Penn Medicine's new deal with Independence Blue Cross focuses on quality and cost

A new contract between the University of Pennsylvania Health System and Independence Blue Cross contains a guarantee that neither IBC nor the IBC member will be charged for a hospital readmission within 30 days of an inpatient stay or surgery.

That is one example of how the five-year deal, announced Wednesday, between the Philadelphia region's largest health system and its largest health insurer attempts to shift toward shared accountability and risk for quality and cost of care in place of a legacy system that could enrich health-care providers for redoing their work.

"This is a significant advancement in how we collaborate with hospitals and doctors to ensure our members, and the community-at-large, receive quality care at an affordable price," Independence chief executive Daniel J. Hilferty said in a statement.

Hilferty called the leadership shown by Penn Medicine CEO Ralph Muller and his organization "a major step in improving how the health care system works in our region."

In addition to shared accountability for cost and quality, the contract, effective July 1, calls for the exchange of real-time data and collaborative assessments of patients, with an Independence clinical-care transformation team working with Penn doctors to help them operate more efficiently.

Independence will provide comparative cost information for frequently performed procedures, data that doctors typically don't have, experts say. The assumption is that because doctors don't know what procedures cost, they order more expensive and unnecessary procedures out of habit.

The 30-day readmission guarantee, a first for the region and among the first nationwide, was Penn's idea, an Independence official said at an event commemorating the deal.

"We think we can do it well," Muller said of taking on that new risk. He said Penn has the advantage of being the only health system in Southeastern Pennsylvania with the same electronic health records for patients wherever they show up within the network, which could enable better care coordination.

Independence hopes the contract will be a model for other systems.

A contract that changes the way Penn and IBC interact is also significant given the scale of both organizations. In a bond-offering document last year, Penn said that Independence accounted for 32 percent of its revenue.

In the year ended June 30, 2016, the University of Pennsylvania Health System had operating income of $419 million on total revenue of $5.7 billion, for an operating margin of 7.35 percent.

Independence's parent, Independence Health Group, recently reported operating income of $317 million on $16.7 billion in revenue last year. That amounted to an operating margin of 1.9 percent.