This history begins January 16, 1901, when the federal government contracted with the Oregon State Insane Asylum (OSIA) in Salem to care for people deemed “insane” in the then U.S. Territory of Alaska. The year long contract stipulated that OSIA care for what the book calls the “Alaska insane” for $20 per month per patient. During that year 29 patients were taken to Salem, 27 men and 2 women. The contract was renewed for year at the first contracts’ expiration. 
In 1904, the contract was transferred to a private company, the Sanitarium Company, near Portland which operated the Morningside Hospital. Private hospitals or sanitaria were not uncommon in Oregon during this time. By 1915, 181 people from Alaska were living in the Morningside Hospital.
This arrangement lasted into the 1960s, when facilities were finally established in the new state of Alaska. If you are interested in learning more about Morningside Hospital, visit the Morningside Hospital History Project blog here.
The question still remains, why Oregon? The State Insane Asylum (later Western State Hospital) at Fort Steilacoom near Tacoma had been in operation since 1871 and is geographically closer to Alaska than Salem or Portland. Or perhaps even more logical would be to establish an institution in Alaska itself. Our 1916 text hints that difficulties in transportation around the Alaska Territory made the transfer to another institution a reasonable solution.
Although Portland is somewhat remote from Alaska, it is to be remembered that Alaska, with some 3000 miles of water frontage has no central point. A patient from the north would have to come to Seattle and be shipped back to the lower part of Alaska, if there was an institution in that region, and vice versa. Moreover, the climate of Alaska is none too good for an insane patient.
While the logistics may have made sense to administrators, the contractual arrangement had other consequences including separating people from their families and homes.
 Frar, William.et al “Eastern Oregon State Hospital”in Institutional Care of the Insane in the United States and Canada, Volume 3 Johns Hopkins Press, 1916. pg 871