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January 15, 2012

Pennsylvania Moves to Prevent Hospital Plan Termination

by Jonathan B. Stepanian, Esq.
Caduceus with First-aid Kit

The ongoing feud between Highmark and the University of Pittsburgh Medical Center (UPMC) has prompted Pennsylvania legislators to amend Act 94, the statute that governs termination of hospitalization insurance plans.  The proposed amendments are winding their way through the Harrisburg Capitol and may have significant implications for hospitals and hospitalization insurance plans beyond just the current Highmark and UPMC dispute.

Act 94

The Pennsylvania legislature passed Act 94 in 1972.  It currently provides establishes the steps that a hospital or hospitalization insurance plan must take prior to terminating a contract to provide hospitalization and related health benefits.  Specifically, the party that seeks to terminate the contract must provide 90 days notice to the Pennsylvania Insurance Department of the proposed termination.

When the contract to be terminated involves hospitals with more than 5% of the beds served by the hospital plan, Act 94 provides for a hearing and review process by the Insurance Department.  During the review period, the termination of the contract is suspended for up to six months.  Following hearings, the Department may either approve termination of the contract or recommend terms for continuation of the contract.

If the Insurance Department recommends terms for continuing the contract, the hospital and hospital plan must renew their negotiations in an attempt to meet the Department’s recommendations.  If they are unable to achieve an agreement within 90 days, however, the hospital and hospital plan must advise the Department, which then establishes how the hospital and hospital plan may terminate their contract within the ensuing 30 days.

Legislature Moves to Prevent Termination of Hospital Plans

The Pennsylvania House and Senate are considering different proposals to limit the termination of hospital plans.  Clearly this is in response to the dispute between UPMC and Highmark but all hospitals and hospital plans in the Commonwealth may be subject to whatever the legislature ultimately adopts.

UPMC and Highmark are in the midst of a public dispute, with individuals served by UPMC and Highmark being continually warned of UPMC’s decision to drop Highmark from its accepted insurance plans later this summer.  The size of both UPMC and Highmark, and the fact that they service much of western Pennsylvania, has led to increased scrutiny of the circumstances and terms under which a hospital may terminate its contract with a hospital plan.

Senate Bill 1358

The Senate’s bill to amend Act 94 alters many existing provisions.  For instance, the Senate bill:

  • extends termination of the parties’ contract from six to nine months;
  • extends the negotiation period from 90 days to 2 years;
  • extends the Department’s approval period for terminating the contracts from 30 to 60 days; and,
  • deems any failure to negotiate in good faith a violation of the Unfair Insurance Practices Act

Senate Bill 1358, therefore, dramatically extends the period in which an insurance contract may be terminated.  Putting the termination on ice for up to 2 years, and requiring that the parties continue to negotiate in “good faith” throughout that time may essentially foreclose any meaningful attempt at terminating the agreement.  Market forces may dramatically change during that 2 year period.

House Bill 2052

The House’s proposed amendment to Act 94 represents a far more draconian change and provides the Insurance Department the ability to wholly prevent termination of a hospital plan contract.  Specifically, the House bill:

  • automatically extends the contract for one year in the event either party fails to notify the Insurance Department of the proposed termination;
  • requires that the parties continue negotiations for 30 days if the Department, after investigation and hearings, determines that the contract should be continued;
  • requires that the parties submit to mediation if the parties fail to reach an agreement within the 30 day period;
  • provides the mediator with the authority to charge either of the parties the entire cost of the mediation if deemed appropriate by the mediator;
  • permits the Insurance Department with the authority to submit the matter to binding arbitration if they fail to reach an agreement during mediation;
  • permits the Insurance Commissioner with the authority to issue an order, based on the arbitrator’s findings, imposing contract terms on the hospital plan corporation and hospital for up to 18 months; and,
  • rendering the Insurance Commissioner’s order not appealable to a court of law.

Imposing binding arbitration and contract terms for 1 1/2 years, and rendering those decisions unappealable to courts, is a significant difference from the Senate’s bill.  The House has already passed H.B. 2052 and it has been sent to the Senate for consideration.

It is unclear what version, or combination of the two bills, will ultimately go to the Governor for signature.  Regardless, it is clear that the dispute between UPMC and Highmark will have effects throughout the Commonwealth on the ability of hospitals and hospitalization plans to part ways in the future.

 

 

 

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Jonathan B. Stepanian, Esq.

Jon is an attorney whose practice is specialized in litigation, complex medical professional liability defense, health care, and providing legal counsel on numerous issues associated with day-to-day hospital operations. He has successfully tried several cases to verdict as first-chair trial counsel before juries in both state and federal court. Jon has also represented clients in appellate litigation, mediation, and in connection with administrative agency investigations.

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