Regence BlueCross BlueShield of Oregon leaders say a proposed merger between Salem Health and Santiam Hospital & Clinics would reduce competition, raise costs for patients and endanger healthcare access in the mid-Willamette Valley.

The insurer’s claims came in a 15-page letter submitted to state regulators Monday, April 27, as the Oregon Health Authority reviews the deal between the hospitals. 

State officials have been looking at the deal since last month and could make a decision as early as mid-May, 30 days after the transaction went public. They could decide to approve the deal outright, approve it with conditions or extend the process by 150 days for comprehensive review. 

The letter is evidence of ongoing tension between Regence, Oregon’s largest private insurer, and Salem Health after contract negotiations between the pair failed in late 2024. 

That breakdown left thousands of Salem residents on Regence with limited access to the city’s only hospital. Salem Health began canceling appointments for Regence patients soon after.

Over 20,000 people in Marion and Polk counties are insured through Regence, Regence spokesman Dean Johnson said

Regence leaders voiced opposition to the deal in the letter, arguing the merger does not meet the state’s criteria for approval. Johnson declined to comment further on Regence’s concerns.

The health authority weighs each transaction based on interest to consumers, including the potential need to consolidate to keep a hospital solvent, and how it will impact access to affordable, equitable care. 

“Our concerns are grounded in recent experiences with Salem Health, which terminated its contract with Regence after it sought unprecedented rate increases and subsequently refused to negotiate under reasonable terms,” Regence officials wrote.

Meanwhile, the insurer has a contract with Santiam until at least June 2027. Regence warns that its relationship with Santiam could be at risk with Salem Health at the helm, leaving some 700 Regence patients who visit Santiam each year with even fewer choices.

“Access to Santiam is essential,” the letter said. “Approval of the proposed merger calls into serious question the long-term viability of our current contract with Santiam and of Regence members’ access to their hospital services.”

Santiam and Legacy Silverton Medical Center are the only other hospitals in Marion County. Regence is currently in-network at both. If future negotiations with Santiam fall through, the Silverton hospital, a 30-minute drive east of Salem, would be the only nearby option for Salem residents insured through Regence. 

Salem residents with Regence can still go to the Salem Hospital emergency room. Federal law protects patients from paying out-of-network prices for emergency care.

Yet, in the letter, Regence claimed it has “at least one example of a (Regence) patient being refused service at the emergency room, in violation of federal law.”

Salem Health denied the claim.

“When any patient comes to our emergency department we do not ask insurance questions until care is provided. At no time has Salem Health discouraged a patient from seeking emergent care based on their insurance,” Salem Health spokeswoman Megan Allison said in an email. “In 2025, Salem Health served more than 4,300 Regence members in the emergency department.”

Allison said the organization’s previous contract with Regence included below-market reimbursement increases from 2021 to 2024. That meant the insurance company paid the hospital less than what it cost to care for patients, Salem Health claimed. 

“By the end of 2024, Regence’s rates were 35% below those of other insurers,” she said. 

At the start of the negotiations, Salem Health sought a 35% increase on what it bills Regence when its members go to the hospital or clinics for services like regular doctor’s visits and surgeries.

Regence claimed in the letter that Salem Health sought the increase to make up for what the hospital loses when caring for Medicaid and Medicare patients. Salem Health spends about $1.40 providing care to Medicaid patients for every dollar paid by the state, leaving the hospital to cover the difference.

Salem Health has tried to restart negotiations with the insurer on the condition of confidentiality. Regence has declined, saying that non-disclosure terms would prevent it from sharing information with lawmakers, regulators and impacted patients, according to the letter. 

“Salem Health remains ready and willing to sign a contract with Regence should Regence choose to pay market rates,” Allison said. 

In its letter, Regence argued the merger would give Salem Health too much control in the local healthcare market, strengthening its leverage for future contract negotiations with insurers like Regence.

“Salem Health’s acquisition of Santiam would eliminate a significant competitive alternative in the mid-Willamette Valley, giving Salem Health the market dominance to deploy the aggressive pricing tactics and patient exclusions Regence has experienced in its negotiations with Salem Health. This is precisely the type of consolidation Oregon’s merger review process exists to prevent,” the letter said.

Regence said further consolidation by Salem Health, if allowed, will also enable it to drive up costs for patients. 

The letter included data from the Department of Health and Human Services, showing that mergers between two hospitals in a concentrated market can raise hospital prices anywhere from 6% to 65%.

“In markets where a single hospital system dominates, providers can demand double-digit rate increases with the knowledge that plans cannot tell members their only local hospital is out of network,” the letter said. “These costs do not exist in a vacuum, but flow directly to individuals, families and businesses through higher premiums and out-of-pocket costs.”

Allison did not respond to Salem Reporter’s question about the stability of patient costs post merger. 

Regence further questioned if the merger is necessary, citing Santiam’s reported $14.4 million net income in 2024 and positive operating margins. 

“Santiam has positioned this merger not as a necessity, but as a strategic move,” the letter said.

If the deal goes through, Salem Health would pay Santiam $61 million. Santiam leaders plan to use that money to cover debts, implement a new shared record system, and invest more into its maternity department, in-house ambulance system and a new pharmacy in Mill City. 

But Santiam has “faced significant financial headwinds” following the Covid pandemic, Santiam spokeswoman Melissa Baurer said in an email. The hospital is also up against rising costs for care, staffing, technology and infrastructure while reimbursement rates from insurers continue to decline, Baurer said.

Given these factors, “Santiam will become more fragile in the coming years, not less,” Baurer said.

If the deal goes through, Salem Health’s system would adopt Santiam’s Stayton hospital and its 13 clinics in the Santiam Canyon. The Salem system presently includes West Valley Hospital in Dallas, Salem Hospital and 27 clinics in Marion and Polk counties. 

Regence is asking the state to do a comprehensive review and create a community review board for it that includes Santiam patients or employers that would be affected by the loss of Regence access at Santiam. 

Still, the insurer argued the merger ultimately fails to meet the state’s standards for approval and “should be denied.”

Have a news tip? Contact reporter Hailey Cook: [email protected] .

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