Health Leaders Say Time is Up for FamilyCare After Years Long Feud

In an interview with The Lund Report, Rep. Mitch Greenlick and House Speaker Tina Kotek said they tried to work with the state’s second-largest Medicaid provider as it struggled to live within its rates, but the CCO would not reform. Heatherington, defiant to the end, cried “bull----.”

The state’s Democratic leaders are disappointed at the collapse of FamilyCare, but in a lengthy interview, they told The Lund Report that it is now time to move forward by closing down the Portland Medicaid health plan at the end of January and transferring its members to other coordinated care organizations.

“It is absolutely a done deal,” said Rep. Mitch Greenlick, D-Portland, the veteran chairman of the Oregon House Health Committee. “The facilitation will come from the courts if they’re still alive. This was not ‘We’ll give you another month and then we’ll talk about it again.’ It was: ‘We’ll give you another month, we’ll give you another $5 million dollars to help us transfer your patients over.’ And I think they’ve taken that in a fair and honest way. But there is virtually zero probability of reconciliation”

After the FamilyCare board voted to reject the terms of the 2018 contract and to shut down, OHA Director Pat Allen negotiated a one-month extension to Jan. 31, with an extra $5 million to help the CCO close smoothly.

“We have to be focused on the transition,” added House Speaker Tina Kotek, D-Portland. “Certainty, and certainty for the providers and the patients is now the focus. We’re not going backwards. We can’t. We need to focus on the transition.”

Greenlick said it was FamilyCare’s refusal to rethink its business model that doomed the company, after three years of showing operating losses. “I believe they should have continued to deliver service. You know, the problem [for OHA] was how to distribute the Medicaid budget and how to fairly distribute.

“We’re committed to a 3.4 percent maximum [annual] increase of Medicaid expenditures per person and that’s considerably more than [increases] before CCOs,” he said. “The basic notion was, they get a fair budget based on the risk of their population and then they figure out how to transform the medical care system to make it work.”

“I don’t know how it could’ve been avoided,” said Kotek. “Our office worked very hard over the last three years to hear FamilyCare’s concerns. We had multiple conversations with OHA, and I think OHA did some things that made things complicated in working with FamilyCare. But when Director [Lynne] Saxton left and Director [Pat] Allen came on, I think Director Allen has worked very hard to be upfront with FamilyCare, transparent. He went and got a third party actuary, he answered questions. At the end of the day, FamilyCare did not like the answers they were getting.”

FamilyCare was consistently paid the lowest of all the coordinated care organizations in 2015, 2016, and 2017 before moving up a notch to second-to last for 2018 -- rates it rejected as its board voted last month to fold. Greenlick justified these low rates by arguing that FamilyCare has a patient mix that is much healthier than its lead competitor, Health Share, as well as all the other 14 CCOs across Oregon.

“A child 0 to 5 is much cheaper to deliver healthcare to than, say, a 50-year-old with diabetes or cancer or heart disease,” Greenlick said.

In the end, FamilyCare claimed such a high deficit for 2018 -- $95 million, or roughly 20 percent of their annual budget -- that there was no way the state could agree to make up such a shortfall. Allen has said that even if FamilyCare received the exact same rates as Health Share, that would only lift their payments for the year by $12 million.

In his response to their remarks, FamilyCare CEO Jeff Heatherington refuted Allen’s math. “I don’t know where they came up with that number.”

The cantankerous executive has repeatedly and consistently clashed with the legislators and other health leaders, dismissing their arguments as spin to cover up for OHA and its true agenda, which was to shut down a hated contractor.

“They lied about Cover Oregon,” he told The Lund Report. “They lied about the ONE system. They lied about the redetermination problem. Why would you guys believe anything they say?

“They put us into bankruptcy with their rates. It had nothing to do with our business model,” Heatherington said. “We had lower costs than what was ascribed to Health Share. … The Oregon Health Authority likes to give small examples and generalize the entire program from that.”

OHA has been locked into a series of legal battles with FamilyCare for much of the decade. In its current litigation, the state has until Jan. 19 to cough up public documents that OHA has been withholding from FamilyCare that may shed light into its rate-setting calculations. The late Sen. Alan Bates, D-Ashland, also tried to get access to OHA’s materials but was similarly denied access.

Heatherington said that FamilyCare’s own actuaries claimed the state would pay them an additional $75 million if they were given parity with Health Share. That would still leave FamilyCare in the red, but they could work with a $20 million deficit.

