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Analysis: Six things to know about the big CareOregon merger

Supporters and opponents of the combination of an Oregon health care mainstay with a California-based Medicare insurer have publicly sparred for months, but significant aspects of the deal remain little-recognized, unsettled or unknown
CareOregon is among 16 coordinated care organizations in Oregon serving Medicaid members. | LYNNE TERRY/THE LUND REPORT
January 16, 2024
This article has been updated to incorporate additional reporting.

State officials on Jan. 17 are scheduled to make Oregon health care history when they issue a recommendation on whether to approve the merger of CareOregon — a Portland-based nonprofit that provides care to 500,000 low-income people — into a California-based entity known as SCAN Group.

The long-running review of the proposed transaction by a relatively new state office has been closely watched in Oregon health care circles — not in the least because control of CareOregon’s $1 billion in reserves would move out of state.

SCAN is also a nonprofit, and one that receives high ratings from the federal government for the Medicare Advantage plans it sells to seniors. It’s been embarked on multi-state expansion drive that it says will help it do battle with giant for-profit Medicare competitors that have sparked major criticisms and concern around the country.

CareOregon, meanwhile, is the mainstay of the Oregon Health Plan’s system of using insurers as contractors to oversee spending, administering care to 1 out of 3 OHP members. The merger decision is coming even as some leaders say the state should be adopting measures to better ensure local control over how the program's insurers earn and spend their profits.

The recommendation marks the new office's first-ever full review of a transaction. With a decision imminent, here are some key aspects of the deal as well as some that have received little attention so far.

The biggest decision is not the final one.

It seems counterintuitive, but while the final decision on the merger will be made by state Department of Consumer and Business Services, it’s the recommendation that the state Health Care Market Office decides upon that probably matters the most. That’s the one expected to be issued on Jan. 17 — in draft form, at least.

The office was set up by lawmakers in 2021 under the Oregon Health Authority to ensure that mergers don’t result in higher costs or reductions in care and access. The office can place conditions on major transactions or, in theory, deny them. According to its recently released annual report, it’s reviewed nine transactions and approved all of them, including four with conditions. So far it hasn’t denied any.

While another arm of the health authority must also approve the deal, its authority and scope are not as broad. Nor is the review by DCBS, which oversees insurers.

State rules require the market oversight office's initial recommendation to be framed as a proposed order, after which the public will have at least 30 days to comment. After that, the office issues a final order.

It’s complicated

Proponents of the deal contend that the combining the two entities would not be a merger; rather, it would be two nonprofits investing from their reserves to form a third nonprofit, HealthRight Group in California, that then would oversee the two originating entities as subsidiaries. Instead of direct control, they argue, theirs will be a relationship of symbiosis and cooperation, overseen by a board controlled by leaders of SCAN.

A Dec. 18 letter sent by the law firm hired by the state to assist with the merger review, Morgan Lewis, indicated that it sees things differently.

 If the merger is approved, HealthRight will “have direct or indirect control” over insurer-like regional Oregon Health Plan care organizations currently operated by CareOregon in Jackson County as well as in Tillamook, Clatsop and Columbia counties, the letter said. Also, HealthRight “may have indirect control over Health Share of Oregon through its ownership of CareOregon.”

Health Share of Oregon is a collaborative between CareOregon and Portland-area hospital systems, known as a coordinated care organization, that was approved by the state to oversee care for low-income members of the Oregon Health Plan in Washington, Multnomah and Clackamas counties.

A spokesperson for the Health Share organization told The Lund Report that its board recently adopted a resolution assenting to the proposed merger without passing judgment on whether it’s a good idea.

“On November 15, 2023, the members of Health Share voted to consent to the change of control of CareOregon in the context of the Health Share bylaws. The consent decision by Health Share is not about the merits of the overall transaction. The decision protects Health Share and ensures the stability of the collaborative in the event that state agencies approve the transaction,” the spokesperson wrote. “Preserving CareOregon as a member and contractor of Health Share allows the collaborative to retain an important partner while avoiding any disruption to the reliability of services for OHP members.”

