Financial disarray left by Kitzhaber’s grandiose healthcare reform plans

Sen Doug Whitsett

by Sen. Doug Whitsett

The remarkably rapid and very public fall from grace of former Governor John Kitzhaber has been well-documented.

Also well-detailed is the spectacular failure of his Cover Oregon portal to health insurance under the Affordable Care Act. Nearly $300 million of public federal funds were obtained at his request and “invested” to create the website insurance portal. That operation failed to operate in its entirety and was officially discontinued, scrapped by the State because it was allegedly not even repairable. Oregon is now faced with spending at least an additional $62 million to convert to the Kentucky portal system.

The entire Cover Oregon endeavor is now the basis for an ongoing federal investigation to determine how the money was spent, who benefited and how much of that $300 million must be reimbursed to the federal government. The failed portal is also the source of the State’s enormous, costly and ongoing lawsuit with Oracle, the software giant under contract to work with the Oregon Health Authority (OHA) to create Cover Oregon.

What is less well-known is the extent of the financial disarray left behind by the former Governor’s grandiose plans for the transformation of the Oregon Health Plan (OHP). His strategy is outlined in a July 6, 2012 OHA memorandum.

Kitzhaber travelled to Washington D.C., where he was able to convince the Obama Administration’s Centers for Medicaid and Medicare (CMS) to extend to Oregon a $1.9 billion 1115 Medicaid Waiver that he believed was necessary and warranted to complete his signature health care system transformation. The federal money was to be spent over five years to support the costs of providing health care services to Oregon’s low-income, vulnerable populations.

Our former governor’s plan aimed to improve access to health care services, reduce costs through medical service delivery efficiencies and reduced emergency room visits, focus on better management of chronic diseases and create emphasis on disease prevention through education and early intervention. His reforms attempted to give the new regional community care organizations (CCOs) broad flexibility to pursue creative programs to improve heath and reduce costs. He envisioned his plan would create cost savings sufficient to pay the State’s share of the OHP Medicaid costs after the federal money ran out at the end of 2016.

The federal money came with a number of specific requirements. The State was required to reduce the inflation of Medicaid per member health care costs by two percentage points within two years, and by up to 5.4 percent by June 15 of this year, while showing improvements in various quality metrics around care and outcomes. It required training an additional 300 community health care workers by the end of this year and holding the CCOs accountable for quality and efficiency through robust public reporting of metrics, as well as creating a system of incentives and penalties.

Kitzhaber’s program is experiencing significant difficulty in achieving those expectations. The United States Department of Health and Human Services expressed significant concerns that Oregon is not meeting the requirements of the Medicaid Waiver in an August 7, 2014 letter to OHA. Specifically, CMS expressed concerns regarding how Oregon pays for Medicaid Services including “high risk practices,” “data deficiencies” and “methodological gaps.”

As of last week, newly confirmed OHA Director Lynn Saxton was in receipt of another CMS letter requesting more detailed information.

Any future contracts with the State will depend upon corrections of those significant deficiencies. Many CCO executives worry that the federal position may lead to unsustainable cost hikes that could force the State to reimburse the federal government much of the $1.9 billion awarded in the 2012 Medicaid Waiver.

The OHP appears to be sailing toward a financial cliff of potential monumental proportions. Cost savings have not materialized, while the number of people insured has approximately doubled from about 600,000 in 2012 to an estimated 1.2 million in 2016.

Potential actions to address this gulf between costs and available funding include increasing patient fees, decreasing patient services and decreasing medical provider reimbursement. The provisions of the Medicaid Waiver appear to prohibit the State from taking any of those cost-saving actions without potentially losing Medicaid funding and without potentially triggering requirements to repay at least a portion of the $1.9 billion Waiver.

Moreover, several other funding problems appear to be on the horizon for the State.  The last $183 million Waiver offset is scheduled to be spent in 2016. The State requirement to match federal funding is scheduled to increase 60 percent in 2017, from five to eight percent. The match may become a full 10 percent in 2019, resulting in a doubling of the State portion of the funding requirement. Finally, about $100 million in Hospital Provider Tax surplus that is available for the 2015-17 budget periods will not be available in future biennia.

Maintaining Kitzhaber’s transformation of his signature OHP into the 2017-19 budget periods could easily cost the State an additional $1 billion. Potential federal penalties and repayments for Cover Oregon and the Medicaid Waiver could also result in very substantial additional costs. The costs of litigation and of potentially losing the exceptionally complex Oracle lawsuit could cost millions more.

Kitzhaber was willing to “roll the dice” to put his grandiose health transformation plan into action, in the hope that his proposal would be financially viable. The projected deficits clearly show that “hope” is not a viable strategy. The outcome of his grand strategy will surely cost the State enormous sums of cash. The only question now is how much money and for how long.

Senator Doug Whitsett is the Republican state senator representing Senate District 28 – Klamath Falls