Pittsburgh-based health insurer Highmark is accused of blocking competition in Western Pennsylvania with the help of a local hospital system, according to a recently filed federal lawsuit.

West Penn Allegheny Health System filed the complaint in U.S. District Court April 21, alleging that Highmark and the University of Pittsburgh Medical Center “conspired to reduce competition and raise prices at the expense of the community’s employers, consumers and patients,” according to the suit.  The suit also claims one of the goals of the alleged conspiracy was to “destroy” West Penn Allegheny, UPMC’s “sole competitor.”
The result of their actions, West Penn Allegheny claims, is “an increasingly exploited Pittsburgh community [that] has suffered rising health care costs.”

The complaint calls for a jury to examine the conduct of the two companies, put an end to their “predatory conduct” and award appropriate damages to West Penn Allegheny.

In a statement, Highmark said it is “very surprised and disappointed” by the West Penn Allegheny suit, adding that it is “a misguided effort” by the hospital system to solve its own financial issues.

Suit to ‘bring to light’ conspiracy

David L. McClenahan, chairman of the board of directors for West Penn Allegheny, said that the health system filed the suit to “bring to light and to rectify a situation” that has harmed it and “the entire Western Pennsylvania community.”

“We believe that for several years UPMC and Highmark have engaged in mutual back-scratching designed to preserve Highmark’s monopoly in health insurance and to permit UPMC to build a monopoly in sophisticated tertiary and quaternary healthcare in this region,” McClenahan said in a statement. “In healthcare, as in all industries, monopolies hurt everyone except the monopolists because they tend inevitably to increase the price and reduce the quality of the product.”

Highmark said West Penn Allegheny has overlooked the insurer’s long history of financial support for its health care institutions. Highmark further believes it has supported competition among numerous health care delivery systems for its members.

“For this reason, we strongly disagree with any characterization that we have engaged in activities that would jeopardize competition in the health care delivery system and would not be in the best interest of our customers and the community,” the insurer said in its statement.

Millions in support

Over the last decade, Highmark estimates it has provided nearly $180 million in financial support to West Penn Allegheny, including a $125 million loan and more than $50 in grants to improve clinical care and services and help strengthen the hospital system’s administrative and information systems.  This is in addition to “hundreds of millions of dollars” in clinical services payments to Highmark members, it said.

“This lawsuit represents a misguided effort by West Penn Allegheny to alleviate its growing financial problems during these difficult economic times,” Highmark said. “We have concerns that West Penn Allegheny’s action will result in a lengthy and costly legal battle at a time when the community must harness its resources to improve the health care delivery and financing system. West Penn-Allegheny appears to be seeking relief through the courts that it could not achieve by more effectively managing its business to compete successfully in the Western Pennsylvania health care delivery system market.”

In addition to the lawsuit, a 2006 complaint by West Penn Allegheny with the U.S. Department of Justice regarding Highmark and UPMC continues to be investigated.

In 2008, Highmark and West Penn Allegheny entered into a five-year hospital agreement under which the hospital’s inpatient and outpatient reimbursements are comparable to those of peer institutions, according to Highmark.