We are rapidly transitioning to an era of Big Medicine characterized by most significant decisions being made in concert by Big Payers (insurance companies and the federal government), Big Insurance Companies, and Big Pharma (see: Physician Private Practice Declines; the Last Barrier to Emergence of "Big Medicine"). This trend is accelerating due to the fact that more than half of young doctors are taking salaried positions with health systems (see: Hospitals Use Their Medical Schools, Residencies for Later Physician Recruitment). Small private physician practices will no longer be part of this mix. Now comes the news that, at least in the Pittsburgh area, there are plans for an insurance company to purchase a large health system (see: Health care in the balance: Highmark to buy West Penn Allegheny?), Below is an excerpt from the article
Health insurer Highmark... is laying out plans to finance the acquisition of West Penn Allegheny Health System and may recruit a separate health care provider to operate the struggling Pittsburgh hospital network, according to state Sen. Jim Ferlo. It's a move meant to save WPAHS, which lost $22 million last quarter, and to provide competitive balance against the larger University of Pittsburgh Medical Center, with which Highmark is at a contract impasse that could imperil its customers' access to UPMC facilities in the future. If a deal happens, it also would mark another Highmark foray into the financing of hospitals and the health-care industry, something that has proven controversial in the past.... Mr. Ferlo noted that the plan, which has been discussed by top Highmark officials and is said to have been authorized by Highmark's board of directors, could still fall through or be a misdirection play....He was referring to the ongoing reimbursement contract impasse between Highmark and UPMC and the notion that Highmark is entertaining the West Penn talks partly, or largely, to put negotiation pressure on UPMC. Highmark and UPMC are coming to the end of a 10-year contract that sets the rates Highmark pays for services from UPMC doctors and hospitals. The two health giants say they are at an impasse, although similar statements were made a decade ago when the two companies were fiercely negotiating the current contract, filing lawsuits against each other and accusing each other of "extortion" and "ticket scalping." Then, as now, Highmark has most of the commercial insurance business in the region; UPMC, meanwhile, has more than half of the hospital beds.
Here is a news update (see: The week that was for 07/03/11):
Highmark Inc., the region's largest health insurance provider, took a big step into the hospital business with a deal to invest up to $475 million in the region's second largest health network: West Penn Allegheny Health System. The partnership was unanimously approved by the boards leading both organizations. The combined resources of the two will present a greater challenge to the University of Pittsburgh Medical Center for health-care consumers in the region. For the struggling West Penn Allegheny system, the Highmark merger could not have come at a better time. West Penn Allegheny had lost another $22 million in the first quarter of this year and Bloomfield's West Penn Hospital was facing imminent closure. The regulatory approval process could take months, but both sides are confident there won't be any major roadblocks.
What we have here, at least in the Pittsburgh area, is a set of negotiating moves between two players in Big Medicine: UPMC, a huge health system, and the local health insurance company, Highmark. It's all about money and negotiating power (see: Health Systems Use Their Regional Dominance to Muscle Insurance Companies). From a Pittsburgh perspective, it may make sense for Highmark to bail out the faltering West Penn Allegheny health system. In so doing, it counters the dominant position of UPMC in the area. Here's where I get a little confused, however. If Highmark purchases West Penn, it does little to degrade the allure of UPMC from the perspective of Pittsburgh employers who contract for health insurance. Many of their employees will still want to be admitted to UPMC. On the other hand, by purchasing West Penn, Highmark can perhaps offer to employers a lower-cost alternative to UPMC as part of a tiered set of health insurance options.
Of one thing I am sure. We will see an increasing tempo of conflict between the three major players in Big Medicine, with each jockeying for a larger share of the enormous amount of money we expend annually on healthcare. Generally unrepresented in these conflicts will be the interests of us, the healthcare consumers.
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