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Q&A: CEOs defend CareOregon merger plans, balk at specifics

Leaders of a California-based Medicare Advantage plan called SCAN Group and CareOregon, the Portland-based insurer that oversees government-funded care for 500,000 low-income Oregonians, said criticisms of their proposed merger don't recognize its benefits or the risks of inaction. The companies haven't disclosed long-term plans due to antitrust rules, they said — but growth is the goal.
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CareOregon. | COURTESY OF CAREOREGON
January 9, 2024
This article has been expanded to incorporate more of this interview.

In recent months tension has grown around plans by a Portland-based health care mainstay, CareOregon, to merge into California-based SCAN Group.

The Oregon entity sits on massive financial reserves built as a government-funded health care insurer that operates two regional "coordinated care" organizations and participates in a third, Health Share of Oregon, in greater Portland. The nonprofit’s role overseeing care for 500,000 low-income Oregonians makes it a lynchpin of the Oregon Health Plan — which was set up under principles of local control.

Leaders of the two groups say their joining will make them stronger and benefit Oregonians, noting that SCAN, in addition to its Medicare Advantage plans, operates programs delivering care for seniors and homeless people.

But the move has sparked opposition from the state Medicaid Advisory Committee,  from former Gov. John Kitzhaber — considered the father of the Oregon Health Plan — and others. They say transferring control of CareOregon to a SCAN, a nonprofit focused on insurance for seniors enrolled in Medicare Advantage, could undermine the state’s health care system. The criticisms, combined with apparent state agency fumbling and a process marked by rounds of correspondence between lawyers, have led to a review process that has extended more than a year.

Questions around the long-term fate of CareOregon’s reserves drive much of the opposition. The merger proposal includes a plan to shift as much as $120 million of CareOregon’s funds to a proposed new California entity to be formed under the plan, called HealthRight Group.

As public debate continues, Gov. Tina Kotek, who oversees the health authority, has kept her thoughts on the deal to herself. The agency's merger oversight program is expected to issue a recommendation on the proposal later this week. If that office sanctions their plans, the two groups would still need two additional state approvals. It’s unclear whether those represent anything more than a formality.

In a recent interview, The Lund Report asked Dr. Sachin Jain, CEO of SCAN Group, and Eric Hunter, president and CEO of CareOregon, about the opposition they’ve encountered as well as the ongoing state review process. (This interview has been edited for clarity and brevity.)

The Lund Report: How did merger talks start?

Eric Hunter: The connection actually came from a board member, Colleen Cain, who was on the CareOregon board,  then joined the SCAN board. Colleen knew that they were having some of the same conversations we did — about how do we protect our ability to do what we do and maybe become more regional, maybe talk to more entities about collaboration and partnership. And she knew that the missions of the two organizations were aligned. 

As we learned more about where each company wanted to go, and what our challenges were, this just sort of grew into, “Hey, this can really work, we can do something different and special ... we can do some great work for people.”

TLR: You’ve drawn criticism with your proposal to transfer $120 million from CareOregon's reserves to the new HealthRight Group, which I understood to be the renamed SCAN Goup, in California. When the merger plan was announced a year ago Dr. Jain told us it would not be fair to assume CareOregon reserves could be used to fund the expansion drive SCAN’s has been on. So what is the transferred $120 million to be used for? 

Jain: I think it's important to put the $120 million in the context of the $240 million that SCAN has already floated from its reserves to SCAN Group (Ed. note: Jain is referring to SCAN contributing funds to the proposed renamed HealthRight Group). So in total, there'll be $360 million of funds that are either held or deployed at the SCAN Group — at the renamed HealthRight group level. What we're really doing is coming together to create a new entity and blend perspectives and representation from both entities. 

If you rewind the tape to when we first started talking about this combination, it really comes from the fact that both SCAN and CareOregon are in an increasingly compromised competitive position vis-à-vis national competitors. Most of managed care is delivered today by for-profit competitors who are essentially taking the public's dollars and using them to reward shareholders. And our view is that funds that are produced by not-for-profits should be reinvested heavily in the care of communities and individuals who need that service. 

