Off-trail in Oregon

(The story has been updated with a correction.)

Facing crushing healthcare costs, Oregon lawmakers found the political will to transform the state's Medicaid program by creating a system in which competing providers and payers voluntarily collaborate under per-member, per-month global budgets with the potential for shared savings and financial risk.

While other states are experimenting with variations on the accountable care organization theme for their own Medicaid programs (Jan. 9, p. 6), Oregon officials believe theirs to be unique because of its global, locally controlled budget framework, commitment to paying for preventive care and its silo-shattering coordination of medical, mental and dental care.

Officials are counting on the experiment to save $11 billion over 10 years.

Many details still need to be worked out. But the program's bipartisan political support was matched last week with financial support in the form of a $1.9 billion grant from the CMS. And although the opening round of the program produced applications from only 14 groups seeking to form coordinated care organizations—out of the roughly 50 that filed letters of intent to do so—state officials say that if all 14 applications are accepted, 90% of the state's 600,000 Medicaid beneficiaries will have access to a CCO.

Roughly 16% of the state's total population and 39% of its children are served through Medicaid, and all eyes are on the largest of these 14 entities, the Tri-County Medicaid Collaborative, which would cover the Portland market's Clackamas, Multnomah and Washington counties, and include organizations such as Adventist Health, Kaiser Foundation Health Plan of the Northwest, Legacy Health, Oregon Health & Science University, the Oregon Medical Association, Oregon Nurses Association, Providence Health & Services, and others.

“We're about 40% of the Medicaid population in the state of Oregon,” said Dr. George Brown, president and CEO of five-hospital Legacy Health. “We have a large center of gravity, so it's important that we do succeed—all the organizations involved are quite cognizant of that fact.”

Because they're trying things that haven't been tried before, Brown said, “The biggest concern that I have is the unknown,” but he remains optimistic for success, in part because he has no other choice.

“The inconvenient truth, if I can borrow a phrase from Vice President Al Gore, is that we can't afford the current system we have,” he said. “My prediction is that we will be successful. It will be a lot of hard work, but if we're not, it will be much worse. There is a commitment that this is in the best interests of the community.”

Brown noted that one sign of this commitment is an agreement that, if one healthcare organization within the CCO is producing better patient outcomes, that organization will share information on how those outcomes are being achieved.

Dr. Craig Wright, chief executive for physicians and clinical services at 26-hospital Providence Health & Services, echoed Brown's remarks on competitors committing to collaborating on CCOs.

“Healthcare is complex, making transformation a difficult job,” Craig said in an e-mail while traveling. “As we change direction from competition to collaboration, one of the keys to success is open and honest communication among the partners.”

Andy Van Pelt, spokesman for the Oregon Association of Hospitals and Health Systems, noted that collaboration is mandatory. “This is forcing collaboration among what traditionally have been competitors,” Van Pelt said. “Is this going to work? We sure hope so.”

Such intimate cooperation ordinarily would raise significant antitrust issues, which Oregon lawmakers sought to address in the legislation, declaring it “in the best interest of the public” and their “intent to exempt from state antitrust laws, and to provide immunity from federal antitrust laws through the state action doctrine.”

Van Pelt said that a main concern of his is that the state budget was balanced on an assumption that Medicaid care providers will somehow find a way to save $239 million this year—outside of the CCO program. And, if that level of savings is not achieved, he said it could affect how much federal money the program receives, so a total of $650 million in Medicaid funding is at risk.

The $1.9 billion Oregon is receiving from the CMS for its CCO program will be spread out over five years with $620 million coming in July and roughly $320 million in years two through five of the grant. “We don't know yet what is attached to those dollars,” Van Pelt said. “I know it can't be used to backfill the budget.”

In his e-mail, Wright said the projected efficiency savings “will be a challenge, particularly in the first years of CCO operation,” because of the time and money needed to restructure a new delivery system, but he noted that an independent analysis confirmed the state's projections that CCOs could produce savings of approximately $50 million to $60 million in 2012 and 2013.

Dr. Evan Saulino, president-elect of the Oregon Academy of Family Physicians, believes there is enough low-hanging fruit to achieve the necessary savings—but he's still concerned.

“I'm a big believer in that, if we give people better care, we will save money,” Saulino said. “But it could be a catastrophe if people make bad decisions for short-term gain and just push the risk downstream.” He recalled that in 2003, the state sought to save on Medicaid costs by removing 150,000 people from the program.

“These people still got sick and they still went to the emergency room,” Saulino said. “We have to innovate out of the problem, so the OAFP and myself welcome the idea and effort we're pursuing in Oregon.”

Gov. John Kitzhaber, a Democrat who served between 1995 and 2003 and was then elected again in 2010, alluded to these cost-cutting measures back when he spoke as a private citizen at the Healthcare Information and Management Systems Society meeting in 2006.

A former emergency medicine physician, Kitzhaber told the story of how the state stopped paying the daily $14 prescription-drug tab a man needed to manage his chronic conditions, and he subsequently suffered seizures and died after a month in a hospital intensive-care unit where he ran up a bill of more than $1 million.

Kitzhaber used examples such as that to help successfully push Medicaid reform through the state Legislature with bipartisan support. The Oregon state House of Representatives is split evenly between 30 Democrats and 30 Republicans, and the CCO bill passed by a 53-7 vote.

One story posted on the Oregon Health Authority website tells of a Medicaid patient in his late 20s who rang up healthcare costs estimated at almost $99,000 in 2009 after he was treated 40 times in hospital emergency rooms for asthma attacks and hospitalized twice for problems related to schizophrenia. In 2011, after a primary-care team started providing care coordination, he stayed out of the hospital and his healthcare bill was reduced 90% down to less than $12,000.

Kitzhaber has received some criticism for one possible use of CCO spending, suggesting that heat-related hospitalizations cost thousands of dollars for the elderly and could be avoided if a CCO pays a few hundred dollars for an air conditioner.

“Determining who needs air conditioners would be complicated, and possibly even intrusive,” scolded the (Eugene) Register-Guard newspaper in an editorial.

Brown noted that just because a healthcare concept makes common sense doesn't mean it's easy to implement. “Healthcare is one of the most highly controlled and regulated enterprises in the country,” he said. “A lot of things that make sense bump against a rule.”

TAKEAWAY: Competing organizations will coordinate care for Oregon's Medicaid beneficiaries in what officials hope will save $11 billion over 10 years.