Material Event Notice

Transcription

1 Material Event Notice Update to UPMC s Unaudited Quarterly Disclosure for the period ended September 30, 2015 November 10, 2015 UPMC has issued this material event notice to update information in its Unaudited Quarterly Disclosure for the period ended September 30, 2015 (the Disclosure ). As set forth in footnote 9 to the Disclosure, UPMC initiated legal claims against Highmark to recover approximately $188 million due from Highmark related to Highmark s unilateral reduction of fees payable to UPMC Presbyterian Shadyside hospital for oncology services since April 1, On November 6, 2015, a three-member panel appointed by the American Arbitration Association issued its ruling in favor of UPMC and against Highmark. A copy of the ruling is attached. The panel awarded UPMC a total of $23,941,854, constituting underpayment from April 1, 2014 through October 28, 2015, and interest at the rate of 6 percent. Although the ruling addresses only amounts Highmark owes for oncology services provided by UPMC Presbyterian Shadyside during such period, UPMC and Highmark have agreed that this result determines the amount owing for all other oncology services provided at UPMC facilities from April 1, 2014 through the date of the award. While UPMC is now in the process of calculating that amount, UPMC believes that the total owed by Highmark to UPMC will be in excess of $188 million.

2 AMERICAN ARBITRATION ASSOCIATION HEALTH CARE PAYOR PROVIDER ARBJTRA TION TRIBUNAL In the Matter of the Arbitration between UNIVERSITY OF PITTSBURGH MEDICAL CENTER, UNIVERSITY OF PITTSBURGH MEDICAL CENTER: PRESBYTERIAN SHADYSIDE (Claimant) Vs. AAA No HIGHMARK, INC., KEYSTONE HEALTH PLAN WEST, INC. (Respondent) FINAL AW ARD OF ARBITRATORS WE, THE UNDERSIGNED ARBITRATORS, having been designated in accordance with the arbitration agreement entered into between the above-named parties dated December 5, 2014 and having been duly sworn, and having duly heard the proofs and allegations of the Parties, hereby AWARD as follows: I. PARTIES Claimants are University of Pittsburgh Medical Center and University of Pittsburgh Medical Center: Presbyterian Shadyside ("UPMC"). Respondents are Highmark, Inc. and Keystone Health Plan West, Inc. ("Highmark"). II. COUNSEL The parties are represented as follows: Counsel for Claimants: Paul M. Pohl, Esq. Leon F. DeJulius, Esq. Rebekah B. Kcehowski, Esq. Laura Meaden, Esq. Counsel for Respondents: Daniel I. Booker, Esq. P. Gavin East gate, Esq. Jeffrey M. Weimer, Esq. Joseph D. Filloy, Esq Page 1

3 Alison Kilmartin, Esq. Cary Snyder, Esq. Anderson Bailey, Esq. Jones Day 500 Grant Street, Suite 4500 Pittsburgh, PA Reed Smith LLP 225 Fifth Avenue Pittsburgh, PA III. ARBITRATORS The arbitrators in this matter are as follows: James E. Purcell, Esq. 99 Hawes A venue Hyannis, MA Michael D. Roth, Esq. LIO Michael D. Roth Wilshire Blvd. Suite 1300 Los Angeles, CA Hon. Fern M. Smith (Ret., Chair) JAMS Two Embarcadero Center, Suite 1500 San Francisco, CA IV. GENERAL BACKGROUND OF DISPUTE Claimant UPMC is, and has been for many years, the largest hospital system in Western Pennsylvania. While the UPMC system has many hospitals, only one is the subject of this proceeding, namely Presbyterian Shadyside (hereinafter referred to as "UPMC"). Respondent Highmark is the largest health insurer in that same region, and UPMC was its largest provider. The relationship was not only of prime importance to the two parties, but also to the economy of Western Pennsylvania and its citizens. In 2002, the parties entered into materially identical 10-year contracts for the provision of medical services to members of Highmark's commercial insurance products (collectively referred to for convenience as the "Agreement") (JX 1). Fees for literally thousands of medical services were set forth in a Fee Schedule which was referred to and was part of the Agreement (the "Fee Schedule"). To be exact, this Fee Schedule comprised codes for specific items and services provided by health care providers and suppliers, and for each service/item code Highmark assigned a fee amount; these codes are contained in the Health Care Common Procedure Coding System ("HCPCS"), and every year the American Medical Association approves new HCPCS codes. Highmark used this Fee Schedule in its agreements with over fifty other hospitals in its service area. The Fee Schedule could be and was adjusted "annually" for certain fees and under certain circumstances. Precisely what fees and under what circumstances is one of the important issues in dispute at this Arbitration. The amounts which Highmark was required to pay UPMC for oncologic services and drugs under the Agreement were set in two ways. First, for a majority of the services and drugs, the amount to be paid by Highmark for each service and/or drug was calculated as follows: the amount for each service or drug set forth in Highmark's Fee Schedule multiplied by a mutually negotiated "multiplier" set forth in Exhibit I of the Agreement Page 2

