Kaiser Permanente Colorado, the largest insurer in the state, says skyrocketing hospital prices are the main reason it has recorded losses of $65 million in the last three years, forcing a top-to-bottom review of operations that will herald a more confrontational approach with hospitals.
Ron Vance, Kaiser’s new president of its Colorado operations, did not rule out filing antitrust lawsuits against those Colorado hospitals he contends have “refused to enter into reasonable contracts” with Kaiser.
“We’re evaluating all of our options,” Vance said when asked about the potential for litigation that would accuse those hospitals of engaging in noncompetitive practices that increase prices for patients. “Is that on the table? Everything is on the table. Is that something that could be considered? It could be.”
The Oakland, Calif.-based nonprofit health maintenance organization has more than 670,000 enrollees in Colorado. Kaiser also employs more than 1,200 doctors in the state and has 31 medical offices in the state.
“It’s no secret that this organization has had financial challenges over the last few years, and we are embarking on a journey to be even more member focused than we are today and to become more efficient in the way we do business and to really try to address the affordability issue,” said Vance, about a month into his job as president of Kaiser Permanente Colorado.
Vance spoke about the insurer’s review of its Colorado operations after a recent investigation by The Denver Post revealed data collected by state consultants shows Colorado hospitals hiked their prices by 76 percent from 2009 through 2016.
The Post reported that the data collected for the Colorado Department of Health Care Policy and Financing also shows hospitals in the state doubled their administrative costs during that time frame and built more aggressively than hospitals in all but one other state. State officials say they worry that all the building is duplicating services, creating empty patient beds and driving up prices. The data collected for the state also shows Colorado hospitals are among the most profitable in the nation. The Colorado Hospital Association has disputed some of the state’s findings and contends hospitals are building aggressively to accommodate a surging population. The association also contends investment income has temporarily inflated hospital profit margins.
Vance said Kaiser’s Colorado operations will not produce an operating margin this year, and he blamed hospitals as the primary reason for Kaiser’s revenue losses in the state. The changes that eventually will be implemented are aimed at ensuring Kaiser will produce a healthy operating margin by 2020, he said.
From 2015 through 2017, Kaiser had underwriting losses of $280 million on its insurance plans in Colorado, but the company was able to cushion the blow through investment income. Investment income allowed the company to limit overall net losses on its operations in the state to $65 million, documents the company filed with the state show.
“We think the tactics that are being employed by some of the employees and health systems in Colorado are unfair business practices, and we are developing right now a list of strategies to address those things,” Vance said.
“There is a spectrum,” Vance said. “Some hospitals are good partners and others literally won’t write a reasonable contract with us.”
He said the state has little regulation over what occurs when a Kaiser beneficiary goes to a hospital that is not in Kaiser’s hospital network. When that occurs, the hospital is free to charge the hospital’s full, or chargemaster, price instead of the discounted price that insurers typically negotiate, Vance said.
“When that occurs, we have a choice to make,” Vance said. “Do we pass on those exorbitant costs to our members or do we cover those costs? Historically, the vast majority of those costs we’ve chosen to cover and not pass on to our members, which has driven some of the financial challenges we face.”
Rather than pass on those costs to the people Kaiser insures, Vance said he would prefer to have hospitals charge what he termed “reasonable rates.”
“If you look around the country, other markets have taken much more aggressive approaches to address hospital pricing,” Vance added. “This is not a situation that Kaiser Permanente is going to address alone. I think other insurance companies and health plans have similar challenges. This is something that many of our elected officials and regulators are aware of. This is part of the public debate that is occurring right now.”
The insurer also will look for ways to become more efficient in ways that Vance said would improve services to those it insures. For instance, Kaiser doesn’t use mail order services to refill prescriptions as much as it should, Vance said. Technology also could allow more online booking for patient visits to doctors, he added.
Kaiser’s operational review will focus on the following areas: hospital contracting, sales strategy, pharmacy, business operating model, quality documentation, real estate, Medicare, outside medical services, care delivery and general efficiencies.
