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April 13, 2000

Physicians can regain control of health care business, head of UMPC Health System insists

At a time when most hospitals in western Pennsylvania are bleeding red ink, UPMC Health System's revenues exceeded its expenses by $230 million over the last three years, the system's president reported recently.

A "disproportionate share" of UPMC revenues came from the system's $1.8 billion in investments, Jeffrey Romoff said.

"Virtually all [non-UPMC] hospitals in western Pennsylvania are losing money as hospitals" because of rising costs, declining Medicare reimbursements and an overbedded market; the only money they're making is through investments, Romoff said in a March 30 lecture in Scaife Hall, entitled "Sustaining the Academic Enterprise: UPMC Health System Vision for 2000 and Beyond."

Last year, UPMC hospitals' revenues exceeded expenses by $6 million, while investments and other non-hospital revenues generated a $59 million profit, a UPMC spokesperson later said.

During the last three years, UPMC reduced its cost-per-case rate by 12 percent and eliminated enough beds to fill three medium-sized hospitals, according to Romoff.

After four years of mergers, UPMC Health System controls more than 40 percent of hospital beds in the region. Nearly 80 percent of the system's beds are occupied — a good rate for this market, Romoff said.

UPMC officials plan to continue cutting costs. Even though this year the system will probably make about $80 million in revenue over expenditures, UPMC's goal for next year is to cut $90 million to pay for new information systems and other needed improvements, Romoff said.

"Unless you are doing this [cost-cutting] to yourself, you will wake up one morning with a drop of blood on your pants and find out that you're bleeding profusely and can't stop," he said. "That's what's happened to the University of Pennsylvania," whose medical center has lost hundreds of millions of dollars in recent years, he noted.

UPMC Health System's current assets total $3.6 billion, up from $1.7 billion three years ago, Romoff said. The 19-hospital system employs 30,000 people. "Fifty percent of the care delivered by UPMC is delivered in community hospitals," Romoff said.

He reeled off examples of UPMC Health System's increasing diversification: UPMC operates two health insurance plans (one is breaking even; the other is losing money). It manages a dozen emergency rooms in hospitals outside the system. Through one of its joint ventures, UPMC conducts 80 percent of the medical lab tests performed in western Pennsylvania. The system has become the region's largest senior assisted living and nursing homes organization.

UPMC runs a transplantation center in Palermo, Sicily, and plans to open similar facilities in other cities around the world, providing transplantation and cancer treatment currently unavailable in those markets.

"That's why we're in Palermo, in southern Italy, and not in Milan, in northern Italy," where sophisticated health care already is available, Romoff said. He mentioned Brazil, Egypt and Turkey as other countries where UPMC might set up profitable centers.

Romoff predicted an end to the current system through which wealthy patients from developing countries fly to Pittsburgh or Baltimore for liver transplants or other highly specialized treatment.

q Romoff attributed UPMC's financial solvency to the health system's "physician-driven" approach, sound management and the competition's incompetence.

He called UPMC "a physician-dominated organization." Physicians lead the health system's entrepreneurial efforts as well as its clinical activities, Romoff said.

Pitt-UPMC ties were strengthened last year when the health system acquired the medical school's 17 physician practice plans and merged them into a single plan, eliminating multiple billing of patients. In 1998, health system and University officials announced an agreement through which UPMC pledged to continue subsidizing Pitt Health Sciences schools by $1 billion over the next decade ("if we can afford it," Romoff added in his March 30 lecture).

He likened the health system to an egg, with a tough, business-oriented shell protecting the fragile yoke of UPMC's academic essence.

Romoff bemoaned the chaotic state of American health care, while crowing over financial setbacks suffered by rivals Allegheny General Hospital (AGH) and Highmark Blue Cross Blue Shield.

To thwart a planned AGH-West Penn Health System merger, UPMC has sued the merger parties and the state Insurance Department, seeking to block a $125 million loan from Highmark that is critical to the merger.

West Penn's board chairperson recently accused UPMC of unlawful and "predatory" acts aimed at undermining AGH and the merger. UPMC denies the accusations.

Romoff, in his lecture, predicted that "the continued wasting away of AGH will bring down West Penn with it." Mercy and St. Francis hospitals also are in serious trouble, Romoff said.

He ridiculed what he called the absurdity of Highmark "spending $125 million of subscriber money to sustain an institution [AGH] that's gone bankrupt in an overbedded market" — bankrupted, Romoff added, "by its own hand more than by competitive forces."

