A game-changer in Pittsburgh

Here's one way to build an ACO. Have the insurance company buy the hospital.

That's the news from Pittsburgh, where "Health insurer Highmark Inc. reached a provisional agreement to acquire struggling hospital operator West Penn Allegheny Health System for as much as $475 million," according to this story in the Wall Street Journal online. Here's more:

The bold move by Highmark, which has $14.6 billion in annual revenue and 3.1 million members in western Pennsylvania, will be closely watched around the country. As spending on health care spirals, insurers and health-care providers are looking for ways to cut costs—forging a range of more-integrated relationships in an effort to become more efficient. Some health plans are buying clinics, and hospitals are exploring payment models that increasingly resemble insurance. Still, insurers have shrunk from purchasing hospitals, which typically involve large investments and operating challenges.

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.

As the Pittsburgh Post-Gazette reports:

The long term goal, said Highmark CEO and President Kenneth Melani, is the creation of a new model of health care, one that is outcomes based, with an integrated delivery and financing system.

I'm thinking that the folks at UPMC have just woken up to their worst nightmare.

Imagine if something like this happened in Boston, leaving the dominant provider as an outsider if a major insurance company did the same kind of deal with another network of hospitals and physician practices.