4 Second, for services and drugs not included in Highmark's Fee Schedule, the amounts to be paid by Higbmark were calculated at a stated percentage of UPMC's Chargemaster fee. It was undisputed that UPMC could unilaterally change fee amounts on its Chargemaster without breaching the Agreement, but that this payment methodology applied only to the limited extent that Highmark's Fee Schedule did not include the service/drug. The Agreement expressly stated that no changes to the Agreement could be made, other than by written consent of both parties. (JX 1, Section IV (H)). Whether Highmark had the right to unilaterally reduce already established fees in its Fee Schedule is in dispute. As the 10-year Agreement reached its later years, UPMC became increasingly dissatisfied with the amounts Highmark was paying for UPMC hospital services, claiming that Highmark's fees were considerably below the fees paid to UPMC by several insurers. The evidence appeared to support that claim. At least in part to offset this discrepancy, and also to provide additional services and enhanced care to its patients (which could be made available in a hospital-based outpatient setting) UPMC began converting many of its physician-based clinics to Hospital Based Clinics ("HBC's"). This had the effect under the Agreement of increasing UPMC's reimbursement more than $100 Million per year for patient care services, which continued to be provided in the same physician offices, but for purposes of reimbursement had, effectively, been moved from physician-office settings to a hospital-based outpatient setting. The issue of whether UPMC was within its rights to make those conversions and receive the increased reimbursement is not before this Panel, and it is undisputed that Highmark paid the increased HBC reimbursement rates until it took the action of reducing its Fee Schedule, effective as of April 1, 2014, which is the crux of the dispute between the parties at this Arbitration. The parties began negotiating a renewal of the Agreement in While the parties were far apart in what they were willing to pay and accept, negotiations continued until 2011, when Highmark announced plans to acquire the failing West Penn Allegheny Health System ("WPAH"). This acquisition was a deal breaker for UPMC, and it terminated renewal negotiations; this was because Highmark had become -for the first time- a direct competitor in the provision of patient care services when it acquired WP AH. This in turn led to a highly visible public communications battle that created significant unrest in the Pittsburgh area. The loss of UPMC as a participating hospital system in Highmark's network would have had a major negative financial and competitive impact on Highmark which, admittedly, used significant efforts to entice UPMC back to the negotiating table in the hopes of renewing the Agreement. Those efforts were unavailing, and UPMC made clear its intent to end the relationship, leading to the Governor of the Commonwealth's personal intervention. As a result of such intervention, a mediation between Highmark and UPMC was held, which ultimately led to a Mediation Agreement dated May 1, 2012 ("MA") (JX 9) between the parties that extended the Agreement from mid-2012 to December 31, 2014, conditioned on Highmark's payment of specified "hospital rate" increases to take place in 2012, 2013, and 2014 (JX 9). The parties also executed an amendment to the Agreement to Page 3

