Concerned that Thomas Jefferson University might enter the health insurance market, executives at Independence Blue Cross engaged in role-playing to explore how the region’s largest health insurer might change its network of hospitals and doctors to meet that new competition.
“Excluding Jefferson is one option that would have been discussed,” Paul Staudenmeier, the insurer’s vice president of provider contracting, reimbursement, and value-based programs, testified Monday on the first day of a federal court hearing on Jefferson’s proposed acquisition of Einstein Healthcare Network.
News of Independence’s reaction to Jefferson’s dramatic expansion since 2015 under chief executive Stephen K. Klasko was a highlight of Monday’s all-day hearing.
The Federal Trade Commission and the Pennsylvania Office of Attorney General are seeking a preliminary injunction to block Jefferson from taking over Einstein, pending an FTC proceeding that is scheduled to start on Jan. 5. The regulators say the merger would increase hospital prices by an estimated 6.9% at Einstein’s hospitals and cost consumers $23.3 million a year.
The hearing on the preliminary injunction is expected to last all week, but a decision won’t be immediate. An additional round of filings from both sides is due by Sept. 28. U.S. District Judge Gerald J. Pappert said he hopes to issue his decision before the FTC proceeding starts next year.
Under Klasko, Jefferson has expanded from three hospitals to 14. Einstein would add four more.
Meanwhile, Jefferson is angling to gain a foothold in the insurance market through the pending acquisition of Health Partners Plans Inc., a Medicaid and Medicare Advantage insurer. Such a move would be a potential springboard to challenge Independence, which commands 50% of the commercial insurance market in Southeastern Pennsylvania. Klasko has long wanted to build a network that made Jefferson indispensable to any insurer. “Nobody can enter Philadelphia without going through us,” he said in a January 2018 interview.
A second insurance-company executive was also among those who testified Monday as witnesses for the FTC and the Pennsylvania attorney general. Most of the witnesses testified from remote locations.
Keith Markowitz, who until recently was an assistant vice president for contracting at Cigna for eastern Pennsylvania and now has another job at the company, testified that if Jefferson demanded higher rates after it acquired Einstein, Cigna would have to pay them. Excluding hospitals such as Jefferson’s Abington, Einstein Medical Center Montgomery, and Einstein Medical Center Philadelphia would make its insurance plans unattractive to customers, he said.
Peter DeAngelis, Jefferson’s chief financial officer, was the final witness of the day and the only one to appear in person in the Federal Courthouse at Sixth and Market Streets in Center City.
During cross-examination by a lawyer for Jefferson, DeAngelis denied that Jefferson’s goal in acquiring Einstein was to increase its ability to get higher rates from commercial insurers such as Cigna and Independence, which accounts for a fifth of Jefferson’s current revenue.
“We don’t believe the market and people through insurance as they pay more and more through copays are able to afford significantly higher rates,” DeAngelis testified. “It’s not part our mantra going forward that we want to be the most expensive provider. We want to be the most efficient provider in the region.”
However, while being questioned earlier in the afternoon by an FTC lawyer, DeAngelis read from an email that he sent to Klasko during difficult contract negotiations with IBC.
Part of that email said: “You have achieved significant scale and leverage in the market. We should be using it not to be unreasonable but to support the longer-term vision. Whether that ultimately means we are a must-have or not, we have significant leverage and need to use it as part of our financial improvement plan over the next few years.”