The Bagmen

As you all know, Highmark Insurance company recently received a contract to administer Penn State's self-insured healthcare plan. The announcement of this contract was concurrent with an announcement that Highmark was "donating" $25 million to Penn State. Penn State has a long history of extracting such "donations"--some might say kickbacks--from coporations looking to do business with it.

The first such deal was back in 1992 with Pepsico. In return for a ten year contract, which has since been renewed, to run the University's vending machines Pepsico donated $14 million to the University. The bulk of that money went to the construction of the Bryce Jordon Center. Other deals have been struck since then.

In 1994, ATT was given exclusive rights for long distance service in exchange for a $10 million dollar "gift". In 1998, Penn State changed the student ID card it issued to a high tech card called ID+. Amongst it features, should a student elect to activate it, was the ability to use it as an ATT calling card. Technology, i.e. cellphones, has since made this feature obsolete.

But there were other features. Again should a student decide to activate the feature, the card could also be used as an ATM card. Initially, the card could be used at the ATMs of banks in the state owned by Keystone Financial Corp. In 1999, several banks, including PNC Bank, lost their campus ATMs because they chose not to participate in the ID+ system.

"The management here at PNC likes to partner with Penn State whenever they can," said Rob Rutz, vice president of public relations of PNC in Camp Hill. "The opportunity just didn't integrate well with the bank's business strategy."

Then some odd developments occurred in 2002. In January, PNC Bank, which had not participated in the ID+ system, signed on to it. At the same time, Mellon/Citizens Bank, which had been part of the system, dropped out. Here is how the Collegian described the situation.

This past fall, PNC expressed interest in joining the program and signed a contract with Penn State and the ID+ program. Since Citizens Bank had never signed an actual contract with the program, the company was asked to remove its ATMs from campus so that PNC could move in.

How much did PNC give PSU? The terms of the PNC contract, so far as I know, have never been revealed, but one might guess that a "gift" to the University was involved and that Mellon/Citizens Bank didn't want to sign a contract, that is pay-to-play. Several years earlier PNC Bank had donated $1 million to Penn State's new IST School, but, as the Pepsico and ATT deals reveal, that is unlikely to be enough of a sweetener to swing the deal.


Not surprisingly, as a result of the deal between Penn State and PNC Bank, all of the Mellon/Citizens Bank campus ATMs were switched to PNC Bank ATMs. And then in April of that year, after PNC had obtained a near monopoly on campus ATMs, Penn State discontinued the ATM feature on the ID+ card, which took away any incentive students may have had to use banks other than PNC Bank which participated in the ID+ system.

Giving Pepsico a monopoly on campus soft drinks isn't really that big of a problem in my view. Sure administrators may occasionally send out a draconian email in order to enforce the monopoly.

The e-mail message said that faculty members could no longer purchase products from Pepsi's competitors with university funds because of the university's exclusive contract with Pepsi.

And then have to back track.

Coke-drinking faculty members can relax. Despite an e-mail message sent to some faculty members two weeks ago, university officials said faculty can still be reimbursed for nonbulk purchases of products from Pepsi's competitors.

But in the end, this is about what sugar water one drinks and I can't get too worked up over it. However, a deal which subtly steers students toward a particular bank is morally questionable. It may even be illegal. There is a current scandal brewing over kickbacks to colleges and universities by student loan companies in return for steering loan business to them. The ATM deal looks to me to be a close cousin of the loan deals.

There are many other examples of Penn State extracting "donations" from companies that wished to do business with them. Students in Jane Juffer's English 240 class of Spring 2005 looked at many of these deals. You can see their findings here.

This brings me back to the Highmark deal. At this stage we don't know what the consequences of the deal will be and whether it will be executed on the up and up. However, today brings news of another donation which Highmark recently made (h/t Keystone Politics)

Highmark Inc. agreed to pay a fine of more than $54,000 for using corporate dollars on fundraising events connected to former Pennsylvania Sen. Rick Santorum.

In announcing the penalty yesterday, the Federal Election Commission also said it assessed a $20,000 fine against a former Highmark vice president and a $7,500 fine against Mr. Santorum's political action committee, America's Foundation. The donations went toward three golf tournaments at the Country Club of Hershey and a private fundraiser, the FEC said.

The Pittsburgh-based health insurer voluntarily made the FEC aware of the apparent violations after an internal audit, the commission said. "We believe that Highmark's response to this matter demonstrates the value of its integrity program in facilitating the investigation, reporting to proper authorities and implementing remedial actions," said company spokesman John McDermott.

Mr. Santorum, a two-term Republican, lost his re-election bid in November to Democrat Bob Casey.

I would just like to point out that this voluntary admission was made by Highmark after it realized that its investment in Santorum wouldn't be paying any dividends.

The sleazy behavior exemplified, on the part of Highmark, by the Santorum donation and, on the part of Penn State, by the PNC Bank deal should raise a red flag about the Penn State Highmark deal. Faculty may end up paying off the $25 million dollar "donation" through higher healthcare premiums and reduced coverage.


Technorati Tags: Penn State, Highmark, Pepsico, PNC Bank, AT&T, Santorum, corporate university

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Not Entirely in the Dark, But Close.

