The future of healthcare is (happening) in Pittsburgh

It’s official: the cash-strapped West Penn Allegheny Health System is partnering with Highmark, a non-profit insurer in Pennsylvania. The investment is $475 million of much needed liquidity. Put your remembering glasses on, WPAHS is what emerged after the mega-failure of Allegheny Health Education and Research Foundation. WPAHS has been in trouble ever since that occurred, really.

A competitive consequence of that bankruptcy saw the rise of the University of Pittsburgh Medical Center. UPMC strategy has dominated Pittsburgh healthcare ever since.

What makes this interesting locally is the contract negotiations (or not) currently taking place between UPMC and Highmark. According to Post-Gazette article, UPMC is “saying that it cannot, and will not, sign a deal with an insurer that is now partner with a UPMC competitor.”

But what we could see emerge from the Steel City as a result of this move may be an indication of the future of healthcare. Much of what makes healthcare complicated is a result of the fractions between payer and provider. This isn’t the first integrated health system in the country, in fact UPMC has a sizable health plan itself. But it is the first time (I think) an insurance provider has purchased (officials aren’t terming the partnership a purchase, but that is essentially what it is) a health system.

Paul Levy explains:

As a friend of mine says, this is a game-changer. Think about it this way. The most successful systems in the country today have common ownership of an insurance company and a health system, especially where they can combine to dominate a geographic area. This works because they have a common bottom line and can organize their business to take advantage of competencies in the respective parts.

There you go, it’s a game changer.

But he adds, “I’m thinking that the folks at UPMC have just woken up to their worst nightmare.”

I disagree. From a competitive standpoint this is far from ideal for UPMC. But that health system grew to dominate Pittsburgh healthcare through shrewd strategy execution. The strategic decisions UPMC has made have been controversial as noted in the P-G article:

Officials from Highmark and WPAHS organizations (which are both non-profits) also tried to draw a distinction between WPAHS and UPMC, saying UPMC is not behaving like a not-for-profit community asset in the way that it tries to “maximize revenue” and put WPAHS out of business

It is not an understatement to say that UPMC has played an extremely significant role in the re-emergence of Pittsburgh as a desirable place to live after the collapse of U.S. steel. The city has depended upon healthcare and education to redefine itself. I expect UPMC to react in the swift and decisive manor which has made them successful.

While the partnership is an extremely interesting move, what will be fascinating is the response it elicits from UPMC. And I suppose WPAHS response to that response. And the competitive circle that ensues.

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