while filling WPAHS’s “hospital beds with heads.” Doctors at Monroeville-based Premier Medical Associates have been pioneering a lower-cost, higher-quality approach to medicine, and Highmark’s affiliation with the physicians’ group could lead the insurer in reducing overutilization, improving care and reducing costs.

But Tom Tomczyk, principal at the downtown offices of Buck Consultants, was less optimistic about the new Highmark-UPMC agreement, saying it didn’t address overuse of medical services in the Pittsburgh region. And, ultimately, the higher rates Highmark pays to UPMC may be passed along to members in the form of higher copays and out-of-pocket expenses.

“It does nothing to address the utilization issue or quality,” he said. “Even though you’re paying Highmark contracted rates, the increase could very well be passed along to employees. This is just kicking the can down the road.”