I think the reason that the funds  are so important at the HealthRight level is they are going to allow us to actually make investments that we're not able to otherwise make. Humana has 4 million (insured) lives, United Healthcare (insures) over 40 million lives. Elevance has over 40 million lives. And even though CareOregon and SCAN measure their revenues in the billions, we're relatively small players in this land of giant managed care companies whose quarterly earnings exceed our revenues. In order to be successful long term we need to be able to make investments in ourselves that right now we're not able to make.

What we see nationally is that community based nonprofit health plans like ours are disappearing. Just look at Blue Cross Blue Shield of Louisiana, which is now getting gobbled up by Elevance. That was a local, not-for -profit health plan that is now being whose reserves are now being converted into a foundation. All those lives are now going to be managed by a for profit company. So I think the broader national context gets lost. I also think there's been a significant mischaracterization of SCAN. We're not some out of state for profit company that's gobbling up CareOregon. What we are is, is a partner to CareOregon in trying to build a HealthRight group. We were founded as a not-for-profit 47 years ago by a group of community activists who wanted to do right by older adults. So I think there's just been a bit of a mischaracterization of this that I think it's very important for us to set straight.

TLR: When you talk about the size or your competitors, Dr. Jain, you're referring mainly Medicare and larger managed care companies. Eric, why do you think shifting $120 million out of CareOregon reserves to HealthRight would better serve Oregon Medicaid patients — who are the bulk of your members? Why not keep that money here and spend it here through CareOregon?

Hunter: The kinds of things that Sachin is talking about to let us compete with large players as well as regional players that are not for-profits —MODA is  multi state, Providence Health Plans is multi state, Kaiser Permanente, now OHSU is merging with Legacy. These are mega-enterprises that can do things and afford things that I can't. For example, I wish that I could support our members and providers better with 24/7 call center, right? I can't afford to hire enough people to do that. Together with SCAN, with multi-state (insurance) products, we can look at options like that to provide access, but I can't afford to do that by myself.

So instead of paying for it by ourselves, we’ll pay for it in conjunction with SCAN out of that $360 million pot. It's not that these are funds that are coming away from care, these are monies that are sitting in the bank or invested right now. So we just want to invest them differently, more effectively with greater scale, and then also use some of it to say how do we drive better deals with pharmacy services, staff and training. We'll get more bang for the buck on every dollar we spend working with SCAN and HealthRight group.

Jain: We're open to investing a substantial portion of those funds in Oregon, and potentially even earmarking some of those funds for spending in Oregon. It's a conversation that we're certainly open to. We built a construct that we thought would best serve the organization going forward in the initial proposal but we're certainly open to input, and refining and revising the proposal based on engagement with regulators.

TLR: Dr. Jain you say you're “open” to earmarking these funds for Oregon. Eric, in an earlier email, you had said that at least $50 million of that $120 million is already specifically earmarked for Oregon. Doesn't that seeming contradiction highlight the fact that this money is going to be transferred to a headquarters that is not necessarily connected to what CareOregon leadership wants?

Hunter: There might be things that we do at the HealthRight corporate level that won't directly hit somebody's bank book in Oregon, but it's for the benefit of Oregonians, our providers our members, so that's what that (Hunter’s earlier $50 million earmark language) was more about. 

TLR: What benefits do you think patients and providers in Oregon will see if this deal is approved? 

Hunter: The idea is that initially they won't see a difference. CareOregon is the Medicaid arm of HealthRight Group. We're not changing and moving responsibilities over the care and service of providers or members in Oregon to HealthRight Group. But down the road, if we get more efficient then we can serve them better. We can have our member call times go from what are now nine or 10 minutes down to five or six and get their questions answered.

Jain: The term we're using is “multilocal.” Eric and I both made clear to each other that that commitment to the community was going to remain unchanged. In Eric's case, in Oregon's case, that means maintaining (Oregon Health Plan services) intact, the local governance, maintaining the board of CareOregon and having local decisions being made at the local level.

