Pittsburgh-based Highmark has been in conflict with the University of Pittsburgh Medical Center after the largest health care system in the state said it planned to terminate contracts between its 3,000 doctors and the insurer. In December, the contract was extended a year, through June 30, 2013, after mediation sessions with Gov. Tom Corbett.

In the meantime, Highmark waits for approval from the Pennsylvania Insurance Department and the Attorney General's office to purchase West Penn Allegheny Health System in the western part of the state. In preparation for the acquisition, Highmark sold its Medicare claims processing division, as it would have been in conflict with owning a system that submits claims to Medicare.

The possible integration of the largest state insurer and one of the largest health systems might provide some possibilities for cost savings, something the nation's health care industry desperately needs, midstate health care industry leaders said. Continuing competition in western Pennsylvania and making a purchase that could be strategic for Highmark's future were other reasons for the company's decisions, Highmark said.

"We want to make health care affordable, we want it to be high quality, and we want to improve patient experience," said Michael Fiaschetti, senior vice president of provider strategy for Highmark.

Planning to purchase West Penn was a logical next step with those goals in mind, because Highmark can have more influence to accomplish them than by simply paying providers, he said.

Highmark doesn't plan on purchasing any other health care systems soon; it will continue working to align itself with providers via other means, Fiaschetti said.

"From a public perspective standpoint, any insurance company buying a health system has a negative perception," said Bob De Luca, a managing partner of health care consulting firm IMA Consulting, based in Delaware County.

He said he doesn't believe there is a conflict of interest, though it might take Highmark some time to wrestle with changing its mindset from a payer perspective to a provider perspective.

Having hospitals, physicians and insurers work together under one umbrella can be more efficient and effective to resolve issues, said Frank Trembulak, chief operations officer of Geisinger Health System. The health system in Montour County began as a hospital in 1915 and started its own health insurance plan in the 1980s. The plan today has more than 275,000 members, according to its website.

The ability to access hospital, physician and health insurance information together provides the strongest approach to analyze delivery of care for improvement, he said.

"From a provider perspective, we call it our sweet spot: We're able to use the information to develop different models of care delivery that improve cost and outcomes for the patient," Trembulak said.

Not only do Highmark's plans for purchasing West Penn make sense, they might be inevitable in our country's health care system, said Matthew Kirk, president of insurance broker The Benecon Group Inc. in Manheim Township, Lancaster County.

"The provision of health care and the financing of health care must get closer together," he said.

As Highmark develops an integrated delivery system, it might begin to explore different reimbursement methods, he said. Historically, the health care field has subsisted on a pay-for-procedure basis.

However, with medical costs rising faster than the rate of inflation, that compensation system has to change. Highmark eventually might be able to explore payment for quality of outcomes or look into payments for episodic care, Kirk said. In an episodic care reimbursement model, all providers and facilities are paid one set fee for an entire treatment, rather than being paid for each part of a procedure or service provided.

Different factions of the health care industry will continue to move closer, such as insurance carriers buying physician practices or urgent care centers, he said.

Although purchasing a health system is expensive, it might turn out to be a good deal if approved since West Penn was in need of financial support, providing Highmark can turn the system around, said health care attorney John Greenleaf III of Harrisburg-based firm McNees, Wallace & Nurick. The opportunity to be a leader in the movement to combine health care organizations for cost-savings and patient quality might have contributed to Highmark's strategy, he said.

Highmark also might have been looking to get out of the Medicare claims processing business anyway, De Luca said. There have been many different intermediaries processing claims over the past few years, and less funding is being provided to those intermediaries, he said.

"If you're an insurance company processing claims at a ton of cost in an already overburdened system, you think, 'What does that mean to me in five years or 10 years?'" De Luca said.

Highmark's direction hopefully will preserve competition, both for patient choice and to lower costs, said Dr. Marilyn Heine, president of the Pennsylvania Medical Society.

The balance of competition is important to provide access to efficient, quality-driven care, she said.

The integration of health care businesses will be closely watched in the coming months, Greenleaf said.

"Everyone will want to know if all of these different things, whether the Highmark deals, health care reform or other transactions actually result in health care costs going down," he said. "Whether or not they can actually make it happen will be interesting to see.