Kaiser Permanente Blasts 30% Price Hikes Sought By Salem Health

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For the second time in two years, an insurance company is publicly calling out Salem Health, saying the near-monopoly health care system is demanding exorbitant price increases for its services.

Kaiser Permanente, the California-based health insurance and health care giant, said Salem Health wants to raise prices by about 30% on almost all its services for roughly 40,000 Kaiser commercial and individual insurance members in the Salem market.

Salem Health doesn’t deny it is seeking the steep increase. The health care system and Kaiser negotiated their last agreement seven years ago, and prices in the agreement now lag the market by 30%, said Salem Health spokesman Michael Gay.

“Over the past year, Salem Health has consistently communicated with Kaiser the need for a new, market-based contract,” Salem Health said in a statement. 

The old contract, which had annual inflation factors built into it, expired about two weeks ago, Kaiser said. The managed care company said the 30% hike is excessive, especially at a time when the state is launching a program to keep overall statewide health care cost increases to 3.4% a year.

Kaiser’s talks with Salem Health are at a stalemate, said Dr. Caroline King, a physician leader at Kaiser in Salem. She added that the price increases would be passed along by Kaiser to businesses and individuals in the Marion County area.

The magnitude of the increases prompted Kaiser to take out a full-page ad in the Salem Statesman-Journal newspaper earlier this month hammering Salem Health. “Salem Health is raising health care costs for local businesses (a lot)” says the ad’s headline.

“These overinflated prices (being sought by Salem Health) are unnecessary, and they are not the direction we want to be going regionally and nationally. And so if we feel there is a player in the market that is doing this, it is for us to speak up,” King said.

The standoff highlights how difficult it may be for the state to try to curb the growth rate of medical costs. Directed by the Legislature, the Oregon Health Authority is developing a plan to hold hospitals, health insurance companies and large and medium-sized health care providers to a 3.4% annual average cost growth rate per member. The agency will begin implementing the program next year by collecting and analyzing spending by health care entities.

Salem Health’s proposed 30% hike looks like “a way of banking a big increase in 2020 to make it easier to do business under a potential state 3.4% cost growth cap in 2021,” said Michael Foley, a spokesman for Kaiser.

Salem Health is taking heat in part because it is in effect a monopoly in its region. Its flagship is Marion County’s only major hospital – Salem Hospital. The system also owns an extensive network of primary care and urgent care clinics in the Salem market, and is the majority owner of several Salem-area specialty practices.

King noted that in other regional markets in Oregon and Washington – the Portland metro area, Lane County and southwest Washington - multiple large hospitals compete.

“In other places there are choices,” King said. So, if health insurers want to serve members in the Marion market, they must reach a contract deal with Salem Health to have its clinics, specialty groups and hospital in the insurer’s network.

Kaiser’s complaint follows on the heels of a similar dispute last year between Salem Health and insurer Regence BlueCross BlueShield of Oregon when Regence’s contract with Salem Health lapsed. Regence, with 23,000 members in the Salem area, lambasted Salem Health in a full-page newspaper ad claiming, “Salem Health is asking for a bigger raise than you can afford” and saying the health care provider should “put patients first, not profits.” 

Regence said Salem Health was trying to impose double-digit price increases in the new contract. Salem Health responded that price increases were warranted to bring Regence up to market rates. The sides eventually settled the dispute in private.

Both Kaiser and Salem Health are nonprofits. And each side points to the other’s wealth.

Kaiser, an amalgam of health insurance plans, hospitals and medical clinics, is much the bigger, with 12.2 million members in eight states and the District of Columbia. For 2019, it reported an operating profit of $2.7 billion on operating revenues of $84.5 billion. That’s a 3.2% profit margin. But separately, it also had investment returns of $4.7 billion for the year.

“Kaiser is a big national insurer,” said Gay, the Salem Health spokesman. “They should pay their fair share of the cost of care in this community. Anything else is a disservice to our community and the businesses and families who pay for the cost of health care. Unfortunately, Kaiser has been unwilling to negotiate a fair plan that restores equality with other payers.”

Salem Health is a financial powerhouse in its market. By concentrating on Marion and Polk counties, with a total population of about 440,000, it has come to dominate them, and to do well financially.

Salem Hospital in 2019 had total profits of $141 million on revenues of $929 million, a 15.2% profit margin, the third highest rate among the state’s 26 large hospitals. But those numbers include investment returns and one-time gains. The hospital’s operating profit margin was 5.6%, just a hair above the state median of 4.2% for large hospitals. Salem Health has an investment portfolio of nearly three-quarters of a billion dollars, as of the latest tally.

King said Kaiser negotiates with many hospitals around the nation, and the price increases sought by Salem Health “definitely stood out.” Putting an ad in the local paper to draw the attention of Salem residents to the situation was a highly unusual step for Kaiser, said Foley, the company’s spokesman.

Salem Health didn’t like the ad. “Public ads like what Kaiser purchased last Friday undermine good-faith negotiations and agreement,” Gay said.

Determining which entity has fairness and right on its side may be impossible.

Kaiser said it scrutinizes prices charged by many hospitals and other providers, and that Salem Health’s 30% hike is unreasonable and excessive. A single-digit increase would be more realistic, said King.

For its part, Salem health said: “We benchmark our rates so they are right in the middle of the market: not the cheapest, and not the most expensive.”

Overall, Kaiser has about 80,000 members in the Salem market. About 40,000 of those are employees of companies or individual members, and their costs would be affected by whatever agreement Salem Health and Kaiser reach, assuming they do.

The remainder of Kaiser’s Salem area members are on Medicare, or in plans operated for public employees by the state Public Employees Benefit Board or the Oregon Educators Benefit Board. The prices that hospitals and other providers charge for services to Medicare or the two boards are negotiated separately and not affected by the dispute.

Salem Health said it asked Kaiser to agree to a separate contract that would keep Salem Health in-network for Kaiser’s contracts covering public employees and teachers, while continuing separately to negotiate over Kaiser’s commercial customers. 

But Kaiser refused. Kaiser said it wants a single contract covering all its Salem-area members. 

Gay countered that Kaiser is using its clients covered by Medicare and the two board as “hostages” to try to leverage Salem Health.

 You can reach Christian Wihtol at [email protected].

 

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