5 incorporate the terms of the MA (the "2012 Amendment") (JX 10), as specified by the MA in order to "hannonize" the Agreement. After the parties entered into the 2012 Amendment, Highmark continued -publicly and privately- to try pressuring UPMC into returning to the negotiation table and agree upon an extension of the Agreement beyond 2014, but these efforts were to no avail. Finally, on April 1, 2014, High.mark unilaterally cut certain existing oncology fees on its Fee Schedule, which reduced the rates paid by Highmark to the UPMC system by approximately $100 Million per year. Of course, the dollar amount of the cuts to Presbyterian Shadyside were much less, but still significant. Those Fee Schedule cuts and UPMC's objections thereto, led to the filing of the subject Demand for Arbitration, which we now address. V. ARBITRATION CLAUSE AND PLACE OF ARBITRATION The Agreement sets forth the Dispute Resolution procedure for "binding arbitration" in Section F, Subsection 4. (We note this distinction, because Section F of the Agreement provides for numerous dispute resolution levels and procedures, only one of which is pertinent to this proceeding.) Confirmation of the parties' agreement for binding arbitration under the administration of the AAA is set forth in UPMC's Statement of Claim, Par. 9-17, which also includes reference to court-ordered mutual consent decrees still in effect. The Panel was confirmed on February 26, Neither side has disputed the jurisdiction of the AAA and of the undersigned to decide this matter pursuant to the requirements governing "binding arbitration" set forth in the Agreement. The proper venue for the arbitration is Allegheny County, PA, which was where the arbitration hearing took place. The rules governing this arbitration are the AAA Healthcare Payor Provider Arbitration Rules. VI. SUMMARY OF PRIMARY ARBITRATION PROCEEDINGS December 8, 2014 January 9, 2015 February 26, 2015 March 19, 2015 August 24-27, inclusive September 8, 2015 September 28, 2015 November 11, 2015 UPMC Demand for Arbitration Highmark Answer and Defenses Panel confirmed Preliminary Scheduling Order No. 1 Evidentiary Hearing Scheduling Order Following Hearing Evidentiary Hearing Closed Due Date for Award VII. PARTIES' CONTENTIONS AND ISSUES TO BE DECIDED (The contentions are set forth as stated by the parties and do not reflect any judgment on the merits by the Panel.) A. UPMC Contentions: Page 4

6 1. Highmark had no contractual right to unilaterally reduce fees on its Fee Schedule. 2. Even if Highmark had such a right, the MA and subsequent 2012 Amendment nullified such right and as a result, Highmark breached the MA by subsequently unilaterally reducing established fees on the Fee Schedule. 3. Such Fee Schedule cuts also constituted a breach of the MA's prohibition against discrimination and retaliation. 4. Highmark's actions breached the implicit covenant of good faith and fair dealing under Pennsylvania law. 5. UPMC is entitled to damages and interest arising from Highmark's breaches. B. Highmark made no separate contentions but, instead, argued against each of UPMC's contentions set forth above. VIII. DISCUSSION AND ANALYSIS In setting forth our analysis, we begin with the premise that UPMC carries the burden of proof on each of its claims and contentions. We address each of the above contentions in order. Issue No. 1. Did Highmark have a contractual right to unilaterally reduce established fees on its Fee Schedule? To start, the Panel finds that the Agreement is not a model of drafting clarity respecting whether Highmark had a contractual right to unilaterally reduce its Fee Schedule, and colorable arguments were made by both parties on this issue. In this regard, JX 1, Part III (Payment for Covered Services) and Part IV (Administrative Practices), Sections Hand I, appear to be inconsistent, and render the Agreement ambiguous as to whether Highmark could unilaterally reduce existing fees on the Fee Schedule. For example, Section H, which requires mutual written consent to Agreement amendments, states in the very next sentence that Higbmark agrees to give notice to UPMC of "any changes to this Agreement." This could be just bad drafting or something else. However, for at least the three reasons summarized immediately below, the panel has unanimously concluded that Highmark was not entitled to make unlimited unilateral adjustments to its Fee Schedule, but rather had the contractual right only to make changes to its Fee Schedule on an annual basis in those more limited instances when a new HCPCS code had been added to its fee schedule or when Highmark was assigning a payment amount for the first time to a pre-existing HCPCS code and, thereby, in either of these two limited circumstances, the affected services would no longer be paid for based upon a percentage ofupmc's Chargemaster. 1. First, our reading - the more logical reasoning - of Section I is that the term "changes to" modifies policies and procedures, not, as Respondent asserts, payment for Hospital services. Stated differently, to interpret this provision to mean that Highmark Page 5