When the CDT originally reported on Penn State's recently announced deal with Highmark it quoted Joanna Floros, chairwoman of the UFS, on the deal.

[She] said the plan sounds good at face value... [and] Highmark's parent -- the Blue Cross Blue Shield Association -- is strong.

But Floros, a professor in the College of Medicine, is not yet familiar with details of the new arrangement, she said. She said the Faculty Senate was not consulted as the university pursued an agreement with Highmark.

This week in a letter to the CDT Floros expanded on what the Faculty knew prior to the deal.

A recent Centre Daily Times story covered quite well Penn State's new partnership with Highmark, which will invest $20 million in a new Penn State Children's Hospital, $5 million to expand clinical research throughout the region and lead to the joint development and study of health-and-wellness programs.

However, one element in the story may have left readers with the incorrect impression.

The article indicated that I said the Faculty Senate was not consulted as the university pursued an agreement with Highmark. This is correct with regard to the specific provider and the specific details of this particular agreement.

As the Faculty Senate's meeting minutes demonstrate, however, the university administration has presented details of its proposal to move the administration of our health-care benefits to a single provider and its reasons for wanting to do so to the Faculty Senate's Joint Committee on Insurance Matters and the Faculty Senate Benefits Committee on multiple occasions over the past two years.

You can find one of the presentations to which she refers here. It is the most detailed one that I could find. This is the slide from that presentation which covers the subject of a single payer system.

Based on this can one genuinely say that the Faculty Senate was adequately informed about the Highmark deal? I would have to say no. The devil, as always, is in the details and the UFS was not informed about the details of this particular deal prior to the deal being struck. Nor is it likely that they will ever know the details since, according to the CDT Spanier said that figures that show how much money Penn State may save under the arrangement are proprietary. Therefore it is unlikely that the deal's inner working will ever be fully known. Only after the deal goes into effect and it is too late to do anything about it will the faculty learn through experience what the deal means to them.

Technorati Tags: Spanier, highmark, shared govenance, Penn State
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Technorati Tags: Spanier, highmark, shared govenance, Penn State
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Does This Deal Deserve High Marks?

There was a surprise announcement from Old Main on Wednesday. Highmark would be "donating" $25 million to the Hershey Medical Centre with $20 million earmarked for a new pediatric wing and the remainder slated for cancer research. In addition, it was also announced-coincidentally?-that Highmark had received a contract to be the sole administrator of Penn State's self insured medical plan. If it weren't for the latter news about the contract this would have been unambiguously good news. However, the contract raises some serious issues which should be fully explored by the media.

While Highmark's insurance business is non-profit, the subsidiary which administers self insured plans is a for-profit entity. The folks at Highmark were insistent that there was no quid pro quo.

The company's contribution to the children's hospital was not contingent on Highmark administering Penn State's health plan, he said.

"At no point was there any trade-off between the three pieces," he said, referring to the two donations and the contract for the health plan.

Highmark entered into a similar 10-year partnership with the UPMC Health System in Pittsburgh in 2002 _ a $520 million deal that called for both parties to share the cost of converting the financially ailing St. Francis Medical Center into a new children's hospital, among other things.

Highmark did not take over the administration of UPMC's employee benefits, however, Melani said.

"It did lay the foundation, in some respects, for what we did here," Melani said.

The reason may be that they intend to treat the "donation" as a tax deductible gift.

The above article does not mention the contentious relationship between UPMC and Highmark over UPMC's takeover of Children's Hospital in Pittsburgh. Certainly the battle between UPMC and Highmark over UPMC's takeover of Children's Hospital in Pittsburgh would be worth exploring.

On the Penn State side, the changing of administrators for their self insured plan could result in a raise the rates or a reduction in coverage for their employees, retirees and the dependents of these people. If this happens then in essence Penn State would have borrowed the $25 million from Highmark and then asked it employees and retirees to help payback the loan. Of course, there will a problem in determining if the shift of administrators will cause a raise in cost to those covered by the plan.

University President Graham Spanier, at a press conference in Hershey, said cost controls are one reason behind the new agreement.

Figures that show how much money Penn State may save under the arrangement are proprietary, he said.

"Of course, (the rates) are always going to go up," Spanier said. But this plan, he went on, should help moderate the increase.

Should rate go up, Old Main will hide behind the idea that rates will always go up and use the fact that terms of the deal are proprietary so that no one will be able to determine if the rates went up faster under the new deal than they would have under the previous arrangements.And in typical Spanier fashion this deal which may have a negative impact on faculty was done without consultation of the faculty.

Joanna Floros, the Faculty Senate president, said the plan sounds good at face value. She said Highmark's parent -- the Blue Cross Blue Shield Association -- is strong.

But Floros, a professor in the College of Medicine, is not yet familiar with details of the new arrangement, she said. She said the Faculty Senate was not consulted as the university pursued an agreement with Highmark.

It is also worth noting that Highmark has had some legal problems in the recent past with the way they handled Medicare (here as well)and ambulance claims. Did Penn State turn a blind eye to the potential problems that the switch to Highmark may cause in order to get that $25 million up front?

I would hope that this deal gets the scrutiny from the media that it deserves and not just the kudos that comes from a superficial consideration of the "gift".

Technorati Tags: Penn State, Spanier, Highmark

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