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What does the Penn State Health-Highmark Health partnership mean for consumers?


Penn State Health Highmark Health Merger ed.jpg

Penn State Health and Highmark Health executives speak at a press event announcing the two companies’ partnership Dec. 18.

We maintain independence between editorial decisions and funding. But as a note of disclosure, WITF’s Transforming Health project receives financial support from Penn State Health. Read our policy on transparency in fundraising here

The partnership between Penn State Health and Highmark health is the latest health care alliance affecting the midstate.

Pittsburgh-based Highmark Inc. includes an $18 billion nonprofit insurer, as well as several for-profit hospital networks. It has more than 40,000 employees and operates in every state in the U.S.

Penn State Health, which formed out of Penn State Hershey Medical Center in 2015, sees the partnership as a way to improve local care and collaborate with more physicians.

Penn State Health says the partnership will lower health care costs and provide closer care for those who might otherwise have to travel across the state for medical procedures. To that end, the two health care companies plan to invest $1 billion toward the development of a health care network.

It’s hard to say, though, whether such partnerships do lower cost.

Generally, when two health care providers in the same region merge, prices tend to go up. A National Bureau of Economic Research shows that private insurance prices were 15 percent higher when hospitals had no competition compared with markets with at least four hospitals. Many other studies show the same result, though at least one study, funded by the American Hospital Association, finds that mergers reduce administrative costs.

This partnership however may lower consumer costs as health care companies fight for dominance in the region, according to Diane Hess, the executive director of Central Penn Business Group on Health.

Hess’s group advocates for quality, affordable insurance plans for employers. She says, right now health care costs in the midstate are higher than they are in Pittsburgh and Philadelphia. She thinks the recent alliances — and competition between providers — might help to drive down costs.

Those alliances include the University of Pennsylvania Health System’s 2015 merger with Lancaster General, as well as University of Pittsburgh Medical Center’s merger with Pinnacle Health in September.


UPMC is a $16 billion nonprofit health care provider with 80,000 employees and 35 hospitals. Those in Western Pennsylvania also know it as Highmark’s bitter rival.

That rivalry began in 2013 when Highmark announced it planned to acquire West Penn Allegheny Health System, a struggling hospital network that competed with UPMC.

That led UPMC to say it would not renew key contracts with Highmark, which controlled over half the health insurance market in the region. Suddenly, those with Highmark insurance found that their doctors were out of network.

Even UPMC’s top-ranked Children’s Hospital of Pittsburgh became off-limits for those with Highmark coverage.

After a lawsuit and years of negative TV, radio and print ad campaigns by both groups, regulators worked with them to settle the issue.

For now, the two entities are locked into a consent decree, which ensures in-network access at some UPMC facilities.That agreement will expire in 2019.

The Highmark-UPMC feud stirs bitter memories for many in Allegheny County, and raises the question of whether health care consumers will suffer similar collateral damage if UPMC and Highmark continue their feud in the midstate.

Highmark Inc. CEO Deborah Rice-Johnson says that’s not going to happen. Johnson says, there are already contracts in place with UPMC Pinnacle, and Highmark plans to keep those contracts. “Those customers who demand choice, we’ll give them choice, at the broadest level. For those customers who may be looking for something that’s more affordable, there may be other network considerations that they make.”

Penn State Health CEO Dr. Craig Hillemeier says there will be no pressure for people to switch to Highmark insurance. “We plan to accept other health insurance products into our system, and Highmark plans to sell their product to other providers, so we do plan to make contracts with other health care insurers.”

At least for those using the Affordable Care Act exchange, however, there’s already some evidence that the fight has begun to flare up. A recent ABC27 report  states that some Highmark customers got a letter stating UPMC Pinnacle doctors and hospitals will no longer be considered in-network for 2018.

At the Central Penn Business Group on Health, Hess says that the “narrow networks” created by these partnerships and mergers are becoming more common, and that’s likely to increase as more local health care providers are pressured to ally themselves with either Highmark or UPMC.

For the employer organizations she represents, Hess sees the competition as a good thing for price, but a harder sell in terms of network size.

“We like the idea of the lower price, but we don’t want to tell our employees where to go. Employers are getting more comfortable with that though, because the costs in their current form are unsustainable.”

Brett Sholtis
Brett Sholtis

Brett Sholtis was a health reporter for WITF/Transforming Health until early 2023. Sholtis is the 2021-2022 Reveal Benjamin von Sternenfels Rosenthal Grantee for Mental Health Investigative Journalism with the Rosalynn Carter Fellowships for Mental Health Journalism. His award-winning work on problem areas in mental health policy and policing helped to get a woman moved from a county jail to a psychiatric facility. Sholtis is a University of Pittsburgh graduate and a Pennsylvania Army National Guard Kosovo campaign veteran.

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