Health law to spur hospital, doctor networks

Luis Fábregas
| Friday, April 1, 2011

Health care rules the Obama administration announced Thursday will force hospitals and health insurers to work together to cut costs and improve quality, experts said, a move that could have significant implications in Western Pennsylvania.

The rules, part of the year-old health care law, will spur the formation of accountable care organizations, or ACOs, networks of hospitals and doctors. The networks could save Medicare as much as $960 million over three years, federal officials said.

Under the new rules, the networks would coordinate care for patients covered by Medicare, the federal program for the elderly and disabled. It will give hospitals financial incentives for providing good quality care while keeping down costs.

"We're going to watch a dramatic change in relationships," said Dr. Karen Wolk Feinstein, president of the Pittsburgh Regional Health Initiative. "You are setting up new terms of engagement. It's going to be a challenge if you don't have the payors, the providers and the physicians in the same room together."

Financially strapped West Penn Allegheny Health System is working to establish an accountable care organization, but officials won't say whether they have held formal discussions with health insurers. CEO Dr. Christopher Olivia declined requests for an interview.

Olivia last year expressed interest in talking with executives at Highmark Inc. about creating an insurance product. At the time, he said West Penn Allegheny did not want to form a full-blown health plan like the one rival University of Pittsburgh Medical Center established in 2001.

A spokesman for Highmark said yesterday that the insurance giant has not made any deals or arrangements with West Penn Allegheny. In a December interview with the Tribune-Review, Highmark CEO Dr. Kenneth Melani said the system is flawed and Highmark members will not be able to afford the rising cost of health care, which he blamed locally on UPMC and its control of the market. Highmark is in the midst of contract negotiations with UPMC, but Melani said the two are far apart in coming to an agreement.

In addressing the need to provide a competitive alternative to UPMC, Melani said, Highmark would not necessarily be interested in operating a hospital but raised the possibility of working closely with physicians and establishing outpatient centers.

"Some might say, 'Well, that's irrational because you're duplicating what's already there,' but if it's too costly for my customers, don't I have the obligation to do that for my customers?" Melani said in December. "If UPMC has a health plan, wouldn't you think it would make sense that we would be allowed to be on the provider side?"

A UPMC spokesman said officials are studying the Medicare rules, but the region's health care giant has been building what it considers an ACO for the past two decades. UPMC has invested more than $1 billion in electronic health records and other technologies that allow it to mine and share data in the same manner that ACOs will be able to do, said spokesman Paul Wood.

Implementing the networks will require considerable upfront costs, such as adding new nurse care managers, Feinstein said.

Because hospitals will need to establish services that Medicare typically does not reimburse, other parties -- such as commercial insurers -- will need to step up and help.

"You sure as heck want your commercial insurers to be sharing in the upfront investment," Feinstein said. "The hospitals will not generate savings doing business as usual."

Mike Nugent, managing director of Navigant, a health care consulting firm in Chicago, said financially unstable organizations should experience benefits from becoming an ACO.

"It's an opportunity to survive and get paid for reducing cost," said Nugent, author of the just-published book "Accountable Care Organizations: Your Guide to Strategy, Design, and Implementation." "I believe strongly that the ones that will succeed are going to be those whose hearts and minds are focused on quality."

Dr. Tom McClure, chief accountable care officer at West Penn Allegheny, said ACOs will be coordinated by primary care doctors who help patients avoid unnecessary tests and procedures. Some patients now see more than one doctor, and some specialists don't talk to each other, which often leads to waste, he noted.

"There's no one driving the ship," McClure said.

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