The merger is putting state officials in an awkward position

Proponents had hoped the merger would be approved by now. Because it hasn’t been, the key recommendation by the market oversight office will be issued during the tenure of new Oregon Health Authority Director Sejal Hathi, who began work Jan. 16.

That’s awkward because Hathi is a longtime friend of the CEO of SCAN Group, Sachin Jain. Both worked as federal employees in Washington, D.C., albeit at different times, and ran in circles with top aides affiliated with President Joe Biden or former President Barack Obama. Both have been described as thought leaders, appearing on national news outlets as commentators. On social media, Hathi has described Jain as among her “favorite people.”

Asked about Hathi in a Jan. 5 interview, Jain told The Lund Report that neither he, his employees or CareOregon representatives had spoken to the then-incoming director about the merger.

On Jan. 12, Hathi notified Gov. Tina Kotek’s staff an email of her “intent to refrain” from involvement in the merger, saying that while she and her family had no financial interests in the merger and don't legally have a conflict of interest, she was doing so out of “an abundance of caution given my longstanding personal friendship with the CEO of SCAN Group, to ensure that the applicants and the public have full confidence in OHA as a neutral decision-maker.”

Similarly, Kotek’s top liaison to the Oregon Health Authority, Kristina Narayan, has filed a notice of recusal, according to the governor’s spokesperson. That’s based on the former Kotek legislative aide's recent nine-month stint working for CareOregon as its vice president for public policy.

Information is still coming in

Even as the state merger office is poised to issue the key recommendation on the deal, officials at the Oregon Health Authority still haven’t shared with the public information they consider key to considering one part of the application complete. 

Three weeks ago, for instance, the Connecticut law firm hired by the state to shepherd the program, Morgan Lewis, sent CareOregon’s attorney a letter requesting more information about the proposed merger, according to a recent request under Oregon Public Records Law. 

Among other things the letter asked what safeguards the newly formed HealthRight group would establish to ensure federal Medicaid law is followed and that the Oregon providers that belong to its networks are not discriminated against for serving high-needs patients. 

The responses have not been posted on any state website, and the Oregon Department of Justice is still reviewing them for trade secrets.

While the merger review is nearing completion, wrote attorney Harold Horwich in the Dec. 18, 2023 letter, the agencies “reserve the right to request further information.”

New process reveals flaws

Several people including the CEO of CareOregon have criticized the public outreach process intended to raise awareness of the deal and solicit the public’s input.

Rather than hold public hearings, the state has held “listening sessions” in which state employees declined to answer questions posed by members of the public. Nor were CareOregon and SCAN representatives allowed to speak.

Rather than summarize the transaction in plain language, officials posted numerous documents, many in legalese, including a portion of its correspondence with the state. Many documents have not been posted publicly.

Adding to the haziness around the process, it’s not clear who makes the final decision on the merger, including whether it falls to Kotek, who is known for her hands-on approach. 

Asked how she views her role, Kotek’s spokesperson responded in an email that “The Governor’s focus is a thorough process in alignment with the law, and any oversight from her office is to ensure the law is followed. The Governor does not have a role in the final decision.”

Both sides cite health care and communities

Opponents of the merger, including former health authority director Pat Allen and Gov. John Kitzhaber, considered the father of the Oregon Health Plan, have argued the merger comes at a turning point and should not be approved before state elected officials shape new reforms. In December the state Medicaid Advisory Committee resolved that in the absence of more information, the merger should be denied. On Jan. 8, CareOregon submitted a 10-page letter with responses to questions raised by committee members, adding that “we hope the MAC will revisit its recommendations.”

The CEOs involved in the merger, including Eric Hunter of CareOregon, say that combining the two entities is primarily intended to save money on shared services such as purchasing power when it comes to IT systems or pharmaceuticals.

The CEO in charge of SCAN, Jain, said he intends to bring to Oregon programs he’s overseen in California to improve care for seniors and the homeless. Both CEOs said CareOregon will remain largely autonomous and focused on care for the poor. 

Both declined to provide commitments that the Portland-based nonprofit’s reserves generated from the Oregon Health Plan would be restricted to benefitting Oregon. Care organizations in the Oregon Health Plan system are not held to such standards. Legislation seeking such restrictions years ago faltered in the face of lobbying.