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Less is more in Allegheny Health Network's value-over-volume model

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James Knox | Pittsburgh Tribune-Review
West Penn Allegheny Health System chief medical officer Tony Farah, M.D.

State conditions

Highmark's $1.1 billion purchase of West Penn Allegheny Health System and its inclusion in the new Allegheny Health Network were approved by the state Insurance Department with these stipulations:

• Highmark cannot prevent West Penn Allegheny from contracting with other health insurers or limit the length of contracts. West Penn Allegheny is prohibited from giving preferable rates or other contract terms to Highmark.

• Highmark must implement a “firewall” to prevent West Penn Allegheny from sharing with Highmark confidential business information obtained from other health insurers during contract negotiations.

• Highmark's insurance business is limited from making donations or other payments to the medical-provider side of its business to 3 percent of its surplus or 25 percent of its net income each year.

• Highmark must provide public yearly financial statements to the department for a parent corporation that will control the insurance business and medical-provider business. It must provide quarterly financial statements for West Penn Allegheny.

• Highmark must give the department a financial and operational turnaround plan for West Penn Allegheny through June 30, 2015.

• Any Highmark senior executives overseeing the insurer's integrated health care system must have “a meaningful portion of their long-term compensation tied to the achievement of quantifiable and tangible benefits” to Highmark's insurance members.

• Highmark must file a yearly report showing savings the company achieves through its integrated health care system.

• Highmark must file annual reports showing the impact of West Penn Allegheny's turnaround on patient volume at community hospitals around Pittsburgh.

• If Highmark secures a reimbursement contract that keeps UPMC in-network for members, it must notify the department and supply a report detailing the impact on West Penn Allegheny. If it does not get a UPMC contract by July 1, 2014, Highmark must explain how it will conduct business when the current contract expires at the end of 2014.

Wednesday, May 1, 2013, 12:01 a.m.

Patients in the newly created Allegheny Health Network can expect a reduction in unnecessary and duplicative care as leaders focus on cutting costs and emphasizing value over volume, the president of the network's physician organization said on Tuesday.

“Overutilization is not good patient care,” Dr. Tony Farah, president of the Allegheny Clinic doctors' group and chief medical officer of West Penn Allegheny Health System, told the Tribune-Review. “The ultimate goal is to be able to provide appropriate care in the right setting at the right time.”

Allegheny Health Network, the entity established by health insurer Highmark Inc., will be anchored by West Penn Allegheny's five-hospital network. It will include Jefferson Regional Medical Center and St. Vincent Health System in Erie, which awaits approval from the Erie County Orphans' Court.

When Highmark announced the network this week, officials emphasized it will be a patient-centered organization in which people eventually won't have to jump from location to location to see doctors, waiting times will be reduced, and patients will have access to medical records in an electronic format.

“This absolutely will be attractive to purchasers (of health insurance), whether they be employers or individuals, assuming that it's price competitive,” said Jim McTiernan, area vice president at Triad USA, a Downtown employee benefits firm. “At the end of the day, no matter what anyone says, the number one factor people are going to be looking at is price.”

During a media briefing to announce the network — intended to be a direct competitor of the UPMC behemoth — Highmark officials stopped short of saying it will immediately decrease health insurance premiums for its members.

“We're doing our best to keep rates as low as they can be,” Highmark CEO William Winkenwerder told reporters on Monday. To rein in costs, the Allegheny Health Network will likely provide monetary incentives to doctors who meet quality benchmarks such as reducing preventable readmissions or making sure patients with diabetes get certain tests, Farah said.

“The current payment model that pays physicians based on volume is unsustainable,” Farah said. “It incentivizes physicians to overutilize. By incentivizing physicians on value, you completely eliminate the need to churn, thereby reducing overutilization. And simultaneously, the incentive then is to improve quality and value to the patient.”

The need for more efficient, coordinated care has been touted by the 2010 federal health care law, which has encouraged hospitals to embrace an approach known as “patient-centered medical home.” Using this so-called “Obamacare” approach, a patient's care is coordinated by a primary care doctor who heads a team of other professionals such as physician assistants, nurses and pharmacists.

“You're going to go to a physician that's going to manage your total well-being, and people respond better to that approach,” said Tom Tomczyk, a principal in the health care practice Buck Consultants, Downtown. “If it's piecemeal, I don't think it's as effective.”

Allegheny Health Network plans to provide more medical care in outpatient settings, Farah said. Highmark is building at least two medical malls that will be part of the network. One of them, a $100 million facility proposed for Pine, would provide one-stop shopping for primary care, imaging and outpatient surgery.

“Nobody wants to be in the hospital,” Farah said.

The Allegheny Health Network intends to hire more doctors, but Farah said it's too early to give an exact number. About 1,200 physicians work for the network, including about 650 at West Penn Allegheny Health System.

Luis Fábregas is a staff writer for Trib Total Media. He can be reached at 412-320-7998 or

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