Healthcare News & Insights

Hospital sues coordinated care organization

When Salem Hospital, a 454-bed, non-profit facility in Salem, OR, joined the local coordinated care organization, it was promised better patient outcomes and lowered costs. But instead, it now has a fight on its hands, and at issue is the reimbursement rate for Medicaid patients.

The background of the fight goes like this:

Marion Polk Community Health Plan (MPCHP) managed the care of local Oregon Health Plan patients through contracts with providers, including Salem Hospital. Then Willamette Valley Community Health (WVCH), a local coordinated care organization, was formed to deliver care to Medicaid patients in the Mid-Valley. WVCH replaced MPCHP as the financial conduit for Oregon Health Plan services.

Part of the plan

WVCH was formed as part of Gov. John Kitzhaber’s plan to improve health care for Medicaid patients by launching a new collaborative system.

In general, coordinated care organizations are a key part of Oregon’s overhaul of the Oregon Health Plan and include a network of providers expected to deliver more comprehensive mental, physical and dental care for thousands of low-income Oregonians on the program.

This new coordinated-care organization formed to deliver care to Medicaid patients in the Mid-Valley was expected to cover almost 68,000 people in Marion and Polk counties.

But all did not go as expected for Salem Hospital, since WVCH replaced MPCHP.

Lawsuit erupts

In fact, Salem Hospital filed a lawsuit against the local coordinated care organization.

According to, the complaint filed on Oct. 30 in Marion County Circuit Court stated that “the WVCH Board unanimously approved the assignment of existing provider contracts, including those of Salem Hospital and West Valley Hospital, from MPCHP to WVCH” in June.

However, in October, the complaint alleges that Jim Russell,  WVCH’s chairman, “declared that the assignment of the Salem Hospital provider contract from MPCHP to WVCH is void and that Salem Hospital would only be paid as a non-participating provider, at a lower reimbursement rate.”

Needless to say, this upset hospital executives, and a suit was filed asking the court to declare that Salem Hospital has a valid and enforceable contract with WVCH.

Lower reimbursement rate

Hospitals that contract with a managed care organization get reimbursement at 68% of the Medicare reimbursement rate. But if WVCH wins the fight, the facility would be reimbursed at 64% of the Medicare rate if the hospital provides services to more than 10 percent of the organization’s enrollees.

According to the report, Sherryll Hoar, the hospital’s spokeswoman said that “would roughly mean the hospital would receive 55% of what it costs to provide care to Medicaid patients. So for every $100 the hospital spends to provide a Medicaid patient care, it would receive just $55.”

And the hospital can’t afford those rates, when it’s already struggling to stay afloat.

In the tax Form 990 detailing its finances in the fiscal year ending in Sept. 30, 2011, Salem Hospital reported that Medicaid underpaid the nonprofit hospital by $18.3 million. And in fiscal year 2012, Salem Hospital barely broke even, reporting an operating margin of 0.8 percent. That’s despite aggressively cuttings costs.

Low patient volume, the rising number of uninsured and underinsured patients, the stagnant economy and pressures to lower costs have already greatly affected the hospital. It’s had to table major capital projects, in addition to cutting millions in operation spending, hundreds in jobs and sever units.

We’ll keep you posted on the lawsuit and the fate of the hospital.


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