Skip to main content

FamilyCare, Oregon Health Authority Score Partial Wins In Ongoing Legal Wrangling

May 20, 2020

A costly, long-running legal battle between a defunct health insurer and the state of Oregon is returning to court after a recent federal ruling delivered partial wins to both sides.

The lawsuit at issue, filed in 2017, pits FamilyCare Health, a former Medicaid contractor, against the Oregon Health Authority, which administers the state’s Medicaid program.

In an April 30 ruling, the Ninth Circuit Court of Appeals backed FamilyCare’s claims that certain state actions were intended to hurt or disparage the company, as well as violate its First Amendment rights.

The ruling requires a trial court in Portland to reexamine the five-year contract between the two entities to determine whether, as FamilyCare claims, it was based on methodologies meant to put the company out of business.

At the same time, the ruling found that Oregon Health Authority Director Patrick Allen acted appropriately during rate-setting negotiations and was entitled to immunity from being personally sued by FamilyCare. That reversed an earlier trial court’s ruling.

However in another reversal, the federal court reinstated former OHA Director Lynne Saxton as a defendant. It found that her actions in ordering a public relations campaign against FamilyCare “violated the Constitution.”

All remaining claims will ultimately be heard in the U.S. District Court for the District of Oregon.

“A lot of these issues are very technical,” said Art Suchorzewski, FamilyCare’s director of governmental affairs. “But the high level takeaway is that we believe we can still challenge the state on the way it conducted the rate-setting process to FamilyCare’s detriment.”

FamilyCare ultimately left the Oregon market in early 2018 after being presented with a contract that FamilyCare officials said at the time would result in losses of at least $100 million annually.

“When you’re faced with that much loss,” Suchorzewski said, “you really only have one choice to make.”

The company’s decision to leave the market also resulted in the layoffs of 300 employees.

Jonathan Modie, an OHA spokesman, called the Ninth Circuit’s ruling a “mixed decision,” noting that it affirmed some of the state agency’s claims, while dismissing others.

"From the beginning, OHA has set rates for all CCOs that are fair, unbiased and actuarially sound," Modie said. "The rates are designed to provide CCOs the resources to give Oregon Health Plan members access to the care they need, deliver on important health outcomes, quality and member satisfaction measures, and manage taxpayer dollars appropriately."

The case is something of a living history lesson demonstrating the difficulties and challenges of implementing the Affordable Care Act and its dramatic expansion of Medicare coverage for low-income Oregonians.

In 2014, as the act was taking effect, FamilyCare was one of 16 Coordinated Care Organizations providing insurance to about 600,000 people. Within one year, that number had rocketed to more than 1 million.

The heart of FamilyCare’s contract with the state lay in how much the state would pay FamilyCare each year over the life of the five-year contract. As with payments to other CCOs, the rates were based on membership, the health of members and the financial risk of providing coverage.

FamilyCare first sued the health authority in 2015, saying that the agency set rates based on incorrect data. The resulting rates, it alleged, were therefore “incorrect and unsound.”

Although the state disagreed with that characterization, the initial suit was settled. Ongoing differences between the two sides led to the state countering FamilyCare’s 2018 lawsuit with one of its own.

“At this point, this is really about whether the state conducted itself appropriately under Oregon law and whether our First Amendment rights were violated,” Suchorzewski said. “It’s dragged on for a long, long time, but we are still confident that the full truth will yet come out.”

No new trial date has yet been set, but a backlog of current cases means it will likely be awhile before it is scheduled for a hearing.

You can reach Dana Tims at [email protected].