Inova ends contract with Kaiser Permanente

September 24, 2013

Two of the largest players in Northern Virginia’s health industry are parting ways.

Inova Health System said Tuesday that its contract with Kaiser Permanente will not be renewed when it expires Oct. 1, a break that could be a sign of what is to come as pressure to contain medical costs forces companies to rethink their relationships.

The decision means that Kaiser’s 500,000 local clients will typically pay higher, out-of-network insurance rates if they elect to use health facilities or see clinicians from the region’s largest hospital system.

“The community is going to suffer by having much more limited choice in health-care locations and health-care provider sites,” said Mark Stauder, president and chief operating officer of Inova.

Bob Laszewski, a consultant with Alexandria-based Health Policy and Strategy Associates, said that when hospitals end relationships with insurers, it’s often because the hospitals’ costs are not being reimbursed at the level they want.

“What’s driving it is easy, and that’s financials. That’s profit loss,” Laszewski said.

Indeed, Inova said Kaiser has been sending fewer patients to its system over the past several years. Kaiser referrals to Inova have fallen 80 percent since 2007, Stauder said.

The separation of Inova and Kaiser comes as the health-care giants experiment with alternative operating arrangements in an effort to preserve profits. Last year, Inova launched a joint-venture health-care plan with Aetna that provides financial incentives to encourage doctors to use the most cost-effective care. Kaiser opened a wing inside MedStar Washington Hospital Center in 2011 as part of a partnership with that facility. And Kaiser has been making a major push to boost its medical center footprint in the Washington region, investing $2 billion to build or expand facilities in Gaithersburg, Largo, Baltimore, Tysons Corner and the District.

“These kind of contract disputes have always happened as part of hospital negotiations with insurers,” Chas Roades, chief research officer at the Advisory Board consulting firm, said in an e-mail. “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.”

Gary Ahlquist, a health-care analyst at Booz & Co., said separations like this one could be more common as hospitals move to become more self-reliant amid financial pressure.

“They’re butting heads more directly with their traditional health-plan collaborators. So we’ll probably see more of this, not less,” Ahlquist said.

Inova treats 2 million people a year across its system, and a small portion of them are currently Kaiser members. Between Sept. 1 and Sept. 17, for example, 208 patients admitted to Inova’s hospitals were Kaiser customers. Among them, 169 were emergency cases, meaning they hadn’t received a referral to Inova.

Kaiser said in a statement that fewer than 1 percent of its members in this region have utilized Inova hospitals for non-emergency care. Those members will have to pay more in the future if they return to Inova; coverage for emergency care will not change.

“We continue to view Inova as a fellow key business and community leader in Northern Virginia. We believe that the health services we both offer are complementary and hope 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,” Kim Horn, president of Kaiser Permanente of the Mid-Atlantic States, said in a statement.

Stauder said Inova was “very responsive” to Kaiser’s concerns, such as pricing and patient access, during the negotiating process. But the companies did not reach a deal.

“We truly believe that we just are not part of their long-term strategic plan,” Stauder said.

Kaiser continues to maintain relationships with Suburban Hospital, Sibley Memorial Hospital, Holy Cross Hospital, MedStar Washington Hospital Center, Children’s National Medical Center, Reston Hospital Center, Stafford Hospital and Mary Washington Hospital.

In Virginia, the company said, its “flagship partner” is Virginia Hospital Center in Arlington.

Sarah Halzack is a reporter and Web editor for Capital Business. She covers the local job market and the business of talent and hiring. She occasionally writes for other sections at the Post, most frequently in the form of dance reviews, dance features, book reviews and obituaries.
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