September 25, 2013

Inova breaks with Kaiser: A sign of things to come?

Daily Briefing

Inova Health System will not renew its contract with Kaiser Permanente when it expires on Oct. 1, a parting of ways that could become more common as hospitals face growing pressure to contain medical costs, Sarah Halzack reports for the Washington Post.

Details of the Inova-Kaiser separation

The decision to cut ties—which was announced on Tuesday—means that Kaiser's 500,000 members will have to pay higher, out-of-network insurance fees if they use Inova facilities for non-emergency care. Other hospitals in the region—including Virginia Hospital Center in Arlington, Sibley Memorial Hospital, and Reston Medical Center—will remain in the insurer's network.

"The community is going to suffer by having much more limited choice in health care locations and health care provider sites," says Inova President and COO Mark Stauder.

The two parties had been negotiating a renewal agreement since March. Stauder says Inova was "very responsive" to Kaiser's concerns regarding pricing and patient access during the process, but the companies did not reach an agreement. "We truly believe that we just are not part of their long-term strategic plan," he says.

In a statement, Kim Horn, president of Kaiser Permanente of the Mid-Atlantic States, said the insurer would continue to view Inova as a "fellow key business and community leader in Northern Virginia," adding that Kaiser would look to "partner with them and other leaders on initiatives that will contribute to the health of our citizens and the growth and economic success of the region."

Commenting on the separation, consultant Bob Laszewski said that Inova's decision to sever ties was likely driven by the insurer's refusal to reimburse hospital services at the level that the health system requested. "What's driving it is easy, and that's financials. That's profit loss," he said.

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Stauder told the Post that the two organizations had been moving apart for several years. Kaiser referrals to Inova have decreased by 80% since 2007, he said. Kaiser says that less than 1% of its members now seek non-emergency care at Inova facilities.

A sign of things to come?

The separation comes as Inova and Kaiser have been experimenting with new operating arrangements in an effort to boost profits:

  • Last year, Inova partnered with Aetna on a jointly operated health plan that offers financial incentives to providers who provide the most cost-effective care.
  • In 2011, Kaiser opened a wing inside MedStar Washington Hospital Center.
  • Kaiser continues to expand its medical footprint in the District of Columbia, investing $2 billion to construction and expansion projects in the metropolitan area.

Advisory Board Chief Research Officer Chas Roades told the Post that contract disputes like the one between Inova and Kaiser have long been a part of hospital negotiations with payers. "What's different now is that hospitals like Inova are moving into the insurance business directly, and finding themselves competing with the likes of Kaiser," he notes.

Booz & Co. analyst Gary Ahlquist anticipates more hospital-insurer separations as hospitals become more self-reliant. "They're butting heads more directly with their traditional health plan collaborators. So we'll probably see more of this, not less," Ahlquist says (Halzack, Post, 9/24).

More from today's Daily Briefing
  1. Current ArticleInova breaks with Kaiser: A sign of things to come?

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