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State panel may come out against CareOregon merger

Oregon advisory committee will consider a draft recommendation saying the nonprofit’s absorption into a California entity could harm low-income Oregonians and shouldn’t be approved
illustration of a line of arrows interrupted by a do not enter sign
December 5, 2023

The state should deny the merger bid of Portland-based Medicaid insurer CareOregon and California-based The SCAN Group because it leaves essential questions unanswered and could “harm Oregonians by reducing access to health care,” says a recommendation prepared for a key Oregon Health Authority panel.

Approval by the state’s Medicaid Advisory Committee, which could happen at a Dec. 6 meeting, would represent a blow to CareOregon and SCAN executives who for months have pushed their vision of the two nonprofits joining to form a larger insurer with multiple lines of business. They argue that combined, they would be better equipped to compete against giant national for-profit health insurers.

Federal law requires the state to use the Medicaid panel, comprising 14 health care experts, providers, government officials and community representatives from around the state, to advise it on matters concerning the Oregon Health Plan. That’s the state’s version of Medicaid that provides taxpayer-funded care to more than 1.3 million low-income Oregonians. CareOregon oversees care to about 500,000 of those Oregon Health Plan members.

The final decision on the merger, however, will rest with top administrators of the Oregon Health Authority and the Oregon Department of Business & Consumer Services, according to the health authority

The draft recommendation faults two aspects of the proposed deal: first, that many basic questions about the benefits, drawbacks and impacts of the merger remain unanswered; and second, that it would entail CareOregon transfering a substantial amount of its wealth to a California nonprofit.

Under a central part of the proposed merger, CareOregon would transfer $120 million of its roughly $1 billion in reserves to a new California-based nonprofit healthcare entity — to be called HealthRight — which would oversee both CareOregon and SCAN. In recent months, that element of the deal has drawn criticism from observers, and now from the Medicaid Advisory Committee, too.

The “flow of taxpayer dollars leaving the state … suggests that the merger may harm Oregonians by reducing access to health care, lessening the commitment to addressing health inequities, and diverting financial resources currently available to local communities,” the draft recommendation states.

CareOregon accumulated its huge investment reserves over the past dozen or more years from annual profits it reaped as the largest administrator of the Oregon Health Plan in the state, receiving state and federal taxpayer dollars to provide coverage to low-income Oregonians. It administers the Oregon Health Plan for members in the Portland metro area, as well as in the Jackson County area in southern Oregon, and the Tillamook County area on the north coast.

CareOregon and SCAN proposed their deal nearly a year ago. But in their numerous filings posted on the websites of the two state agencies, the entities disclose few specifics. The filings provide little detail about how the transaction could affect CareOregon’s Oregon Health Plan members and the broader Oregon community. The two entities say they have not yet made many decisions about what they would do after the merger is approved. They have broadly asserted the merger would benefit CareOregon’s members, but they have not spelled out how.

That’s left some members of the public — and members of the Medicaid Advisory Committee — feeling frustrated and unable to understand or comment on the proposal.

Meanwhile, CareOregon has complained to Gov. Tina Kotek about the lengthy process and successive rounds of questions from the two state agencies — which have yet to declare the CareOregon/SCAN application filings to be complete.

Asked for comment on the letter, CareOregon supplied a statement from Eric Hunter, its CEO and president: “We have put considerable effort into transparency through compliance with months of questioning from the state of Oregon; after all of this time, it is disappointing to hear that the public does not feel well informed about what this partnership will mean for Oregonians. We hope to use upcoming public hearings to supplement the information currently made available by the state.”

SCAN Group, meanwhile, provided a comment from its president and CEO, Sachin Jain: “In an era of for-profit consolidation in the healthcare industry, when a one-size fits all approach has come to dominate care, it’s essential that we pay attention to the sustainability and preservation of regional, non-profit health plans that focus on local communities. By forming HealthRight Group together, both CareOregon and SCAN will have the scale necessary to champion health equity, challenge the increasing dominance of for-profits, invest in the people and communities we serve, and drive innovation.”  

Jain specifically addressed the merger’s proposed $120 million shift from CareOregon accounts to those of the new umbrella entity that would oversee operations in California, Oregon and several other states, saying that the SCAN Group would be contributing more.

  “We would like to correct a misconception that CareOregon is contributing disproportionately to HealthRight Group’s creation. In fact, SCAN group is doubling CareOregon’s investment at $240 million, a reflection of our strong commitment to the health of all Oregonians.”

Complex process

Having two agencies holding review powers makes for a complex process.

The business and consumer agency oversees the insurance industry, including mergers such as the CareOregon/SCAN proposal. Among its powers, the agency can rule whether a deal is in the public interest.

Separately, under the state’s new health care mergers review law, the Oregon Health Authority evaluates whether a deal will improve or harm health care services. Because this case involves health insurance, the health authority’s mergers program will make a recommendation to the business and consumer agency, which will then make a final decision, the health authority said.

