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PA AG: UPMC Is Prioritizing Profits Over Patients

Client Alert

Authors: Barak A. Bassman, Sara B. Richman and Leah Greenberg Katz

2/13/2019
PA AG: UPMC Is Prioritizing Profits Over Patients

The University of Pittsburgh Medical Center (UPMC) – one of Pennsylvania’s largest health systems – is refusing to negotiate a contract with Highmark – one of Pennsylvania’s largest insurers. Patients with Highmark insurance may not be able to seek care at UPMC after June 30, 2019 when the current UPMC/Highmark agreement expires. In an unprecedented move, Pennsylvania Attorney General Josh Shapiro filed a petition in the Commonwealth Court of Pennsylvania, contending that UPMC is putting profits above patient care by refusing to contract with Highmark, thus failing to fulfill its charitable mission. The petition seeks to force UPMC to accept Highmark health insurance and numerous additional requirements.

This is not the first time tensions have flared between UPMC and Highmark. Their feud dates back to 2011 when Highmark announced plans to acquire West Penn Allegheny Health System, prompting UPMC to end negotiations over provider contracts on the basis that UPMC and Highmark would be competitors in the health care provider space. A series of disputes were ultimately resolved through negotiations mediated by the governor’s office and several Commonwealth agencies. UPMC and Highmark agreed to consent decrees that detailed the terms under which UPMC would accept Highmark insurance, keeping UPMC’s doors open to patients with Highmark coverage.

The consent decrees will expire on June 30, 2019. UPMC has signaled that it will not negotiate a new contract with Highmark, forcing patients to choose: change insurance carriers or change providers. Shapiro contends that UPMC is placing patients in an untenable position, leaving many without access to the care they need. The Commonwealth attempted to broker a deal between UPMC and Highmark, proposing sweeping modifications to the consent decrees that would apply to both Highmark and UPMC, but which are not limited to the Highmark/UPMC relationship. The petition identifies nearly 20 modifications, including:

  • “Imposing upon the respondents’ health care provider subsidiaries a ‘Duty to Negotiate’ with any health care insurer seeking a services contract and submit to single, last best offer arbitration after 90 days to determine all unresolved conflict issues”

  • “Imposing upon the respondents’ health care insurance subsidiaries a ‘Duty to Negotiate’ with any credentialed health care provider seeking a services contract and submit to single, last best offer arbitration after 90 days to determine all unresolved conflict issues”

  • “Prohibiting the respondents from utilizing in any of their provider or insurance contracts any practice, term or condition that limits patient choice, such as anti-tiering or anti-steering”

  • “Requiring the respondents’ health care provider subsidiaries to limit charges for all emergency services to Out-of-Network patients to their average In-Network rates”

  • Requiring the respondents to replace a majority of board members who were on their board as of April 1, 2013 by January 1, 2020.

The Commonwealth further proposed that once these modifications were incorporated into the consent decrees, the modified consent decrees would stay in place “indefinitely.” Highmark agreed to these terms; UPMC did not.

Unable to broker a deal, Shapiro is now trying to force one. Relying on Pennsylvania laws governing nonprofits, as well as Pennsylvania’s Unfair Trade Practices and Consumer Protection Law, Shapiro filed a four-count petition asking the court to modify the existing consent decrees. Taking aim at UPMC’s charitable status, Shapiro contends that the modifications are necessary to “enable patients’ continued and affordable access to their preferred health care providers and facilities,” ensure the “efficient use” of charitable assets and prevent “unjust enrichment” to UPMC, and “restore [UPMC] to [its] charitable mission beyond June 30, 2019.”

With his filing, Shapiro seeks to leverage some of UPMC’s most significant assets: its charitable status and its public reputation. Shapiro argues that UPMC is not honoring its charitable mission, which includes “developing a high quality, cost effective and accessible health care system.” He further contends that UPMC is not living up to its public promises. For example, in soliciting volunteers and donations, UPMC boasts that it “provide[s] hope during difficult illnesses and compassion for every patient” and that it is “deeply committed to the people who make up our communities and to making sure that everyone who comes through our doors has access to the very best, most advanced health care available.” Far from serving the public and acting altruistically, Shapiro paints the health care system as a money-hungry behemoth, bilking patients to overstuff its already full vaults, and spending lavishly on prime real estate, corporate jets and overpaid executives. “UPMC may not pursue financial gain, commercial success, or market expansion to the exclusion of its charitable purposes,” the petition stated.

The petition argues that if UPMC is going to take a profit-before-patients approach, it should not enjoy 501(c)(3) status and the substantial benefits that accompany it. Shapiro asserts that UPMC has “benefitted from hundreds of millions of dollars in accumulated state and federal tax exemptions; city and county property tax exemptions; and low-interest, tax-exempt government bonds and debt financing.” In addition to the tax benefits, Shapiro also details the “strong public financial support” that UPMC has received “throughout its existence” because of its nonprofit status. Shapiro points out that over a 12-year timeframe, UPMC received over $1.2 billion in public and private funding “to support its charitable health care, education and research missions,” and identified substantial funds provided to UPMC by Highmark, including part of a $250 million contribution to a joint initiative with UPMC and others. For these reasons, Shapiro contends that UPMC owes it to the public to provide health care to everyone:

The public’s support has not gone unrewarded in that UPMC has grown into one of Pennsylvania’s largest health care providers and health care insurers.

The public has paid for UPMC’s dramatic expansion, yet thousands of those taxpayers who built UPMC are now being shut out of the very care they helped pay for.

In Shapiro’s view, UPMC is violating the most fundamental rule of existing as a charity; it is acting as a for-profit business. He is not alone in raising concerns about how nonprofit health systems are operating. For example, Senator Chuck Grassley has vocalized concerns that health care organizations are abusing the privilege of their charitable status. In late 2017, Grassley penned an op-ed, describing the uncharitable acts of some hospitals:

Garnishing wages. Turning over accounts to collection agents. Withholding services until an individual’s ability to pay is proven. These might seem like the practices of a big bank in the news for financial scandals. Instead, these tactics have surfaced at unexpected places: some of the country’s nonprofit, tax-exempt hospitals.

He also solicited a report from the Government Accountability Office regarding nonprofit hospitals and their efforts to meet community benefit requirements.

In many ways, the petition filed by Shapiro in the UPMC/Highmark matter echoes Grassley’s complaints. Whether or not Shapiro is successful in imposing his will on UPMC, this bellwether effort should not be dismissed as an anomaly or relevant only to UPMC and Highmark. All nonprofit health care systems should take notice and assume that scrutiny of charitable status will increase.

Barak Bassman and Sara Richman are partners in Pepper Hamilton’s Health Sciences Department, a team of 110 attorneys who collaborate across disciplines to solve complex legal challenges confronting clients throughout the health sciences spectrum. Leah Greenberg Katz is an associate in the Health Sciences Department.

The material in this publication was created as of the date set forth above and is based on laws, court decisions, administrative rulings and congressional materials that existed at that time, and should not be construed as legal advice or legal opinions on specific facts. The information in this publication is not intended to create, and the transmission and receipt of it does not constitute, a lawyer-client relationship.

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