Years ago, Highmark bolted a hospital network to its insurance operations and UPMC created a health insurer for its hospital system. In the process, the two Pittsburgh organizations became the vertically integrated powerhouses they are today, selling both health insurance and medical care.
But another health care giant — this one 90 minutes south of Pittsburgh in Morgantown, W.Va. — is taking a different road, one pioneered in the 1940s that its leadership believes will reduce costs and improve health for consumers in ways systems like Highmark and UPMC can’t reach.
And it’s growing. WVU Medicine’s fledgling Peak Health LLC health insurance plan just picked up its fourth nonprofit investor, with entry into Pennsylvania’s health insurance market on the horizon.
“A mistake other health systems have made is treating both the health plan and health system as profit centers,” Peak Health Board Chair Albert Wright said. “They’re both trying to make a dollar. When all of our patients do better, we do better.”
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Mr. Wright is also president and CEO of West Virginia University Health System — which does business as WVU Medicine — the founder of nonprofit Peak Health in 2021.
Valley Health, a six-hospital system serving an 18-county area in Virginia, West Virginia and Maryland, is the newest Peak Health partner, joining WVU Medicine, Mountain Health Network Inc. and Marshall Health in kickstarting Peak Health as a third-party plan administrator for the four health systems.
The health systems are all self-insured, which means they pay medical expenses for employees as those costs arise and they will turn over claims processing and other administrative work to Peak Health instead of a commercial carrier.
Peak Health began handling the university health system’s self-insured plan for 32,000 employees on Jan. 1, with WVU Medicine picking up $15 million in startup costs for the company.
Peak Health anticipates adding coverage for another 8,000 Valley Health employees and dependents Jan. 1, 2024.
Under the new arrangement, savings from doing claims work internally will be divided among Peak Health’s four owners — money that otherwise would be pocketed by a commercial insurer for what is known as third-party administration, said Valley Health President and CEO Mark Nantz.
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“Our employees incur costs and we pay claims,” Mr. Nantz said. “We’re going to get the providers closer to the people who pay the premiums, take one more hand out of the pie to lower the cost of care for people getting care from us.”
The Peak Health insurance business model is based on one pioneered in 1945 by Oakland, Calif.-based Kaiser Permanente, which operates a nonprofit health insurance plan, medical practice groups and the biggest nonprofit health system in the U.S. In 2021, Kaiser reported operating revenue of $33.25 billion.
Kaiser’s integrated business groups operate as a single nonprofit entity, rather than having affiliate business groups competing against each other for the same health care dollar.
Operating as a single unit allows for cost savings, which translated into an average premium reduction of 12% for WVU Medicine employees who were previously covered by a Pittsburgh-based Highmark plan, Mr. Wright said. “Significantly lower” administrative overhead make lower premiums possible.
Although Peak Health is now only licensed as a third-party administrator for self-insured plans, the company has bigger aims — including selling Medicare Advantage coverage starting in 2024. Valley Health’s Mr. Nantz said offering Obamacare coverage in the online market is also a possibility.
The switch will give Valley Health a real time view of employees’ claims data, helping the health system tailor preventive health initiatives to people with high medical needs, which can hold down overall expenses and enhance member health, Mr. Nantz said.
In addition to West Virginia, Mr. Wright said the Medicare Advantage plans will be sold in Fayette and Greene counties, a southwestern part of the Keystone state where Highmark and UPMC Health Plan are big players. WVU Medicine, West Virginia’s biggest employer, owns a hospital in Uniontown and has doctors’ offices in Fayette, Greene and Westmoreland counties.
The federal government pays private Medicare Advantage plan carriers a flat monthly rate to provide primary and specialty medical care services to people typically over age 65, based on the projected average cost of traditional Medicare coverage in a given county.
Medicare Advantage pays private insurance companies between 115% and 95% of traditional Medicare’s projected average costs, depending on location, according to the Medicare Payment Advisory Commission.
In 2019, the government paid Medicare Advantage plans $12,000 per person covered, plus bonuses and risk incentives. Unlike traditional Medicare, Medicare Advantage plans restrict the network of doctors and hospitals members can use to keep costs down, deterring what hospital administrators call “leakage,” or going outside a network for care.
Highmark Blue Cross Blue Shield West Virginia, the biggest insurer in that state, has 240,000 members, which is about the number of members Peak Health anticipates having within five years, Mr. Wright said. Highmark declined to comment for this story.
The Peak Health project marks the second time in four years that WVU Medicine is road testing health insurance.
In May 2019, WVU Medicine and Wheeling, W.Va.-based Health Plan, a nonprofit insurer, announced a merger pending due diligence. The deal collapsed six months later.
Not giving up but trying a different strategy, WVU Medicine is ready to give health insurance another go.
“We’re going to have the whole pie, rather than half a pie,” Mr. Wright said. “I hope we’re onto something.”
Kris B. Mamula: [email protected]
First Published February 5, 2023, 6:00am
With Pennsylvania in its sights, WVU Medicine kickstarts health insurer | Pittsburgh Post-Gazette
“Valley Health and WVU Medicine share the common vision of improving the health and well-being of residents in both West Virginia and western Virginia,” Ben Gerber, president of Peak Health, said. “Together with our other provider owners, Valley Health will help Peak realize the high quality, community-based model of care we are building.”
Based in Winchester, Virginia, Valley Health is a nonprofit health system serving the Northern Shenandoah Valley of Virginia as well as the Eastern Panhandle and Potomac Highlands of West Virginia. The system includes six hospitals and more than 70 medical practices and urgent care centers.
“Joining Peak Health is a wonderful opportunity for Valley Health and WVU Medicine to collaborate to improve the health outcomes of individuals in both Virginia and the eastern panhandle of West Virginia,” Mark Nantz, president and CEO of Valley Health, said. “Together, we look forward to offering cost-efficient, high quality health insurance products throughout the region.”
Peak Health currently serves as benefit administrator for approximately 32,000 WVU Health System employees and dependents and anticipates serving up to 8,000 Valley Health employees and dependents on Jan. 1, 2024. Peak Health will also enter the West Virginia consumer market in 2024 with low-cost Medicare Advantage products as well as services for self-funded employers.
“We’re excited and honored to have Valley Health, an outstanding health system, join as an owner and participant in Peak Health,” Albert L. Wright, Jr., Peak Health’s board chair and president and CEO of the WVU Health System, said. “Through collaboration with its health system owners, Peak Health can change the health trajectory of West Virginia and the surrounding region.”