Gekkonomics

You won't be surprised to learn that the University of Pittsburgh Medical Center's (UPMC) out-of-network fees are way above the national average. According to data compiled by the Center for Medicare and Medicaid Services, UPMC charges more than many of the nation's most highly regarded hospitals, such as the Cleveland Clinic, and twice as much as its only real competitor, Allegheny General Hospital (AGH). In 2010, UPMC's average charge for inpatient care was $121,765, compared to $74,406 at the Cleveland Clinic and $55,205 at AGH.

Out-of-network fees originated in the 1980s, when Medicare and Medicaid began reimbursing hospitals prospectively rather than after-the-fact for some procedures. Insurance companies then began to negotiate discounts for their subscribers, in exchange for channeling those subscribers to “approved” doctors and hospitals. By 1990, only people without health insurance and international visitors were charged the “full cost” of medical services—the out-of-network rate. For people with health insurance, the “full cost” is really just funny money—an unrealistically high charge that appears on their statement. Health insurance pays only a fraction of that cost, and the remainder is waived.

However, in June 2013, out-of-network fees may become real money for many Western Pennsylvanians if UPMC, the region's largest hospital chain, carries out its threat not to negotiate an agreement with Highmark, the region's largest health insurance company.

If we accept the Medicare reimbursement rate as the real cost of hospitalization plus a modest profit for the provider, then UPMC has an average markup of 850%. Dr. Gerald Anderson, a health policy expert at Johns Hopkins University, is quoted as saying, “I think they have an ethical problem in trying to say they should be paid eight times more than what it costs to provide the service.”

This brings us to the presumed motive for UPMC's and Highmark's behavior—monopoly control and the ability to fix prices. Large corporations move toward monopolies through two types of integration, horizontal and vertical.

Horizontal integration occurs when companies buy out competitors that provide the same product or service, thereby increasing their market share. For the last decade, UPMC has been aggressively buying other hospitals in the region. AGH is its only major remaining competitor. If it provides an essential service and has no competitors, it can charge whatever it wants.

Vertical integration occurs when a company controls several stages in the supply chain that produces a product or service. For example, a company that sells natural gas to consumers may also own gas wells and control prices by speeding up or slowing down production. Or a movie studio may own a theatre chain which preferentially books its films and refuses to book films by competitors. In 1998, UPMC started its own health insurance division, the UPMC Health Plan. Highmark retaliated by agreeing to purchase AGH. Of course, both hospitals and insurance companies can use the threat of out-of-network fees to pressure clients to purchase the complementary service from its own affiliate.

It appears that both UPMC and Highmark are trying to obtain monopoly control of the health care system in Western Pennsylvania. Since our very lives are at stake, if either of these “nonprofits” achieves their goal, they will be in a position to make us what organized crime calls “an offer we can't refuse.”

Of course, this kind of outrageous profit-taking would disappear under a single-payer health care system.

It Ain't Over 'Til It's Over

UPMC and Highmark have agreed to extend their contract until June 30, 2013. Until then, people who have Highmark health insurance will not have to pay out-of-network fees. Certainly, this is good news. Credit goes to Jay Costa, Dan Frankel, Randy Vulakovich, Don White and all those state legislators who put pressure on UPMC to negotiate, and to Governor Corbett, whose unnamed mediator is said to have brokered the deal.

However, Highmark customers may want to hold their applause. News reports don't say whether there have been any changes in the financial terms of the contract for the period between June 2012 and June 2013. It's still possible that Highmark policy holders face an unpleasant surprise the next time new rates are announced. More importantly, this is not a permanent solution to the problem. A UPMC spokesperson pissed on everyone's parade by stating, “This date provides 18 months for UPMC patients to review the multiple competitive health insurance options now available to assure that their care will continue uninterrupted with UPMC physicians and hospitals.” In other words, UPMC's refusal to negotiate with Highmark will continue. Highmark customers with pre-existing conditions have been given a stay of execution rather than a pardon.

On November 29, Ed Grystar, Chuck Pennaccio and Tony Buba published an op-ed in the Pittsburgh Post-Gazette pointing out how the ongoing conflict between these two corporate psychopaths shows how much we need a health care system administered by people who are accountable to the public—a single payer or Medicare-for-all system. This new agreement gives single payer advocates another 18 months to keep repeating this argument to anyone who will listen.

Dan Onorato's Happy New Year

When Dan Onorato leaves office at the end of the year, he won't be cashing unemployment checks. On January 3, the retiring Allegheny County Executive and former Jackass Party candidate for governor will start working for health insurance giant Highmark as an executive vice president. He will be "head of the government relations team"--in other words, their chief lobbyist.

Jim McTiernan of Triad USA, the consulting firm that appears to have brokered the deal, said, "Having someone who can help [Highmark] navigate the political process is key." Onorato, he said, "has statewide connections--the knowledge base to get to the right levels and the right parties." Onorato, for his part, was sharing the love:  "I am thrilled to be joining Highmark, a great Pittsburgh-based organization that has a history of helping families and companies with their health and wellness needs." Since Highmark is a "corporate person," she is apparently best described as a philanthropist.

Onorato's salary was not made public, but the man he replaces makes over $1 million a year. His yearly salary as County Executive was $90,000. Rep. Jim Cooper of Tennessee famously quipped that "Capitol Hill is a farm league for K Street." A few years in Congress at a relatively modest salary can serve as a stepping stone to a lucrative career as a Washington lobbyist. Newt Gingrich is a prime example. You'll be happy to know that a similar career path is available to Pennsylvania politicians.

Happy New Year, Dan-O! Welcome to the revolving door between corporations and government. Can a revolving charge account at Tiffany's be in your future?