Important Event In Health Care Economics – Highmark to Buy Hospital Group in Pittsburgh

Outcome May Determine Future of Health Care Structure in U. S.

The Dismal Political Economist has long believed that the U. S. Health Care System must change if it is to be an efficient cost effective delivery system for health care in this country.  The type of change needed was outlined here

Fixing Health Care the Right Way

And essentially involves changing the system from fee for service into a fixed payment to provide health care, thus changing the incentives from increasing costs to decreasing costs.

In Pittsburgh a health insurance company has taken a step towards implementing this change.  This is from a Wall Street Journal report that should have been headline news, but instead was buried in a back section of the paper.

Pittsburgh insurer Highmark Inc. struck a deal to acquire the second-largest hospital chain in its region, an ambitious, controversial step that would further blur the lines between those who pay for medical care and those who provide it.

Under the tentative plan, nonprofit Highmark will pump as much as $475 million into the five-hospital West Penn Allegheny Health System, which has been operating in the red for the past five years.

If state and federal regulators sign off on the plan, Highmark officials say the deal will allow them to move away from traditional fee models that reward providers for providing unnecessary procedures and services.

Instead they would pay salaries to doctors, offering them incentives to achieve quality and efficiency goals. The integrated model would also rely on primary-care doctors to coordinate patients' care and focus on preventive efforts.


It is almost impossible to overstate the importance of this “experiment” in health care.  Highmark will have the ability to institute a system where the incentives work to lower costs, and because of competition with another major health care provider in Pittsburgh, it will have to balance off cost savings with patient care and services.

If Highmark succeeds it will be the model for health care reform.  To succeed it will require physicians to accept a role as salaried employees who increase compensation by providing cost effective care.  To succeed to it will require subscribers to accept the fact that if health care costs are to be brought under control, they will lose some of the choice they have in selecting physicians and facilities. 

If it fails, well, implementing a cost effective health care delivery system will be set back many years, maybe decades.

Yes, it is that important.

Pressure Points

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