UPMC Health System, which has 19 hospitals including UPMC Horizon in Greenville and Farrell, and Highmark Inc. said Wednesday they had broken off negotiations on insurance contracts, which expire this year.

Just hours earlier J. Larry Heinike, president and chief executive officer of UPMC Horizon, told The Herald UPMC planned to continue negotiations.

UMPC officials recently demanded $300 million from Highmark, saying the insurer's payments failed to keep up with inflation. The hospital chain also told Highmark this week it may not renew its contract with SecurityBlue, the insurer's HMO for seniors, which covers 168,000 and expires in December.

"This could have very significant implications for all (of) western Pennsylvania. Both employers and employees would face some very tough choices to decide if they want a health plan with or without access to UPMC," said Dan O'Malley, a health benefits analyst.

Without contracts, Highmark's 3.1 million customers would face higher fees or be forced to switch to insurers with access to the hospital chain.

The two sides have been unable to hammer out an agreement.

"It seems like they're more serious this time around," O'Malley said. "I just don't know if it will actually happen."

UPMC has said it wants higher payments for commercial and managed care members, which account for about one-fourth of the hospital's total business and cost Highmark about $500 million a year. The hospital contends the payments haven't kept pace with inflation.

"What we're telling them is unless you are willing to pay fair reimbursement rates ... we don't want to do business with you," said John Paul, UPMC's executive vice president.

Highmark officials have attacked the $300 million demand as "extortion" and said UPMC is already amply reimbursed.

"Customers believe they're paying too much already for health-care services," said Dr. Kenneth Melani, Highmark's executive vice president for business development.

But Melani said being shut out of UPMC wouldn't hurt patients.

"Ninety-nine percent of the services provided by UPMC are provided elsewhere in the city," Melani said. "We would make arrangements for anything. ... There's places relatively near that we would make available."

Meanwhile, UPMC Health System Board Chairman Richard Fischer has resigned, saying he wanted to devote more time to business interests, his family and a new home he's building in Hawaii. He said the resignation had nothing to do with UPMC's battle with Highmark.

G. Nicholas Beckwith III, president of Beckwith Machinery and second vice chair of the health system, will serve as interim chairman until a replacement is appointed, likely in June.

UPMC Health Systems and Highmark last year battled over the merger of UPMC and Children's Hospital in Pittsburgh, the region's only pediatric specialty facility. Highmark and four other insurers filed a federal lawsuit to block the $700 million merger. Highmark dropped the lawsuit, which claimed the merger would give UPMC a monopoly over pediatric hospital services in the region, after agreeing to a separate 20-year contract with Children's that would ensure access to people covered by the insurer. UPMC also outbid Highmark to build a new, $250 million hospital to replace Children's existing facility. Highmark had offered $100 million toward the construction of a new hospital if Children's remained independent.