From the outside, it might appear that the contract standoff between western Pennsylvania's hospital giant UPMC and insurance titan Highmark is just payor-provider brinksmanship on steroids. You know the scenario: months before a big hospital provider contract ends, one side publicly accuses the other of being intransigent, unrealistic and unreasonable in their contract negotiations. Contract talks halt. Both sides speak darkly that there will be disruption and people will lose access to their doctors and hospitals. Perhaps it even goes as far as newspaper ads hurling insults at the opposing party.

And then they reach agreement and everyone's happy partners in healthcare once again.

The longer it goes on, the more obvious it is that the UPMC. Highmark dispute is not just a regional kerfuffle over a contract. Given the growing concentration of healthcare providers and health insurers nationwide, the UPMC-Highmark battle may be a glimpse into a dystopian future for several highly consolidated markets across the country.

Highmark is the dominant insurer in Western Pennsylvania, insuring 51 percent of covered lives in the region, and more than 3 million lives in Pennsylvania. It also controls the Blue plans in West Virginia and Delaware. The University of Pittsburgh Medical Center is the dominant medical provider in western Pennsylvania, with 20 hospitals, 400 outpatient sites, 2,900 physicians employed. The main contract between the two expires in July 2012, and the bitter contract talks have given way to blistering ad campaigns, lawsuits and market-shifting blows.

UPMC has signed and trumpeted new contracts with Highmark competitors Aetna, UnitedHealthcare and CIGNA (contracting with Aetna for the first time in 10 years). Highmark then made a $475 million deal with UPMC's chief hospital competitor, the financially-troubled West Penn Allegheny Health System. Now, UPMC says there will be no deal with Highmark, period, and that Highmark customers will have to pay out-of-network charges for their care after July 2013 unless they switch plans of course.

In the cartoons, this would be the point at which a battered Daffy Duck looks at the camera menacingly and spits THIS means WAR!

There are a number of markets in the United States with the degree of provider concentration Pittsburgh has Las Vegas, and Minneapolis are examples and the trend toward highly concentrated markets is very real. It seems inevitable that there will be more cities in which major hospitals and dominant insurers will face off, and dare each other to walk away from the contract table.

All over the country, physician groups and physician managers are being purchased by hospitals, and even health plans. Private investor groups are buying up physician groups and practice managers as well. Health plans are tightening their networks, creating preferred networks, to steer members to favored providers, or away from the most expensive ones. Network-building is becoming a seller's market. And while some of the concentration has been accelerated by healthcare reform, the trend started long before PPACA's passage.

Employers in the region are understandably nervous about being the real casualties in this clash of titans, and major employer groups and public officials have called on both sides to negotiate calmly. We've got members who are transplant patients at UPMC, and if this happens, we feel we have to give them another option, one large group representative told me recently. This is just a bad situation for the whole community.

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