IBX and Penn Medicine have early agreement on reimbursement rates starting next July

Independence Blue Cross and the University of Pennsylvania Health System have reached an agreement on reimbursement rates for an insurance contract that will take effect in July, the two Philadelphia health-care giants announced Tuesday.

They expect to finalize terms on the new contract over the next few months. The deal will govern how much the nonprofit health system is paid for providing services to 400,000 Penn patients covered by IBX commercial and Medicare plans in the region. Details on rate increases were not disclosed.

In an unusual twist, Penn and IBX, the Philadelphia region’s biggest health insurer, will not set an end date for the new agreement. Past agreements have run three to five years.

“The contract is designed to adapt over time,” said Richard L. Snyder, executive vice president for health services at IBX. “It could even go as far as 10 years in a world where things stay reasonably stable.”

Kevin B. Mahoney, CEO of Penn’s health system, described Penn and IBX as partners. “We have a formula that works for both of us. If medical inflation goes crazy like it did after Omicron, then we’d have to renegotiate,” he said, referring to a COVID-19 variant associated with a phase of the pandemic in late 2021 and early 2022 when labor and other health-care costs skyrocketed.

Snyder cautioned that there’s a lot beyond inflation that IBX and Penn don’t control that could force them to renegotiate. Those things include how federal regulators and state governments handle reimbursements under government insurance programs like Medicare, Medicare Advantage, and Medicaid. The contract is also designed to adjust for new technology costs and emerging high-cost treatments, such as cell and gene therapies, Snyder said.

The contract is expected to have several new features aimed at improving health-care quality and reducing costs, IBX and Penn said.

Penn has agreed to accept lower payments for certain services regardless of where the services are provided. Snyder called this reimbursement for “the most cost-effective setting.” For example, treatments usually cost more in a hospital than they do in a doctor’s office.

“Penn has agreed to accept the lower-cost setting reimbursement as part of the contract,” Snyder said. That means employers with IBX insurance plans “get the advantage, not of a hospital rate, but of a lower-cost setting even if the service is administered in the hospital,” he said.

The new contract will expand a pilot program that integrated behavioral health services into Penn primary-care offices. A study published last year showed that the practice did not increase overall costs for IBX. A previous study had shown that the pilot increased the number of patients who received mental health services and led to mental health improvements.

IBX and Penn are still working on an agreement involving radiation oncology. Penn physicians have found ways to reduce the number of treatments patients have to get for certain kinds of cancer.

That’s better for the patients, Mahoney said. “Less radiation, less travel. But that shoots us in the foot because we get paid fee-for-service,” he said. The goal is a payment system that would prevent Penn from losing all the revenue from the eliminated treatment rounds. “We’re still finishing that up, but we’ll get to an agreement,” he said.

The new contract will also continue several programs started under past contracts.