If it’s true that FamilyCare got all the easy patients, Health Share would then have a much sicker population, since it’s the only other Medicaid plan operating in Multnomah, Clackamas and Washington counties. But Health Share’s rates have been consistently in the middle of the pack, and its rates were flat for 2018 while most outlying CCOs had their rates raised beyond 3.4 percent.

Outlying CCOs do get paid more for small, critical-access rural hospitals, but it’s unclear whether the Oregon Health Authority chose to pay them more than Health Share simply because of higher costs coming from the larger expensive hospitals with monopolies in their counties, such as the St. Charles health system in central Oregon or Sky Lakes Medical Center in Klamath County.

These hospitals can leverage a much higher payment rate from private insurers than hospitals in the Portland metro area that face competition, but Medicare generally does not allow them to overcharge the federal government in the same way.

FamilyCare was penalized two years in a row for overpaying primary care providers, despite state goals to nudge insurers and straggling CCOs to increase their primary care investments. Heatherington said the increase they made in primary care resulted in lower hospital and speciality costs. If he had submitted to OHA’s demands and cut the rug under primary care providers, he would’ve ended up with increased bills to specialists and hospitals.

The rub against FamilyCare may lie in those low hospital rates and the clout of the Oregon Association of Hospitals and Health Systems to shape the healthcare system in its favor. Heatherington said Health Share pays hospitals substantially more than FamilyCare, coming close to the same rate as Medicare -- a third higher than is standard for Medicaid.

Heatherington lobbied hard to pry open the door at the Oregon Health Authority in last year’s legislative session, hoping to revert to an earlier time when much of the material now deemed proprietary was public and rates were set according to a statewide risk score, with adjustments made only for the use of critical access hospitals in rural CCOs.

But Kotek killed that bill under lobbying by the other CCOs, who prefer the current system.

Not all the House Democrats are on board with the message that FamilyCare was treated fairly and was responsible for its own demise. At a hearing in Salem, Rep. Alissa Keny-Guyer, D-Portland, questioned the state’s method of setting rates for Medicaid providers.

“I think FamilyCare did some really innovative things and this process is not reflective of that,” she said. “Our rate process is not keeping up with the vision of where we want to go. I think they were trying to be transformative and they weren’t being rewarded for that.”

“I think they were not innovative enough,” responded Greenlick.

Greenlick, as well as two auditors and an actuary who reviewed the 2018 rate-setting process with The Lund Report, all agree that the system that OHA has come up with under is fair, even if it needs some improvement.

“I’ve actually run those rates,” Greenlick said. “I think there was a great deal of transparency. The only non-transparent thing was the CCOs who claimed that some of their data was confidential. But I think the methodology is wide-open and been reviewed by all the plans. FamilyCare knows how that rate works and they argue that their actuary comes up with a different number. It’s not that they can’t figure out the model. The model’s fairly simple -- scratch that, it’s fairly easy to understand -- it’s not simple.”

But after his interview with The Lund Report, Greenlick did express concerns at the hearing with Keny-Guyer that vulnerable Medicaid clients with behavioral health issues might get lost in the shuffle to Health Share, which has a very different provider mix than FamilyCare for mental healthcare.

To counter that, Health Share has agreed to extend out FamilyCare’s contracts for 180 days, compared to 90 days for physical health providers. “Health Share has to make sure they keep those interactions stable. That has got us all concerned,” said Greenlick.

Kotek said she had met with Health Share CEO Janet Meyer personally to encourage her to work with her partners to engage more independent mental health providers that FamilyCare has employed and simplify the bureaucratic process.

“The more people serving Medicaid, the better access we’re going to have,” Kotek said. “I also explained some of the challenges were for providers, how treatment is authorized is one of the big issues. FamilyCare had more of a “we authorize you for six months and don’t ask a lot of questions.’ Health Share had a little bit more of regular check-ins.”

Heatherington said he would use the extra $5 million the state gave FamilyCare for January to offer severance packages to the 320 employees who will put out of work. The CCO also will have a number of expenses shutting down its systems and leases, including at its main office in the Lloyd District of Portland. He said FamilyCare will continue to insure its Medicare Advantage clients, but will attempt to sell off that book of business.

“After 32 years, the state set to put us out of business and they accomplished it,” Heatherington bemoaned.

If it wins its legal case against the Oregon Health Authority, any funds left after FamilyCare’s debts are paid would be donated to healthcare-related charities.

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