Rescuing AGH would only divert community resources that could be better spent elsewhere, according to Romoff.

Officials from Highmark, AGH and West Penn, in turn, accuse UPMC of trying to block formation of a powerful, rival health system.

q Pitt recently signed a three-year deal making UPMC Health Plan the sole provider of medical insurance for University employees, beginning July 1.

The price that employees will pay for health insurance won't increase for the two UPMC managed care plans to be offered here. But monthly hikes in employees' premiums for UPMC's comprehensive plan will range from $36 (for single employee coverage) to $99 (family coverage).

Pitt dropped Highmark, which had insisted on a 23 percent rate hike and a one-year contract.

While Pitt's administration may have shown "some partiality" to UPMC, the overriding reason that the University dropped Highmark was because of the latter's "nasty, brutish and short" negotiating style, according to Romoff.

"Highmark was arrogant beyond belief. They made it easy for us to be successful," said Romoff. (Faculty and staff who served on Pitt's medical advisory committee, which endorsed the new three-year contract, agreed with Romoff's assessment.) "If Highmark's posture toward the rest of western Pennsylvania is comparable to its posture toward the University of Pittsburgh," Romoff quipped, "they will make it as easy for UPMC to be successful in the insurance business as AHERF [Allegheny General's parent foundation] has made it easy for us to be successful in the provider business."

UPMC Health System only got into the insurance business out of concern that Highmark might cease covering its subscribers for care at UPMC facilities, Romoff said.

According to a UPMC Health Plan spokesperson, the health system's insurance subsidiary lost $16 million in 1998 because of start-up costs. The subsidiary's commercial health plan (the one that contracts with Pitt) is now breaking even, while the subsidiary's Medicaid plan is still losing money, the spokesperson said.

q "As the American health care system evolves, expands and consolidates," Romoff stated, "physicians will either become integrated into the system or victims of it." He urged his listeners, most of them physicians, to re-take control of the health care business by:

* Overcoming distrust for one another.

* Developing a culture of collective integrity and accountability.

* Acknowledging that it is no longer feasible for any physician to simultaneously be an effective clinician, researcher and teacher.

"The real limiting factor for physicians, in my humble observation, is not your distrust for people like me," Romoff said. "It's your distrust for each other."

Romoff, who majored in political science and has spent his career in health care administration, said: "I have never seen physicians collectivize in any wholesome way. Every time they do collectivize, it ends up being like the AMA [American Medical Association]. It ends up to be a bastardization and an undermining of the very essence of your Hippocratic oath.

"Now that the AMA is trying to do something of substance and good, like protesting against insurance companies, its credibility is diminished because the AMA is famous for not wanting Medicare."

Physicians must drop their defensiveness, Romoff said, and adopt clearly defined standards of clinical practice and professional conduct.

Long after a multi-center study led by Pitt's Bernard Fisher proved that a non-disfiguring lumpectomy combined with radiation was as effective as a mastectomy in treating most breast cancers, 50 percent of U.S. breast cancer patients still have their breasts removed.

Why? "The explanation is that physicians are creatures of habit, and they do what their colleagues do….It's a cultural phenomenon," Romoff said.

"Academic physicians," he added, "are viewed as being economically driven." When pharmaceutical companies fund clinical trials of their products, those drugs tend to get better efficacy ratings than in studies where no such potential conflicts of interest are present, Romoff noted.

"People are keeping score of these things," he warned.

Unless physicians themselves develop measurements of professional accountability and consistency, Romoff said, "I assure you that the Highmarks of the world will develop them, and it will be only suited to how you can cut something."

Specialization is inevitable in today's health care environment, Romoff maintained. "It is no longer feasible to do what academic physicians always thought and hoped that they could do, which is to be a good teacher, a good researcher and a good clinician. It's not only not feasible. It's actually bad."

When you face surgery, Romoff asked his audience, do you want the surgeon to be a lab researcher who operates in the clinic one day per week? "Or do you want the guy who's doing this five days a week, who lives and breathes the procedure you're going through? [The latter] is who I want to take care of me, and I know damned well that's who you want to take care of you."

Likewise, Romoff said, clinicians who do research part-time can't hope to compete for national prominence and National Institutes of Health funding against Ph.D.s who work fulltime in the lab.

— Bruce Steele


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