Also, separately, the health authority regulates the finances of state-contracted regional coordinated care organizations such as those CareOregon operates, which provide Oregon Health Plan insurance to Oregonians. So in a procedure called “Form A,” the health authority must evaluate the impacts of the proposed merger on coordinated care organization finances and services, and approve, approve with conditions, or deny the proposal.

If either agency disapproves, the “transaction cannot proceed as planned,” according to a presentation that health authority staff made to the Medicaid Advisory Committee.

The draft recommendation doesn’t entirely slam the door on the proposed merger. The language leaves open the possibility of approval, provided CareOregon and SCAN can answer four pages of detailed and wide-ranging questions.

The merger program also allows the state to make its approval dependent on the companies’ agreement to certain conditions to address the state’s concerns.

Draft focuses on fate of CareOregon reserves

The draft recommendation was crafted by two panel members while soliciting feedback on the proposal from other members of the panel, which discussed the proposal in October.

Among other things, the draft said CareOregon needs to address several issues: 

  • how it benefits CareOregon to transfer so much money to HealthRight,
  • what administrative services HealthRight would provide to CareOregon,
  • whether CareOregon is already providing those administrative services for itself, 
  • why the provision of those services should be transferred out of state.

The draft also states that CareOregon is committed to addressing health inequities for low-income Oregonians and asks how the merger into SCAN would improve that work.

For at least two years, SCAN has been bent on expansion. It specializes in Medicare — the federal government’s health insurance plan for people who are seniors or disabled  — but also has formed subsidiaries involved in direct care. It has 270,000 members in California, Nevada, Arizona and Texas. 

The draft letter seeks more information about SCAN’s track record of tackling health inequities. The advisory committee “has serious concerns … about the lack of information” in the filings, the letter said, “regarding specifically how SCAN’s acquisition of CareOregon will benefit the (coordinated care organizations) as they carry out their contractual obligation to serve Oregon Health Plan members. We need additional information about SCAN’s commitment to and experience in eliminating health equities,” the draft states.

The fate of CareOregon’s $1 billion investment reserves of stocks, bonds and cash is a big focus of the draft. Because that money derived from state and federal taxpayers specifically for the benefit of Oregon’s Medicaid program — the Oregon Health Plan — that money should remain dedicated to that purpose, some critics have said.

Nearly a year into the application process, the lack of detailed answers to many specific questions is a deal-breaker, according to the draft. “We are recommending that, in the absence of sufficient responses to the questions (in the draft), OHA disapprove the SCAN/CareOregon transaction,” the draft states.

But CareOregon, in its filings, has in broad brush strokes argued that its Oregon Health Plan work will benefit in the long run by CareOregon becoming part of a thriving multi-state, multi-insurance nonprofit system.

Using the $120 million from CareOregon and other funding, HealthRight might be able to diversify its geographic and business reach, improving financial stability for the entire organization, the filings argue, without providing specifics.

CareOregon would have a governing board that would decide CareOregon’s finances after the merger was approved, the filings state.

Spotty public outreach draws mixed comments

The health authority this fall has gathered public comment on the proposed deal. But much as with an earlier major Oregon Health Authority initiative — a Basic Health Program process that sparked accusations that the agency had bungled its public  outreach — the agency has been faulted for poor outreach on the merger that has left the public in the dark. The agency has:

  • Announced public listening sessions with scant advance notice or publicity;
  • Declined to answer questions raised by the public in listening sessions;
  • Failed to produce plain-language information to address those questions online;
  • Failed to publish online some public documents as well as recordings of listening sessions about the merger, sometimes waiting weeks or more before doing so. Listening sessions from mid-November, for instance, still weren't posted as this article was published.

In any event, sentiments in written comments and public listening sessions have been mixed but leaned decidedly against. 

Traci Fossen, chief quality officer for the La Clinica de Valle health center in Medford, lauded the merger. “Whatever we can do to strengthen CareOregon … is a positive thing,” she said.

Andrew Suchocki, a physician in Portland, praised CareOregon’s track record and said that as an independent nonprofit, the entity has the right to use its reserves as it sees fit to further its mission.

Others have been sharply critical, saying CareOregon had failed to show the merger would benefit Oregon residents on the Oregon Health Plan.  A volunteer member of the Oregon Health Policy Board, former state official John Santa, has been particularly vocal, saying he is speaking for himself. Unlike the Medicaid Advisory Committee, the OHPB doesn't get to weigh in on the decision under state rules.

“I really don’t see any benefit for the consumer and patients here in southern Oregon,” said David Gilmour, a retired physician and former Jackson County commissioner.

The state is inching toward a universal health insurance system, Gilmour said, but that work could become bogged down if a multi-pronged multi-state California-based insurance entity were in control of Oregon’s largest Oregon Health Plan administrator, he said.

“I hope the (health authority) will nip this in the bud before it becomes a big problem for us later,” he said.

The process is expected to extend into January at least. According to an Oregon Health Authority spokesperson, the agency intends to schedule a public hearing once the agency deems the proposal complete. DCBS will also schedule a formal hearing.

You can reach Christian Wihtol at [email protected]