Highmark's Allegheny Health Network: The birth of a new health system

The system may follow a different health care model and may bring innovation to the hospital and insurance marketplace

The christening of Allegheny Health Network, Highmark's integrated care delivery network, appears to secure at least the short-term financial health of its centerpiece, the West Penn Allegheny Health System. But what will the network look like two years from now? Or five?

Local health policy experts and business leaders are encouraged by Allegheny Health Network's stated mission of providing quality, affordable health care locally while recognizing Highmark's major challenge in stabilizing the West Penn Allegheny system.

What they hope is that those goals forge something they say has been too rare in the region -- the emergence of innovative approaches for financing and delivering health care.

"I think we've been rather slow in that regard," said Martin Gaynor, professor of economics and health policy at Carnegie Mellon University's H. John Heinz III College. "I don't know exactly why, but I think it has to do with the fact that the region has been dominated by these behemoths [Highmark and UPMC].

"It's not usually a dominant firm with a large market share that does the innovation in any industry. Usually this comes from new folks, who are hungry and lean and really have to offer a better mouse trap to survive, let alone gain market share."

Because they are so dominant, UPMC and Highmark are in a unique position to fashion a major health care redesign here, said Harold D. Miller, executive director for the Center for Healthcare Quality and Payment Reform, based Downtown.

Between UPMC's knowledge and expertise in providing care, and Highmark's dominance in the insurance market, "we could, in Pittsburgh, have one of the highest-performing health systems in the country," he said.

Instead, Mr. Miller's 2012 analysis of price-adjusted Medicare data found that Pittsburgh spends more on hospital care per person than any other major American city, including New York, Philadelphia, Chicago and Los Angeles.

Current events do not encourage him that will change.

"Most of the discussion is, 'Who is going to have the better hospital?' when the real goal of health care is how to keep people healthy and out of the hospital," Mr. Miller said.

Said Mr. Gaynor: "The capacity is there to do something. It just hasn't happened. There just hasn't been enough good incentive to do it."

Forces at play

Allegheny Health Network would seem to be facing opposing forces as it moves forward -- to bring WPAHS back to solid financial footing, it needs to increase patient volume and revenue; yet its parent, Highmark, needs to hold costs down on the insurance side by limiting hospital payments.

"A lot of this is determined by the way we pay for health care today," said Mr. Miller. "A hospital cannot survive unless it tries to get more and more and more patients. The way insurers make money is to try to cram down the rates they pay hospitals."

Which points to a certain irony in Highmark stepping in to save West Penn Allegheny: The region's second largest health system, he said, "is probably losing money because Highmark isn't paying them enough."

M. Christine Whipple, executive director of the Pittsburgh Business Group on Health, says her members -- some of the region's largest employers -- would like to see more transparency in the cost and quality of care. "The whole issue revolves around what the costs are and what the care is."

For decades, Western Pennsylvania residents have been insulated from those costs because their employer-based insurance plans covered most of them. But as health costs continue to rise, more people have moved to high-deductible plans that make them responsible for a larger share of the bill.

Some insurers, including Highmark, are providing cost and quality information to their members but "the key is to get all that out into the community broadly," said Ms. Whipple.

Mr. Miller agrees. In a well-performing health arena, someone who needs knee replacement or heart surgery should be able to find out which hospitals have low infection, readmission and mortality rates as well as reasonable costs -- and which ones don't.

It's all data the insurers and providers track already, he said. Making it public "could be done tomorrow if someone would actually provide the information."

By adding West Penn Allegheny's five hospitals to a network that already includes Jefferson Regional Medical Center in Jefferson Hills and St. Vincent Health System in Erie, the first tangible outline of what the Allegheny Health Network will look like has come into view. The picture should be even clearer in the coming weeks and months.

As it grows, Mr. Gaynor sees the promise, and perhaps necessity, of Allegheny Health Network following a different health care model.

"I like in a broad sense what I'm hearing, the discussions that are percolating for a new kind of organization and delivery system," he said. "If they just look like the old AGH and West Penn, how are they going to compete?"

At the same time, real life can make innovation more challenging, he said. Simple math would argue that stabilizing West Penn Allegheny's finances will mean both raising revenue and cutting costs.

"You can't keep bleeding $100 million a year because then all these good ideas will go by the wayside," said Mr. Gaynor. "My guess is that there are going to be some painful things coming."

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Steve Twedt: stwedt@post-gazette.com or 412-263-1963. First Published May 5, 2013 4:00 AM


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