By Tonic Advisors

On June 24th, UPMC and Highmark surprised the Greater Pittsburgh Region with a negotiated deal in which Highmark members would be able to access UPMC facilities and doctors.  After years of recrimination, accusation, and litigation, UPMC seemed to have unilaterally relented.  The city breathed a sigh of relief, and many commentators seemed thrilled at the prospect of reliving the health care glory of yesteryear.

Let’s not let relief lead to complacency. Nothing is certain or inevitable. A secure health care future will depend on how UPMC, Highmark, the City, the State, the businesses, and the people of Pittsburgh react moving forward.  The region has changed from the pre-crisis days.  Despite the détente, competition has become fiercer on both the payer and provider side. Instead of looking back, we must focus on today and the future.

Let’s look at what has stayed constant, what changed, and what we can do to make a brighter future for the region.

Been There, Done That – What do we already know?

  1. Southwestern PA remains a highly concentrated market.  Two providers control 70% of all care delivery (UPMC and AHN).  Three carriers retain most of the insurance business (Highmark, Aetna, UPMC Health Plan).
  2. Overcapacity remains high, in particular amongst staffed hospital beds.  Based on AHA (American Hospital Association) statistics, the Pittsburgh region has approximately 50% occupancy for inpatient hospitals.  The optimum number is hard to peg but the number probably should be between 75% and 85%.  To a degree, hospitals can staff up and down based on demand, but there is a limit to this flexibility.
  3. Building of outpatient care facilities and caring for patients in “lower cost” settings than hospitals continues (as it does across the country).  However, unless capacity is taken off line in the hospitals and costs are cut, this doesn’t necessarily save money.  Hospitals get less and less efficient as they spread costs over fewer and fewer patients.  The only solutions are to downsize hospitals, eliminate hospitals, or pay more to hospitals as a subsidy to keep them afloat.

Trends that are becoming Norms – What are we learning?

  1. Unconventional wisdom.  The conventional wisdom has always been that UPMC is expensive but excellent.  There is some validity to the view.  UPMC Presbyterian is costly.  This is true in large part because as a training hospital with many residents and fellows, it assumes many costs that traditional community hospitals do not.  Medicare pays UPMC considerably more for its services for this very reason.  To some degree, as a region we all pay UPMC more to help train the practitioners of tomorrow.  What may be a bit surprising is that analysis of data from PHC4 indicates that overall revenue for AHN is increasing relative to the number of inpatient days for its hospitals.  AHNs aggregate revenue growth per inpatient day has outpaced both UPMC and independent hospitals.  There are possible reasons for this other than just higher billing rates.  Increased relative outpatient revenue, decreased average lengths of stay or higher quality-based payments could be factors.  Higher payments from carriers such as its own parent Highmark could also be a source of some of the increases.  Somewhat incomplete data from a recent RAND study suggests that UPMC remains generally more costly as a percentage of its Medicare reimbursement schedule. Unfortunately, without greater transparency, definitive statements are not possible.  The region, and local employers, would do well to cooperate with third party entities such as RAND to share data and get a better understanding of both current and shifting costs.
  2. Persistent Expansion
    1. UPMC added UPMC East
    2. AHN has built and has plans to build additional micro-hospitals
    3. All manner of providers continues building outpatient facilities
    4. Telemedicine allows for more efficient use of medical services
    5. All providers have cost and quality incentives that reduce variable costs but do little to reduce fixed costs
  3. Regulatory flux
    1. Demands for transparency increase but are disjointed and ephemeral based on prevailing political winds and spend
    2. Change is demanded across the political spectrum from nationalized medicine, to Medicare for all, to expanded ACA, to ACA repeal
    3. State demands ranging from greater accountability for non-profits to elimination of non-competes could radically upend the field of play

The Region’s Health Care Manifesto

  1. Stop being a victim.  There are myriad of ways to get involved from actively pushing for regulatory changes to engaging directly in the health care process.  Stuff happens to people who wait for things to happen.  People who make things happen get the best stuff.
  2. Be educated. Don’t be manipulated.  There are a lot of people selling you.  Get unbiased advice.  The agent selling you a house is a font of really good information about your house, but they want to sell you the house.  There are some good organizations such as the Pittsburgh Business Group on Health who can provide insight, without trying to get you to buy the house.
  3. Pool your power, speak as one voice.  Work together.  There is a big difference between an orchestra warming up and a symphony.  Playing together off the same sheet of music makes a big difference.  Spend the energy and educate yourselves with someone trustworthy. Collaborate, argue and reach conclusions together.  Pursue solutions together.  Otherwise, business interests will cancel each other out and you will have no say.
  4. Anyone who says that they know what will happen over the next five years is….a tad too confident.  Many things could happen, but free will determines outcomes.  We have choices and we need to be smart about how we pursue them.  Otherwise we will get what we are given.  We can work for what we need or pray to fickle health care gods for mercy. The region has a choice.

The opinions, beliefs and viewpoints express by the authors do not necessarily reflect the opinions, beliefs and viewpoints of Pittsburgh Business Group on Health, its board or its employees.