TLR: There is this history in Oregon, that Oregon Health Plan programs call for local control. People say, well, that hasn't really happened the way it was supposed to. For instance, CareOregon has two regional care organizations that in theory are independent. But in reality, no one looks at them that way. What guarantees can you both commit to that CareOregon would have control over its reserves, its profits, its decision making?

Jain: I would say the devil’s in the details of how this deal was organized and the protections we built around ensuring that there is absolute local control, the reserve powers. Documents related to the combination really articulate the fact that governance is going to be local. What we're looking to do is really strengthen shared services. That's our goal. We're looking to strengthen IT, our compliance functions, our legal functions.

Hunter: Folks might think that CareOregon controls those (regional care organizations), I think they would differ. We've specifically built them so that there's symbiosis because we're all working together every day. So that's why we’re in lockstep — not because of any control we put over them. 

CareOregon cannot capture (its regional care subsidiary) reserves without the agreement of the (regional care organization) boards. I mean, it's that two-key system. Those are the kinds of things that we talked about, independence and self governance and control. Our (regional care organizations), I think, appreciate how we work with them. 

I think there's a balance of managing (regional care organizations) in this model where you're respecting and putting the prominence on the local level. But there's the backstop,of something larger, and (regional organizations) can work off of the infrastructure that we've built.

TLR: State officials have asked you for the multiyear plans and objectives for the HealthRight group. And the response has been, we aren't sure yet, we haven't made those plans. How can you predict success for this venture or benefits for Oregonians if you don't have those plans? And honestly, how can the public? It seems counterintuitive that you would not have made those plans.

Hunter: There's only so much we can talk about together with where we are in the process. The details about the inner workings of the company, we can't share with each other because we both do Medicare, and there are antitrust rules. So will we change IT systems? I don’t know, we haven’t dug into each others’ IT. We haven't dug in far enough to say what specifically those (plans) are. We're starting from a place of respecting the local entities. And if there are things we can build together that enhance that, that's what we'll do. But we're not talking about changing models of care or provider contracts or any of the work that touches members and providers. 

TLR: Dr. Jain, you’re treated like a health policy rock star on the podcasts I've heard. What do you think Oregonians don't understand about you?

Jain:  I haven't seen anything that concerns me at all. People really want what's best for Oregon. I think they're asking really good questions. I think we haven't necessarily had all the forums that we we need to be able to answer those questions. But I think what people don't necessarily understand is really the competitive dynamics that make a deal like this as important as it is to preserve local, not-for-profit health care ... This is really the best route to do that.

TLR: Aren’t the competitive pressures you're talking about are on the Medicare side? The Oregon Health Plan, and the Oregon Medicaid market, is highly regulated with, essentially, franchises awarded by the state through a contracting process. And, yes, (Medicaid giant) Centene has moved into two regions, but the state is the final arbiter on the terms of that happening. And while under the current rules that has happened, it doesn't mean it's always going to happen. 

Hunter: What I see happening in Oregon over the last seven eight years is that financial realities kick in. If Centene purchased Trillium and stayed in (Eugene), it might be different. But they asked to move into the Metro Portland. The State gave them a contract. PacificSource has almost as many lives as we do in the state now. Kaiser Permanente (has) a huge presence in Health Share. Even those players that are local  are doing things which tell me that they pose a threat to what CareOregon has traditionally been, which is the safety net of the safety net. We aren't beholden to any hospital system. 

I don't harbor any ill will towards anybody who's spoken out against this deal. Because I think everyone is coming by and large from a place of love, right? They're worried that we will lose our way. And I'm here to tell you that we've carefully crafted this deal.

TLR: Dr. Jain you you've talked about how you think this merger is consistent with the Oregon Health Plan and the goals that the state has embraced. Former Governor Kitzhaber came out against this deal, What do you think is wrong with his analysis? 

