With the recent hospital acquisitions of PinnacleHealth, Pennsylvania’s health systems and regulatory agencies seem to be girding themselves for a conflict that, hopefully, won’t happen.

On Friday, PinnacleHealth formally took possession of Carlisle Regional Medical Center, one of four hospitals purchased from Community Health Systems, along with Memorial Hospital of York, Lancaster Regional, and Heart of Lancaster Regional in Lititz.

PinnacleHealth’s announcement regarding the hospital acquisitions also came with an announcement that it would seek affiliation with University of Pittsburgh Medical Center, the state’s largest hospital system. The affiliation must be approved by the Federal Trade Commission.

Aside from owning most of western Pennsylvania’s health care infrastructure, UPMC also markets its own insurance.

PinnacleHealth CEO Phil Guarneschelli said Friday that the affiliation proposal would include UPMC expanding its health insurance offerings to the Midstate, but not on an exclusive basis.

“UPMC’s insurance arm will come in,” Guarneschelli said. “They will not be an exclusive provider. We anticipate it being business as usual with one additional payer should all this go through.”

PinnacleHealth currently has payment contracts with most of the state’s major insurers, including BlueCross, Cigna, Aetna and Highmark, and it has plans to maintain them at CRMC and other facilities, Guarneschelli said.

In a statement, Highmark said it also does not anticipate the arrival of insurance competition from UPMC to affect its existing relationships.

“We currently have contracts with all of the Pinnacle hospitals, including the four recently acquired from CHS, and don’t anticipate any changes or disruption to those agreements,” Highmark stated. “We have already engaged in discussions with the leadership team of PinnacleHealth and confirmed that they are interested in a long-term contract extension.”


Unease regarding market overlap between UPMC and Highmark stems from the situation that occurred 2014-2015 in the Pittsburgh region. The rivalry between the two companies resulted in Highmark severing its payment deals with UPMC facilities, and UPMC doing likewise at Allegheny Health Network, the hospital system with which Highmark is affiliated.

The situation resulted in significant disruption for patients, and was solved only with intervention from Gov. Tom Wolf and then-Attorney General Kathleen Kane. A state-adjudicated consent decree between UPMC and Highmark governs their relationship through 2019.

Fear of a Pittsburgh redux was cited by Kane in 2015 when her office opposed a merger between PinnacleHealth and Penn State Hershey Medical Center, a deal which was eventually declined after hearings before the FTC on anti-monopoly grounds.

Both UPMC and PinnacleHealth are nonprofit companies, but this does not immunize them to anti-trust laws if their acquisitions do not serve a charitable purpose.

Pennsylvania’s current Attorney General, Josh Shapiro, has echoed similar concerns.

“The Office of Attorney General is actively involved in monitoring the health care marketplace in Pennsylvania and takes seriously our responsibility to protect consumers, ensure access to affordable care and compliance with the laws governing purely public charities,” Shapiro’s office said in a statement from spokesman Joe Grace.

The sale of new insurance products by UPMC would also fall under the regulatory purview of the Pennsylvania Insurance Department. The company has yet to submit a proposal, the department said.

“We don’t want to speculate until they give us a plan,” department spokeswoman Ali Fogarty said. “There are a number of things we would address, but we’re hesitant to go into that until they decide exactly what they want to do.”

UPMC’s press office had not responded to an inquiry as of this publication.


However, on March 27 – two weeks after UPMC and PinnacleHealth announced their plans – Highmark filed with the Pennsylvania Insurance Department to change the regulatory order that controls its ability to invest consumer insurance assets in AHN and other subsidiary health providers.

The order asks the state to ease up on its control of Highmark’s commitments to such efforts. In its justification material, Highmark explains that its companies “need to be relieved of constraints which unnecessarily inhibit or burden their ability to freely compete.”

More specifically, Highmark explains that it needs to bolster itself in order to avoid being taken advantage of by UPMC – and specifically mentions the Midstate situation.

“Even more recently, (UPMC) announced a proposed affiliation with PinnacleHealth in central Pennsylvania, another core Highmark service area,” the company wrote in its filing. “All these changes mean that the threats to access and choice for Highmark customers and the public generally, which, until now, has been a uniquely western Pennsylvania phenomenon, likely is going to become a statewide issue within the very near future, with dramatic consequences for insurers, providers and insurance and health care consumers across the Commonwealth.”

The chances of creating another Pittsburgh-like debacle in the Midstate are not as high as they may seem, said Dennis Scanlon, director of the Center for Health Care and Policy Research at Penn State.

“I think it could get to that point, but it’s not quite, in my estimation, the same situation you had in Pittsburgh,” Scanlon said. “Even with Geisinger, Highmark doesn’t have the equivalent of an AHN in Central Pennsylvania.”

In May, Highmark had announced it intended to work with Geisinger on a joint venture to build a health care campus in the Montoursville area. With CRMC and West Shore Hospital owned by PinnacleHealth, Geisinger is the only other hospital operator in Cumberland County, with Holy Spirit Hospital in Camp Hill having become part of the Geisinger system in 2013.


The flurry of mergers and affiliations – and more mergers and affiliations intended to counter them – has been an obvious trend nationwide, Scanlon said.

“The underlying motivator for this is a significant move in the way health care is reimbursed,” he said.

Many insurance companies, in reaction to tighter budgets and federal requirements, are moving toward paying providers fixed amounts to cover a given population – paying for a set of “covered lives” rather than paying after-the-fact for specific procedures.

“The major upside here is that it gives the providers incentives to have better preventative care and keep people out of more expensive types of care,” Scanlon said.

The flip side is that such payment strategies put more financial risk on the providers. This gives them an incentive to expand their operations, in order to have a larger population and spread risk. It also encourages providers to become insurers, and vice-versa.

“If you’re combining the provision of care with the insurance function, then you want control over the provision,” Scanlon said. “Having your hospital and your doctors buy into your care protocols and your cost structure means you can manage financial risk and hopefully provide a better quality of care at the same time.”

Having a few large insurer-provider groups, which seems to be the trend, isn’t necessarily a bad thing until you get to a binary conflict like the Pittsburgh scenario, Scanlon said.

“The tradeoff is that if you can have these systems compete with each other it will presumably drive down prices, but on the other hand when people get cut out of relationships with their doctor or have their choice restricted to an either-or, that’s a concern,” Scanlon said.


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