Highmark plan seen as riskier than ever

Network may need to rethink goals if WPAHS deal dies

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From the start, Highmark Inc.'s plan to assemble an in-house provider network was viewed as audacious and financially risky. A successful integration of West Penn Allegheny Health System -- the centerpiece of the under-construction provider network -- would give insurers nationwide a new way forward as they dealt with health care costs that always seem to trend skyward.

But if Highmark were to gamble and lose, a failed merger would be another reminder why these sorts of insurer-hospital shotgun marriages didn't work in the 1980s and 1990s, when big insurers began to disband managed-care networks, shed their physicians clinics and sell their hospital systems.

Today -- with West Penn Allegheny and its six hospitals and 2,700 physicians threatening to walk from the affiliation on the alleged grounds that Highmark is trying to push WPAHS into bankruptcy -- Highmark's plan to build a billion-dollar "integrated delivery system" that can compete with the region's dominant health care provider, UPMC, looks riskier than ever.

"If this whole thing gets killed, I can't imagine they would follow through with their deal with Jefferson," said Pittsburgh health care consultant Jan Jennings. He was referring to Highmark's recent partnership with -- and board takeover of -- Jefferson Regional Medical Center in Jefferson Hills.

"A 'system' of one hospital? That doesn't make sense," Mr. Jennings said.

The disintegration of the WPAHS deal, should it come to pass, he said, means Highmark would be forced to reconsider the existence of its entire provider wing, which since last year has been under the direction of former UPMC executive John Paul.

Yet Pennsylvania's largest health insurer may not have any choice but to soldier on, even without its centerpiece hospital network. To give up on the nascent provider division would be to cede the battle to UPMC and, potentially, resign itself to a shrinking insurance market share in the Pittsburgh region.

Without WPAHS in the fold, Highmark might have to build stronger alliances with physicians, rather than hospitals, or it might have to double down on its own construction plans and add to its planned network of medical "malls."

In other words, back to the drawing board -- but it may be a bit early to toss the drawing board out the window.

"The question I've always asked is, what's a hospital anyhow?" said Steve Foreman, an associate professor of health administration and economics at Robert Morris University.

"They could try to do something innovative, and try to get people out of the hospital" by building "hospital-lite" medical centers, designed to tackle and treat "the most common causes of hospital admissions, and try to impact it. Maybe it's time to crank up the volume on that kind of approach," Mr. Foreman said.

Still, as baby boomers age into their 70 and 80s, the "need for [hospital] beds is going to increase over the next 10 years. ... There are other hospitals out there they could probably try to partner with. But it will be nothing close to [the size of] West Penn Allegheny," he said.

Hospitals are just one component of Highmark's integrated delivery system strategy, said benefits consultant Jim McTiernan of Pittsburgh-based Triad USA, a division of Arthur J. Gallagher & Co.

He believes the strategy can survive the defection of WPAHS.

"The professional providers are going to be the key -- the physicians. They're the ones who actually are the gatekeepers of care consumption. They are going to be the ones who decide which care is going to be consumed, and where it's going to be consumed."

Losing WPAHS's thousands of doctors would make the pursuit of a gatekeeper strategy more problematic for Highmark, Mr. McTiernan said. And the rest of Highmark's integrated delivery system apparatus -- its property holding company, its medical supply chain company, its physician management group, its 10 percent stake in the MedExpress urgent care chain -- may still be viable, but they will have a smaller network to feed, a group of loose practices that don't piece together very well.

Some observers said that could be a blessing in disguise, giving Highmark's board and its newly hired CEO a chance to reassess its provider wing and, on a broader level, its entire corporate philosophy.

"Hospitals and insurers have very different incentive structures," said Gerard Anderson, director of the Johns Hopkins Center for Hospital Finance and Management at the Bloomberg School of Public Health.

"The incentive of an insurer is to keep the beds empty. The hospitals want to keep the beds full," he said.

The two may have never been able to resolve that philosophical split.

But the two must not necessarily remain married in order for Highmark to have a WPAHS-centered insurance product, or for Highmark to remain financial partners to the West Penn Allegheny system, said Harold D. Miller, executive director for the Pittsburgh-based Center for Healthcare Quality and Payment Reform.

"If Highmark is trying to build a health system that it owns and operates and keep every patient, [then] it's a problem for them not to have WPAHS as part of it," he said. But if the primary goal is protect its insurance arm by offering alternatives to UPMC products and networks -- and by keeping WPAHS alive in the process -- then it need not own the hospitals, Mr. Miller said.

"There are other ways that it could be done. ... Highmark could help West Penn Allegheny simply by paying them more."

Or, as many observers have been suggesting for years, it might be best if Highmark were to broker a deal with a third-party investor with brand-name recognition that would operate the financially struggling hospital system.

For its part, Highmark says it remains hopeful that the trial separation comes to a quick end. In statements to the media over the last week, Highmark said it wants WPAHS to return to the negotiating table, and hopes the affiliation process will continue. It has also said it is open to other financial reorganization strategies, beyond bankruptcy.

Highmark spokesman Michael Weinstein, in an emailed statement, said it is "essential that there is competition in the health care marketplace. [We] are committed to this vital goal.

"We will continue to move forward with our strategy to develop an integrated delivery network to control health care costs and preserve competition in the region's health care delivery system."

He also said Highmark is continuing to make investments in other aspects of the network, including affiliations with other health systems and physicians, as well as developing outpatient and ambulatory settings. "The proposed affiliation with Jefferson Regional Medical Center is not dependent on completion of the Highmark-WPAHS transaction."

Last Monday, Highmark sued WPAHS, asking the courts for an injunction that would prevent the hospital network from pursuing the breakup and searching for new suitors.

On Tuesday, Republican Gov. Tom Corbett issued a statement urging the two health organizations to patch things up.

"I am asking both Highmark and West Penn to end the rhetoric, work together and see if there is an amicable way to move forward. We need health care choice and competition in Western Pennsylvania," he said.

businessnews - health

Bill Toland: btoland@post-gazette.com or 412-263-2625.


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