7 had the unilateral and unlimited right to annually adjust all fees on its Fee Schedule, as argued by Respondent, one would need to move the modifier -"changes to" to a later part of the sentence in which it is contained. 2. Second, we think that the weight of the evidence is that Section B of the Hospital Payment Manual reflects the parties' intent and plainly restricts Highmark to making annual fee adjustments only for new HCPCS or amounts assigned for the first time to a previously existing HCPCS. Exhibit Third, the parties' course of conduct better supports Claimant's view on this issue. That is, over the course of 10 years, and prior to the Mediated Agreement, Highmark had materially reduced fees only once -in and in this one instance UPMC voiced an objection to the reduction. Exhibit JX47. While there was, concededly, some confusion at that time respecting whether Highrnark was entitled to unilaterally reduce its Fee Schedule without limitation, the weight of the evidence is that this one-time roll back and prior course of conduct more generally does not evidence an unlimited right of High.mark to reduce its Fee Schedule, as argued by Highmark; it would, at most, reflect no more than an agreement by the parties in 2004, to a one-time reduction in Highmark's Fee Schedule. Issue No. 2: Even if Higlunark had such a right, did the MA and subsequent 2012 Amendment nullify such right and as a result, did Highrnark breach the MA by subsequently unilaterally reducing established fees on the Fee Schedule? It is difficult to over-emphasize the import of the MA and the clarity of the intent of the parties in reaching that resolution. It is undisputed that the mediation itself was basically sponsored by the Governor of the Commonwealth of Pennsylvania, legitimized by the Legislature and the Commonwealth Courts in Consent Decrees, and accepted by the parties through signed agreements and public press releases. Additionally, the express words of the MA and the 2012 Amendment, unlike those of the Agreement, are unambiguous. To now argue, as Highmark does, that it had the right to unilaterally invalidate the agreed upon "commercial hospital rate" increases is completely lacking in credibility or evidentiary foundation. The course of the negotiations by the parties leading to the MA, the stand alone language of the MA, and Highrnark's actions after execution of the MA make it clear that the MA granted payment rate increases on top of existing rates through The MA quite specifically mandated that UPMC's "[ c ]ommercial hospital rates will increase [by the specified increases]..." JX 9, at 1, para. 2.B. The evidence was clear that "rates" were calculated by using both the fees of the Fee Schedule and the multipliers. The evidence also was clear that UPMC was convinced to extend the Agreement only after "a lot of money," in addition to existing rates was offered. The express provisions of the MA described it as "binding [to]... be implemented through [the 2012 Amendment]..." In fact, the MA was implemented by the 2012 Amendment which contains the following language: Page 6

8 "PURPOSE The parties acknowledge and agree that the purpose of this Amendment is to reflect the tenns of the Mediation Agreement entered into between Highmark and UPMC. Nothing in this amendment is intended to alter or amend the Mediation Agreement which remains a separate agreement between the parties in full force and effect. This Amendment is intended by the parties to be read together and harmonized with the Mediation Agreement." The intent of the parties could not be more clear. And the MA was in fact implemented by the parties by adding the agreed upon "rate" increases to existing rates. For the above stated reasons, the Panel is again unanimous in finding that the MA, supported by the 2012 Amendment, was a binding stand-alone agreement, obligating Highmark to increase certain payments to UPMC for the years , in return for UPMC continuing its relationship with Highmark for those years. The MA and the quid pro quo intent of the parties as to those payment increases was at all times clear and unambiguous, and left Highmark without any right, if any it had, to reduce the Fee Schedule as it did on April 1, Highmark's unilateral reductions therefore were a breach of the MA. Issue No. 3: retaliation? Did Highmark breach the MA's prohibition against discrimination and Although colorable arguments were made and evidence presented in its favor, we find that UPMC failed to carry the burden of proof on this contention and claim. Our finding is based on the limiting wording of the MA that neither party would engage in any discriminatory or retaliatory action against the other "in connection with audits, timing of payments, or the implementation or enforcement of policies and procedures." Although the evidence is that Highmark was trying to force UPMC back to the negotiating table and was unhappy with UPMC's shift to HBCs, those actions did not qualify under the express and clear language of the MA. Issue No. 4: Did Highmark breach the implicit covenant of good faith and fair dealing in the MA? According to the Restatement 2nd of Contracts, Sec. 205, "[ e ]very contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement." Good faith performance or enforcement of a contract emphasizes "faithfulness to an agreed common purpose and consistency with the justified expectations of the other party." As stated above, the language and intent of the MA were express and unambiguous. Based upon our analysis of Issue No. 2 above, the majority finds that Highmark's breach of the MA completely undercut the value of the MA to UPMC, violating the clear intent of the parties and constituting a breach of the covenant of good faith and fair dealing Page 7

