This article has been updated to incorporate additional comment and reporting.
Citing “funding constraints,” state health officials are cutting the per-person payments that they had planned to pay the regional care entities that administer the Oregon Health Plan for 1.4 million low-income people.
The change comes at a time when the coordinated care organizations, as they’re called, are under pressure to increase reimbursement to a wide range of providers in behavioral, dental and physical health, including hospitals.
The Oregon Health Authority had previously been expected to raise its average per-person reimbursement to the care organizations by 3.4%. But “while OHA normally aims to increase CCO capitation rates 3.4% annually, the 2025 rate increase has been set at 3.1% due to state funding constraints,” according to the state.
The health authority annually channels about $8 billion in state and federal taxpayer money to 16 regional coordinated care organizations that use the money to pay hospitals, clinics and other providers to provide free care for Oregon Health Plan members, who include low-income adults, children, and people with disabilities.
A majority of the money comes from the federal Medicaid program, while the rest comes from other sources, including the state's hospital tax and Oregon’s discretionary General Fund that lawmakers divvy up among a variety of programs.
“This funding anchors the important care coordination that (coordinated care organizations) provide as pandemic-era supports end and more people use health care services,” said Oregon Health Authority Director Sejal Hathi, in a statement.
The coordinated care organizations use the per-person funding while negotiating payment contracts with health care providers to cover all members’ needs. Providers, especially hospitals, for years have complained that payments from the care organizations fall far short of covering the actual cost of services.
Care organizations respond
Asked for comment by The Lund Report, leadership of the OHP regional care entities had mixed responses to state officials' decisions.
“OHA’s announcement underscores that CCOs have effectively managed increasing caseloads while continuing to invest in our communities. The 3.1% figure is in alignment with CCOs’ objective to keep the rate of cost growth at or below 3.4%,” according to a statement issued by Yamhill Communty Care.
Moda Health, which operates the East Oregon Coordinated Care Organization, also commented, citing its responsibility to the “unique needs" of rural health care “The Medicaid population in Eastern Oregon deserves access to high-quality care. The lower rates do have us concerned that the rate setting does not account for cost pressures and emerging trends that may differ by geography, for example rural vs. urban care that is evident in our diverse state."
It praised the state agency's “passion and commitment” adding that “we do anticipate this lower rate may have an impact on our provider partners. They will likely continue to get their normal reimbursement payments for care, but this may mean lower shared savings dollars returned to providers. So, that means less money to recruit/retain providers, and invest in tools and services that improve care to Medicaid recipients in Eastern Oregon.”
In a statement, CareOregon President and CEO Eric Hunter said, “We are proud that our community investments are starting to provide better access to quality care, especially in the behavioral health space. While our rates do not currently account for the increased health care utilization made possible by improved access, we look forward to partnering with the state to make sure we sustainably fund the health care system so that is able to meet the needs of the communities we serve.”
State had targeted higher rates
Under federal rules, the state is supposed to set rates based on in-depth analyses and projections of each organization's financial needs based on past spending, inflation and population trends. The actuarial rules regulating those calculations do not provide for political considerations other than to allow for a reasonable profit margin, which the agency normally sets at about 1%.
State officials said they have a goal of increasing overall payments to the care organizations 3.4% every year, but were dropping that to 3.1% due to funding constraints. They will continue to monitor the care organizations “to ensure members are able to receive timely, high-quality care,” according to their announcement.
The finances of the care organizations – which in effect operate as insurance companies for Oregon Health Plan members – have drawn scrutiny from regulators and the public because of the windfall profits many reaped during the pandemic. The care organizations stashed much of those profits in their reserves or paid them out as dividends to owners.
A Lund Report investigation found that from the onset of the pandemic in early 2020 to early 2023, the care organizations collectively garnered profits of nearly $440 million.
Critics said the taxpayer money was intended to pay for health services, not to mount up in reserves or be paid as dividends. Defenders of the profits said they were needed to meet new state reserve requirements and to spend in coming years on community health.
Gov. Tina Kotek successfully pressured the groups to put some of the money — $25 million, combined — into behavioral health.
State goal is also cap
Nationally, some surveys indicate health care costs are expected to surge by more than 5%.
State officials had committed to the federal government that Oregon would cap spending increases at 3.4% a year in the Oregon Health Plan. However, in their announcement, officials said 3.4% was also their target.
Asked about the constraints cited as driving the decision to increase rates by 3.1% instead, a state spokesperson said trends in the makeup of the population covered by the Oregon Health Plan had resulted in a lower portion of federal matching funds to support the jointly funded program.
The 3.4% cap on overall rate increases was promised by Oregon when federal officials had approved a vision in which the care entities had broad leeway in how they spent funds to try to boost health and save money. However, then federal actuaries stepped in saying the state must continue to set rates based on the previous year's spending. That meant care entities that successfully promoted better community health and achieved cost savings would be penalized with lower rates the following year.
Officials said Thursday the state will offer financial incentives to care organizations if they increase dental care and reimburse dentists who provide preventive services.
Also, starting in November, some state Oregon Health Plan money can be used to cover housing and nutrition, the state said. The state will also increase payments to hospitals that operate more than 50 beds for psychiatric in-patient services — a change that a PeaceHealth executive credited for the health system’s recent announcement of a new proposed hospital in Springfield.
State officials said that the 16 care organizations collectively reported a 2.2% profit margin in 2023.
CCOs may have lower profit margins this year, according to the state. OHA analysts have calculated that Oregon CCOs collectively had a 1.3% operating profit margin through June 30, 2024. Five CCOs reported having operating losses during the first half of 2024.
