Highmark officials struggle with filling hospital beds, integrating care

Highmark Inc. wants to save West Penn Allegheny Health System with a $475 million acquisition that it says will preserve competition for medical services in Western Pennsylvania.

At the same time, the state's largest health care insurance company says its strategy includes establishing an integrated health care delivery system — including hospitals, outpatient centers, physician practices and insurance — that will promote "innovative care models and lower-cost sites of treatment."

Those two goals, however, create a paradox for Highmark: To improve quality and reduce costs, an integrated system must shift treatment away from hospitals, experts say.

Successful integrated health systems "see hospitals as the most expensive place to get care," said Dr. Jason Hwang, a physician and executive director of health care research at Innosight Institute, a nonprofit think tank in Mountain View, Calif.

"It's a failure if people end up in the hospital — most successful systems think that way," Hwang said.

A 15 percent decrease in hospital patients contributed to West Penn Allegheny's $51.8 million operating loss in its most recent financial year, which ended June 30.

Getting patients back into hospital beds is key to returning the system to profitability. West Penn Allegheny and Highmark have announced $38 million in short-term upgrades to West Penn Hospital in Bloomfield and Forbes Regional Hospital in Monroeville to do just that.

But the region likely has more hospital space than it can use, said Frank Trembulak, chief operating officer for Geisinger Health System, an integrated provider based in Danville, Montour County, about an hour north of Harrisburg.

"It just adds more capacity that the market doesn't need if you keep West Penn Allegheny Health System alive and well," Trembulak said.

Geisinger has been promoted by Highmark, lawmakers and others as having a model for health care delivery that Highmark should emulate because it has reduced costs and improved care by creating a system that rewards doctors for keeping patients out of the hospital. "How do we keep you healthy and well and at home?" is the philosophical question that drives Geisinger's strategy.

Trembulak said his nonprofit organization supports Highmark's acquisition of West Penn Allegheny and believes it will stimulate much-needed competition in Pittsburgh. But the region will have to reduce hospital capacity eventually, whether its at West Penn Allegheny five hospitals or Pittsburgh's dominant provider, UPMC, itself an integrated system of 19 hospitals, more than 3,000 doctors and an insurance subsidiary.

"As the approach becomes more efficient ... capacity overages will become apparent," Trembulak said.

So how does the Geisinger system, which posted net income of $201 million in 2010 on revenue of $5.6 billion, stay viable• Geisingers operates two hospitals in Danville and Wilkes Barre, with 727 total beds, more than 800 doctors and 13,000 employees.

Geisinger provides "the right care at the right time with the right level of resource," Trembulak said. It recruits physicians, about 100 a year on average, and pays them based on keeping patients healthy. It treats people in outpatient centers, clinics and doctors' offices throughout Central Pennsylvania. And it moves hospital patients quickly into rehabilitation centers and skilled nursing facilities.

"With an integrated system, you're able to manage the economics so you keep the parties whole," he said.

That's the strategy Highmark apparently will pursue.

"Recently a lot of provider systems, in order to maximize revenue, had been moving care more into the hospital setting," Highmark CEO Dr. Kenneth Melani said during a Nov. 1 news conference. "It's mainly an attempt to just increase revenue."

Highmark as an integrated system will build 10 outpatient centers, or medical malls, in the Pittsburgh area. It will boost technology and make other upgrades to existing West Penn Allegheny facilities. It will acquire or partner with more doctors and community hospitals. And it will focus on wellness and preventive care.

And that's only what the company has publicly announced. Highmark spokesman Michael Weinstein last week said, "much of the provider elements of Highmark's overall business strategy is still evolving." He said it would be "premature" to discuss specifics Highmark executives are planning for the provider strategy, and he declined to provide dollar figures Highmark expects to invest as it builds out its integrated system.

"We are not going to be driven by the economics of boosting revenue," Melani said Nov. 1. "And so we want it to be convenient, we want it to be effective, and we want it to be efficient, economically efficient."

But the strategy is not without its challenges.

"How are you going to bring back the doctors?" asked Steve Foreman, a health care economist at Robert Morris University. Employed physicians are key to the success of an integrated system because they "triage patients — they direct where they go for care."

Just look at UPMC, which "is the facility of choice for doctors," Foreman said. "Highmark may not be able to hire them away from UPMC."

About 25 percent of Allegheny County's physicians are in private practice, according to the Allegheny County Medical Society. That means Highmark and UPMC may be fighting for each other's doctors.

Dr. Leo McCafferty, president of the medical society, said: "There is a healthy competition between the two organizations to hire or attract the best physicians."

And once they have a strong network of employed physicians, Highmark has to figure out how to pay primary-care doctors the same or more based on how healthy they keep the patients, not how many tests or procedures are performed, said Jordan Battani, an expert with CSC Healthcare Group, a consulting company based in Falls Church, Va.

"The real hope for getting control of both the quality and cost inflation lies with physicians," Battani said. "The real long-term hope is to transform the primary care experience."