White House Commits Billions to Oregon Coordinated Care Gamble

Published May 30, 2012

Faced with a massive funding shortfall for a sweeping Medicaid expansion, Democratic Oregon Gov. John Kitzhaber successfully convinced President Obama’s administration to gamble on the state’s new, largely untested health care plan to the tune of nearly $2 billion in taxpayer funds.

After an eleventh-hour meeting in Washington, DC, Kitzhaber announced he had convinced the Centers for Medicare and Medicaid Services (CMS) to stake him the estimated $1.9 billion needed to cover the costs to reform Oregon’s Medicaid program.

Kitzhaber claims his plan can save the federal government $11 billion in Medicaid costs over a decade, and Oregon will keep its Medicaid costs growing 2 percent slower than in previous years. But the approach he is adopting is largely untested, and already Oregon lawmakers are pushing back against some aspects of his plan which would send these tax dollars to out-of-state firms.

Moving to Coordinated Care

Kitzhaber proposes to move Oregon’s 600,000 Medicaid enrollees into coordinated care organizations (CCOs). The CCOs will accept a flat fee for delivering each patient’s care while remaining within that budget, with bonuses for quality metrics. If patient care costs more than the flat fee, health care providers will be on the hook for the difference.

No other state has tried what Oregon is about to attempt with the backing of federal tax dollars, according to Dr. Roger Stark, a physician and health care policy analyst with the Washington Policy Center.

“The Oregon program is based on an HMO model which ties into quality controls to hold costs down. But Oregon is broke, and they didn’t have the seed money to start the program because like all the states, they’re broke. Oregon really stood on its head, and the CMS gave in. Oregon’s program lines up with Obama’s law, and they probably sold it to the administration as a sort of pilot program,” said Stark.

Like HMOs

Stark notes the CCO approach hearkens back to the HMO model of prior decades, which was unpopular with doctors and patients alike.

“The physicians hated it because they couldn’t control treatment decisions and had to focus on cutting costs, and the patients hated it because they couldn’t get complete treatment—they had no trouble seeing a primary care physician, but it was extremely difficult seeing a specialist,” Stark explained.

Stark says rationing is inevitable under this method.

“Oregon told CMS they could save money, which is pie in the sky. Instead, there will be some form of rationing because they’re dealing with a fixed amount of money. The rationing will be subtle and insidious. Say you’re 60 years old and need a hip or knee replacement; they will tell that patient, ‘Oh, you don’t need that operation.’ Or they will tell him, ‘Take these pills, not those,'” said Stark.

Conflict Over Out-of-State Firms

Kitzhaber sold his approach to the legislature in part by calling for using local providers to treat the neediest Oregonians. But when two national health care companies decided to take advantage of the new law and set up shop in Oregon, lawmakers balked.

United Healthcare of Minnesota and Centene Corporation of Missouri are two of the roughly fifty organizations that submitted letters of intent to form CCOs for the Oregon health plan. The prize is a cut of the more than $3 billion a year of state and federal funds.

Saying this wasn’t “the intent of the legislation,” Rep. Mitch Greenlick (D-Portland), co-chair of the state House Health Care Committee, said state officials “should do everything possible to prevent them from coming in. I hope we hold their feet to the fire.”

Although the plan does not explicitly ban out-of-state or for-profit firms from qualifying as care organizations, state officials will have to review their applications and decide whether they meet their standards.

Molly McMillen, director of public relations for UnitedHealthcare, notes the firm already serves more than 250,000 Oregonians and hopes it will be approved to serve more.

“We would welcome an opportunity to also offer solutions to Medicaid beneficiaries in Oregon to ensure that more people have access to the quality health services they deserve,” said McMillen.

Tax Dollars for Patronage?

Devon Herrick, a senior fellow and health care economist with the National Center for Policy Analysis, says Oregon’s bias against out-of-state firms may be an example of a classic patronage system which keeps tax dollars local.

“Local companies have an advantage in lobbying state legislators to erect barriers to competition from out-of-state firms,” explained Herrick. “Still, an out-of-state managed care organization has to hire local workers and reimburse local providers, so the money spent wouldn’t leave the area. A willingness to encourage competition from any firm willing to honor the terms of the contract would benefit Oregon taxpayers. Competition is the best way to encourage price competition and discourage poor-quality care and rationing of care.”

Linda Gorman, director of the Health Care Policy Center at the Independence Institute, says regardless of who provides coverage, Oregon’s reform is based on CCOs rationing care.

“The question is how much control the CCOs will have over people’s access to care,” Gorman said. “If they have total control, then it is obvious that they can reduce expenditures. They can, for example, deny people care in ways that are very difficult to track. This might reduce physical well-being, but not in ways that are measurable without a comparison group. And that group doesn’t exist. Kind of like measuring the performance of the Post Office before Federal Express and UPS came along.”