Jain: I think the deal has gotten mischaracterized by a few folks taking a few sound bites, or maybe taking a few deal points and potentially misunderstanding them. I would love the opportunity to sit down with anyone, personally, who's got a curiosity about the deal. I think what people would really understand in a conversation like that would be the underlying intent, the service orientation, to sustain not-for-profit health care. 

TLR: We’ve talked about these scenarios of Centene or other for profit competitors coming in and taking over Medicaid. What if HealthRight decides to pull out of the Oregon market (with) control over (CareOregon's) $1.2 billion in reserves and assets? What guarantees are there that that won’t happen?

Jain: We’ve never even contemplated that, because that has nothing close to our intent in this combination. Our commitment is that CareOregon remains an intact entity and its service orientation remains exactly the same that it always has been.

Hunter: The whole idea of coming together is to be together and to build off what we're doing and add to it. Frankly, if we can add other players to the mix, if there are other plans across the country, who want to remain local, but are feeling these pressures don't want to sell, we're hoping they join the fold.

TLR:  The state, as you know, has the ability to place conditions on this merger. What sort of willingness exists on your end to commit to conditions that match the vision that you've laid out in this interview and elsewhere?

Hunter: It wouldn't make any sense to negotiate against myself, right? So throwing out what we'd accept is sort of a backwards way to do it. We've thought about what kind of conditions they may want to put on, and the ones that we've thought about aren't painful because we think some of them are already built into the agreement. And others make sense because as we said, we believe in the Oregon (Health Plan) model, we believe in local governance and control. So we welcome a conversation about any conditions, because there's no ulterior motives here. 

Jain: We're certainly open to a conversation, recognizing that we want to be able to preserve the underlying intent of this deal — which is to make one plus one equal three and really strengthen these two organizations.

TLR: What other plans would you have for Oregon related to your senior and homeless care programs at SCAN?

Jain: These are all initiatives that are already underway. We've got Healthcare In Action, which is our medical group, that is our not-for-profit medical group that's focused on people who are experiencing homelessness. We've expanded our operations to San Bernardino County, San Mateo County, San Diego County, LA County, Orange County. Our focus is really continuing to strengthen our commitment on frail and vulnerable populations in the last couple of years SCAN introduced the first LGBTQ-plus oriented health plan. We launched the industry's first women's focused Medicare Advantage plan called SCAN inspired. We've got a new plan that we launched a focus on Asian and Hispanic patients. We're just continuing down the path of, of trying to serve serve people who need service.

TLR: We've had two (regional care organizations) that pulled out of the market and essentially pull their reserves out of the Oregon Health Plan. We've also got this new waiver kicking in which could create new strains on (Oregon Health Plan insurer) finances. Things may not be as flush as they have been in the last couple of years. Are you willing to commit to keeping those CareOregon reserves in Oregon if you pull out of the Oregon Health Plan —keeping those reserves dedicated to Oregon purposes if you pull out of the Oregon Health Plan?

Hunter: I think Care Oregon would like to serve more of the Oregon Health Plan than we do. So there I can think of no scenario in which we would leave. 

TLR: Are you willing to make commitments to keep those reserves in Oregon in the unlikely event that the merged group does eventually decide to pull out of the Oregon Health Plan? 

Jain: I think we would commit to never leave the Oregon Health Plan is the commitment that we would make.

TLR: Some people have lumped SCAN Oregon into the criticisms of the Medicare Advantage program. 

Jain: There are a lot of negative predatory practices in Medicare Advantage, primarily driven by health plans that are driven by profit motive instead of a patient motive. And we've been held up nationally as a model plan focused on serving frail and vulnerable population. That's why we've been on the path that we've been on of trying to bring  a not-for-profit Medicare Advantage plan, to, more geographies: Arizona, Nevada, Texas, New Mexico. Because I think a lot of seniors are subjected to predatory marketing practices, utilization practices that put their health at risk. 

