Conemaugh Health System’s toe-to-toe standoff with insurance giant Highmark Inc. is attracting attention from business and hospital leaders across the state.

When the two failed to ink a new agreement before the old reimbursement contract ran out on June 30, the state Insurance Department stepped in to extend terms of the old contract for up to six months.

That allowed the high-stakes game of flinch to continue, with both Highmark and Conemaugh telling patients not to worry about loss of coverage.

The issue is reimbursement: What the insurance company pays the hospital for patients’ treatments and procedures.

Conemaugh says Highmark’s payments are lower than other insurance companies, and Highmark says giving in to Conemaugh’s demands would push up costs for everyone.

Although observers are reluctant to take sides, most agree Conemaugh’s resolute stance shows courage.

“Highmark is holding a lot of cards,” said Lee Taddonio, president of Pittsburgh-based SMC Business Councils.

As the largest medical insurance company serving the region, Highmark has about 70,000 members in Cambria and Somerset counties.

Conemaugh Chief Financial Officer Edward DePasquale admits the health system does not dream that it can stay in business without Highmark Blue Cross and Blue Shield members.

Negotiations continue, and both Conemaugh and Highmark say they expect to settle the contract. The Insurance Department is standing by if the situation deteriorates, spokeswoman Roseanne Placey said.

“At any point during the negotiations, if we want to hold a hearing, we have the authority to do so,” she said.

It’s not unusual for big health systems to take a stand with Highmark.

Six years ago UPMC Health System’s acrimonious negotiations were settled three days before the deadline. This year, it was UPMC’s main competitor, West Allegheny Health System. Like Conemaugh, the system’s Highmark contract was to end June 30, but the two sides settled that day.

Digging in past the deadline took guts, Taddonio said, noting that Conemaugh has little leverage against Highmark.

“It’s a little different now,” Taddonio said. “UPMC had a competing health plan. Conemaugh does not have that option.”

Taddonio’s nonprofit business-support association helps small employers join together to purchase insurance and group rates. He worries that Highmark would raise rates if it has to increase reimbursements.

“Highmark is trying to drive the price down,” Taddonio said. “Conemaugh wants higher rates. It has to come from somewhere.”

The president of Johnstown’s version of SMC Business Councils insurance group agrees with Taddonio.

“It’s obviously going to be passed on to the employer,” said Jack Babich, president of Employers Medical Access Partnership, or E.MAP.

Employers’ frustration with Highmark’s stranglehold on the local insurance benefits market led to E.MAP’s founding in 1999, Babich said. The coalition talked with four providers, including Highmark, before developing a group-rate plan with UPMC Health Plan.

Today, E.MAP has grown to 740 companies.

Babich is not unsympathetic to Conemaugh’s concerns. He said the reported 3.5 percent annual reimbursement increase has not kept pace.

“Look at the cost that has been passed on to the employer over the same time,” Babich said, noting insurance premiums have gone up as much as 15 percent a year.

Highmark’s financial situation is a source of contention. Its $3.7 billion reserve fund is often cited by hospitals pushing for better reimbursement.

“One of our biggest issues is that they have too much in reserve,” Taddonio said. “That should be returned to the ratepayers.”

But the money is needed to cushion the organization in case of a major disaster or epidemic, Highmark spokesman Aaron Billger said, adding that the amount is within Insurance Department guidelines.

Nonprofit hospitals such as Conemaugh also have built large reserves, Johnstown business leader Orlando Hanselman said. The E.MAP founder and former AmeriServ CEO is education programs director for The IPS-Sendero Institute, offering consulting services to financial businesses.

“Reserves are often excessive compared to need. Hospitals are as guilty of that as Highmark and the insurers,” Hanselman said. “No one has all the guilt, but neither party has very clean hands.”

When all the finger-pointing is done, it’s the public who will pay the bill through increased co-payments or higher prices passed on by employers, Hanselman said.

“It is the consumer that gets lost in this battle of the titans,” Hanselman said. “At the end of the day, there is only one wallet that this comes out of, and that’s the consumer’s wallet.”

Conemaugh leaders say the Highmark contract is one of the only areas in which they have any control over payment. Although Highmark is the largest private insurer, its members account for barely one-fifth of Conemaugh’s income. About 60 percent comes from Medicare and Medicaid patients.

It’s an issue faced by providers everywhere, Pennsylvania Hospital and Healthcare Association spokesman Roger Baumgarten said.

“Medicare and Medicaid for years have been an issue,” Baumgarten said. “Those are not flexible. There is more flexibility in negotiations between two private entities.”

Concern about Highmark’s grip on the health-care insurance market led to the hospital association’s opposition to Highmark’s proposed merger with Philadelphia-based Independence Blue Cross.

“The current health insurance marketplace in Pennsylvania already is skewed toward Highmark Inc.’s and Independence Blue Cross’ advantage,” association President Carolyn Scanlan said during a July 15 Insurance Department hearing.

“A merger would create a health plan with an overwhelming presence, or ‘footprint,’ across the commonwealth.”