Salem Health Has Its Eyes on Expansion

Besides announcing a potential partnership with OHSU, Salem Health is said to be exploring a partnership with Moda Health to strengthen its hold in Marion County.

Merger talks are under way between Salem Health and Oregon Health & Science University, but one major player is missing from the action – Moda Health. Norman Gruber, president and CEO of Salem Health, appears to be keeping that conversation under wraps. However, he has plenty of time to make an announcement after renewing his contract through 2015.

When asked if Moda was engaged in talks with Salem Health, its spokesman, Jonathan Nicholas, declined to respond.

While everyone watches and waits for the news about Moda Health to break, the OHSU arrangement is sending ripples down the spine of independent physicians in Marion County, fearful they could face an onslaught of new competition, particularly specialists. When contacted by The Lund Report, no one appeared willing to go on the record.

Before selecting OHSU, Gruber and his board of trustees had other offers. But, they gave thumbs down to Legacy Health, PeaceHealth, and Providence Health & Systems, according to insiders familiar with the talks. Dignity Health, a Catholic-based system, also had been in the running. Had they been chosen, Compassion and Choices – which offers comfort care and pain management to terminally-ill patients and their families -- would have thrown up a gauntlet because of opposition from the Catholic church.

The announcement by Salem Health made it quite clear that the hospital-based system has a strong market share and a strong balance sheet, calling itself the leading health provider in the mid-Willamette Valley.

“It is early in the process and too soon to tell if our ongoing conversations with OHSU will lead to a formal affiliation, however, I am encouraged by our progress to date,” Gruber was quoted as saying. “While Salem Health has a strong market share and a strong balance sheet, exploring a potential partnership with another strong healthcare provider is one of the best ways to achieve the scale and resources needed to serve our patients and the community in the future.“

Talks are expected to continue throughout the year with OHSU with a letter of intent signed by the end of 2014.

Moda Health is the Force to Watch

Moda is the obvious choice to affiliate with Salem Health. The health plan had already formed a partnership called Synergy which includes Legacy Health and OHSU. They were successful in their bid proposal to offer coverage to public employees next January following a decision by the Public Employees’ Board last week. Synergy will compete with Providence Health Plan in the Portland metropolitan area and Salem where the majority of the 130,000 state employees and their dependents reside.

The PEBB contract, which will be signed in June, represents the first foray of Moda into the public employee arena. Its health plan will also be available in10 eastern Oregon counties next year.

Oregon Health Authority officials have characterized the Synergy option by Moda as a coordinated care model – even though no new coordinated are on the horizon.

Its approach offers the elements of coordinated care, said spokesman Alissa Robbins, such as using best practices to manage care, sharing responsibilities and engaging members in health; measuring performance; paying for outcomes and health; providing information; and financial sustainability.

The coordinated care approach undertaken by Moda is an important distinction because Governor John Kitzhaber is intent on bringing this model into the private insurance marketplace. Now that Moda has a firm partnership with two hospital and physician health systems – Legacy and Salem – it’s poised to become a significant force in the years ahead. Furthermore, it’s created an integrated health system – similar to Kaiser and Providence –without the encumbrance of having to hire physicians and acquire hospitals.

“It’s all about market share and money,” according to a well-connected observer. ”The industry is consolidating and you’re going to see fewer and fewer independent physicians and hospitals,’ it’s similar to what’s happening with the banking industry, we’re about to see a massive change in our healthcare system.”

Moda Takes Majority of Cover Oregon

Moda also showed its modus operandi by becoming the lead insurer with Cover Oregon, and has 73 percent of the 42,915 people who signed up for a private health plan – no big surprise after it beat down its 10 competitors by coming up with the lowest premium rates.

In early May, insurers need to file their rates for 2015 with the Oregon Insurance Division, and it will be interesting to see whether Moda asks for a significant rate hike.

Moda also hasn’t been shy about spending its revenue on marketing and advertising after changing its name from ODS. Last year, its marketing budget reached $1.76 million, an increase of $1.09 million from 2012, according to its annual financial report. Yet another $40 million – over the next 10 years – is being spent on renaming the Rose Garden.

Moda and Salem Health

The PEBB contract isn’t the first time Salem Health has ventured into an agreement with Moda. It already has a Medicare contract with the health plan.

For his part, Gruber made it quite clear that Salem Health was looking for a partner similar to Kaiser when he spoke at the Salem City Club in late December, -- a strong integrated system with employed physicians and other allied practitioners, tertiary care hospitals – with an insurance plan in the driver’s seat.

The current system is unsustainable, with too many hospital beds and an overall occupancy rate of 67 percent across the country, Gruber said. “The system has over capacity and been in decline since 2008.” And, Salem Hospital’s ability to cost shift is becoming less and less with growing labor cost pressures.

The big concern of hospitals, he continued, is rapid consolidation as the cost shift continues, with the system taking on characteristics of the airline industry, which has gone through massive consolidation to deal with huge fixed overhead costs. Hospitals face that same dilemma.

Salem Health operates Salem Hospital, West Valley Hospital and Willamette Health Partners and is the largest private employer in the Salem area, with nearly 4,000 workers.

Diane can be reached at [email protected].

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