TLR: This decision will extend into the administration of the new OHA Director, Dr. Sejal Hathi. I know some people are already saying, “Well, you (Jain) know her.” I want to give you a chance to address that. Have you talked to her about this? What are her reactions? And what are your thoughts on how she will handle this transaction?

Jain: We filed this transaction more than a year ago, before Sejal was even considered a candidate for the position. Our hope for the longest time has been a rapid dispensation of the review process. And we've struggled with how long it's taken. I think we have submitted all the documents in a timely manner, and are hopeful that we are going to have everything in place. To answer your question very directly, no, we haven't discussed this transaction with Dr. Hathi … No one at SCAN has communicated with her, or (at) CareOregon.

TLR: What are your thoughts on how she'll handle this? It's a little unclear who's going to make the decision.

Jain: The deadline for a determination is January 12. And my understanding is that Dr. Haathi starts January 16. So my hope is that this will be sorted in an expeditious manner. We filed this, I believe, on December 14 (2022) if I remember correctly. We’re just hoping for a fair review and proactive dialogue with regulators, and we're hopeful that they'll come to the same conclusion we have, which is that this is the best thing for all the parties involved.

TLR: A point of clarification, my impression was that the Form A (another review process at Oregon Health Authority) was going to still be going, that there is going to be a public hearing.

Jain: That's right. …. Likely to just continue things moving along, is probably a better way of saying it. 

Hunter: We believe the (merger review) recommendation is due by the 12th. And (two other programs reviewing the deal) will have to make their own decisions following that. We aren't aware that they're actually going to schedule a formal hearing. Last we heard they were not. But if they do, we'll deal with that. 

But CareOregon was always for the (review) process. We were all about the transparency. We didn't expect we'd be the first ones to go through it (in a full review). Amazon One Medical just breezed through. Adventist Health and the hospital in the Gorge (Mid-Columbia Medical Center) breezed through. We get that we’re different. If there’s anything I would suggest in the process, it's that they make it more iterative and cooperative at the beginning.  All we do is we get letters back and forth from lawyers. We’ll get a list of questions, we respond and get another list of questions. We'd love to have sat down with those lawyers or sat down with someone and have a dialogue to understand what their concerns are and address them directly, then maybe wouldn't be a year in. So hopefully they'll learn. It's a new program. They're getting their feet under them. 

It's been it's been a little difficult for us to do strategic planning and do some of the things we want to do with our partners in Oregon because we're in a bit of limbo. We need to plan and so the sooner that they can get this thing decided the better. We're all for whatever they need from us. Totally cooperative and looking forward to being done and getting on with all of this.

Jain: Look, I think Medicaid is one of the most important programs that states administer. So the fact that there is intense regulatory scrutiny is appropriate. My hope is that we can just, while applying that same scrutiny, add some alacrity do it. And recognize the realities of what Eric said — which is that the length of this review, which is now 13 months ongoing, does in some ways hamper our ability to move forward with some of our strategic dialogue. So, I have no issue with the depth of the review, and frankly appreciate it. I think it's important for us to be able to articulate what we're doing and why we're doing it given how important this program is to all the stakeholders that are involved in it. I just think we would like now for the process to draw to a close at some point. I mean, that is our hope.


You can reach Nick Budnick at [email protected] or at @NickBudnick on Twitter.com.

Comments

Submitted by Thomas S Duncan on Tue, 01/09/2024 - 20:15 Permalink

Bigger isn't necessarily better.

And CEO's are probably not the ones to trust to watch out for patients best interests.

Submitted by Debra Bartel on Wed, 01/10/2024 - 08:07 Permalink

So.....taking money OUT of the Oregon Health Plan and sending it to an out of state company is supposed to provider better services for OHP and dual eligible patients?  If this is true, tell me when it has been true in the past.....because it has not.

Submitted by Joez Meriaz on Wed, 01/10/2024 - 20:03 Permalink

Why merge Medicaid and Medicare, kids and babies and the elderly? This just seems like C-suite wanting to grow so they can claim higher salaries. Financial disclosure already seems poor... without making things even more complicated.