9 Arbitrator Purcell dissents on this issue, but given the decision on Issues Nos. 1 and 2 above, will not write a dissenting opinion. In conclusion on this issue, the panel wishes to add the following thought. Notwithstanding the majority finding that Highmark breached the covenant of good faith and fair dealing and without modifying this finding, the panel also notes unanimously that it is not questioning each parties' commitment to doing what it thought was in the overall best interest of the community and in support of its respective mission. Issue No. 5: v.lbat are UPMC's damages. what interest is UPMC entitled to. and bow shall costs of the arbitration, including the arbitrators' fees. be apportioned? Based on the Panel's analysis and findings, UPMC has met its required burden of proof as to Highmark's breaches. UPMC is therefore entitled to compensatory damages as well as pre- and post-judgment interest arising from those breaches. UPMC presented opinion testimony from its designated expert, Luke Roth. Highmark did not present any affirmative damages testimony, but relied on its cross-examination of Mr. Roth. The Panel finds that Mr. Roth was qualified for the opinions stated, was persuasive, and was not impeached or successfully rebutted as to the amount of underpayments to UPMC. The Panel rejects, however, UPMC's argument that the Pennsylvania Prompt Payment Act applies and that an interest rate of 10% should be awarded. There is no evidence that claims were not processed and paid promptly. Likewise, we find merit in Highmark's argument that the Prompt Payment Act does not provide for a private right of action. Thus, we conclude that the Pennsylvania statutory interest rate of 6% applies, and we accept and adopt Mr. Roth's interest calculation, based on 6%, in the amount of $1,733,043. In sum, the underpayments and interest at 6% as calculated by Mr. Roth are as follows: Claims incurred and paid (4/1 /14-6/26/15): Claims incurred but not paid through 6/26115: Projected claims from 6/27/15-10/28/15: Interest through 10/28/2015: $21,550,986 $ 134,421 $ 523,404 $ 1, The sum total of the underpayments and related interest is $23,941,854. The Agreement states that, in cases of binding arbitration, the costs of arbitration, including the fees of the arbitrators shall be paid by all parties in the proportions determined by the arbitrator(s) in their award" (Section F(4) U)). That section does not expressly refer to attorneys' fees, which are not generally considered a "cost of arbitration," and are rarely granted absent an express provision in the governing arbitration clause. Although UPMC asked for attorneys' fees in its Statement of Claim, Page 8

10 no argument was made or evidence produced as to the legal or equitable right to such request or its amount. Because the Panel finds that colorable arguments were made by both sides as to certain issues, and because the underlying Agreement did contain ambiguity as to the rights and obligations of each of the parties, we Order that the costs of arbitration, including the fees of the Arbitrators, as determined by the AAA, shall be shared equally (50-50) by the Parties. We also Order that, based on the above rationale and because the Agreement is silent as to attorneys' fees, each side shall bear its own attorneys' fees and related costs. IX. CONCLUSIONS AND A WARD For the reasons set forth above, the Panel finds and Awards as follows: A. UPMC is entitled to and is Awarded: (i) compensatory damages and interest in the amount of $23,941,854 (the "Total Damages"), and (ii) interest at 6% per annum on the Total Damages from the thirtieth (30th) day after the date of this Award until the date of payment of the Total Damages by Highmark to UPMC (unless paid on or before the 30th day). B. The administrative fees and expenses of the American Arbitration Association totaling $24,000 shall be borne equally (50% each), and the compensation and expenses of the arbitrators totaling $278,974.28, shall be borne equally (50% each). Therefore, Highmark, Inc.; keystone Health Plan West, Inc. has to pay UPMC:UPMC Presbyterian Shadyside, and amount of$6,250. C. Each party shall bear its own attorneys' fees and associated costs; D. All claims not specifically addressed in this Final Award have been fully considered and are DENIED. This Final Award is in full settlement of all claims submitted to this Arbitration, and resolves all claims set forth before this Panel in this proceeding. This Award may be executed in any number of counterparts, each of which shall be deemed an original, and all of which shall constitute together one and the same instrument. So Ordered and Awarded I, Fern M. Smith, do hereby affirm upon my oath as Arbitrator that I am the individual described in and who executed this instrument which is my Final Aw d Page 9

11 I, James E. Purcell, Esq., do hereby affirm upon my oath as Arbitrator that I am the individual described in and who executed this i ent w is y Final Award. Date I, Michael D. Roth, Esq., do hereby affirm upon my oath as Arbitrator that I am the individual described in and who executed this instrument which is my Final Award. Date Michael D. Roth, Esq. It Page 10

12 I, James E. Purcell, Esq., do hereby affirm upon my oath as Arbjtrator that I am the individual described in and who executed this instrument which is my Final Award. Date James E. Purcell, Esq. I, Michael D. Roth, Esq., do hereby affirm upon my oath as Arbitrator that I am the individual descnbed in and who executed this instrum,ent which is ~ard. Date 11/b/1.f;' ~g,_ Michael D. Roth:ESC!, Page 10