Kaiser Permanente is arguing an Oregon provider's proposed 30% price increase is unfair and runs contrary to the state's collective goal of lowering healthcare costs.
Oakland, Calif.-based Kaiser, a not-for-profit healthcare giant that's both an insurer and a provider, is locked in a contract dispute with Salem Health, based in Oregon's capital. A seven-year contract between the two organizations expired Sept. 30, and Salem Health has proposed a new, two-year commercial contract with a 30% increase across all services.
The contract in question would affect abut 40,000 commercial Kaiser members in the Salem area, said Dr. Caroline King, a physician leader at Kaiser in Salem. That's about half of Kaiser's members in the area.
"This would really impact individuals and businesses, especially at a time where individuals and businesses are really struggling," King said. "We feel it's important to speak up and try not to allow that to happen."
Oregon health regulators are developing a plan to cap annual healthcare cost increases at 3.4% on average starting in 2021, and King said a 30% increase would be way out of line with that collective agreement.
In a statement, Salem Health it's committed to lowering the cost of healthcare, but it should not be done in a way that subsidizes one insurance company over another. Salem Health said it serves a high proportion of Medicaid patients, which requires higher reimbursement from commercial insurers to cover the cost of care. A recent RAND Corp. study cast doubt on that cost-shifting argument, finding no correlation between the proportion of government insured patients hospitals treat and their charges to commercial insurers.
Salem Health said Kaiser is trying to "strong arm a special deal that doesn't cover the cost of care in the community we serve. That's not fair to community members who pay for the cost of health care, and it undermines our mission of meeting the health needs of our community."
For its part, Kaiser is a massive healthcare giant with hospitals, clinics and an insurance plan. The system's net income more than doubled year-over-year to $4.5 billion on $22.1 billion in operating revenue in the quarter ended June 30. The health system drew a whopping $7.4 billion in net income in 2019 on $84.5 billion in revenue.
At that time, the system had 81,000 health plan members, 39 hospitals, 712 medical offices and 50 retail and employee clinics.
Salem Health is comprised of two acute-care hospitals and a number of medical clinics. It reported $51 million in operating income on $849.4 million in revenue in fiscal 2019, a 6% operating margin.
The dispute between Kaiser and Salem Health went public late last week when Kaiser bought an ad in the local newspaper accusing Salem Health of trying to raise the cost of healthcare.
Kaiser isn't the only insurer Salem Health has struggled to reach a contract with. The provider also had a public dispute last year with Regence Blue Cross and Blue Shield of Oregon, which has about 23,000 members in the Salem area. Of those members, 4,300 had sought care at Salem Health between June 2018 and July 2019.
The two organizations reached a three-year agreement last summer that delivers "high-quality, cost-effective" care to members, Regence spokesman Jared Ishkanian wrote in an email.
"Serving the Salem community is our privilege, and we are happy to have an agreement that allows us to continue doing so with Salem Health moving forward," he said.
King, of Kaiser, said the next step is to get back to the negotiating table. She said Kaiser wants to partner with Salem Health for the good of the community.
"We are collectively accountable for the affordability and so we need to work together," King said. "We are ready and able to do so when they're ready to talk about reasonable rates."
