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Oregon could have saved $10 million in 2014 by requiring less overhead in the Oregon Health Plan, a federal audit has found.

Specifically, the state could have saved that sum by requiring the organizations providing health care to low-income people to meet the same standards that insurance companies do.

The audit highlights tensions over the state’s reforms to the Medicaid-funded Oregon Health Plan. The program hands over billions of dollars to health care organizations each year while, under the reforms, giving them broad leeway on how to spend it.

The reforms, which took hold two years ago, were billed as saving money and improving care. But many of the organizations paid by the state to administer the program enjoyed record profit margins in 2014, the first year of the reforms.

Now the state is now mired in a long-running court battle as it tries to recoup more than $50 million it says it overpaid one of the groups serving the OHP, called FamilyCare. Lawmakers are taking an interest, and some vow major changes to keep Oregon’s Medicaid funds from being diverted to out-of-state, for-profit companies.

Focus on spending

The new federal audit tackles a new, little-noticed aspect of the state’s Medicaid reforms.

Specifically, it looks at how Oregon went a different direction from the larger federal reforms called the Patient Protection and Affordable Care Act, or Obamacare. While the federal reforms tacked Medicaid as well as private health insurers, Oregon’s reforms only looked at Medicaid.

Under Oregon’s reforms, the state required health care providers serving OHP to work together and oversee spending as newly formed coordinated care organizations, or CCOs. Essentially, these function like regionally based insurance companies. But the CCOs use state and federal money, rather than premiums, to pay for members’ health care.

The audit highlights one of the many political compromises that went into crafting the reforms. Former Gov. Kitzhaber and the Oregon Legislature didn’t require the coordinated care organizations to meet the same spending standards that private insurance companies must meet.

Private insurance companies must spend 85 percent of their funds on medical costs, and only 15 percent on administration and salaries, under the Affordable Care Act — a reform intended to tackle perceived waste and profiteering among health insurers.

Instead, the reforms required that Oregon’s CCOs only meet the spending standards when it comes to new members. Their overall spending was not required to meet the federal standards of 85 percent on medical costs.

The question raised by the federal government goes to the heart of the reforms. Supporters contended that federal restrictions kept Medicaid organizations from spending money in the best way possible — such as, for instance, purchasing an air conditioner that could keep a sick person out of the hospital.

Matt Salo, director of the National Association of Medicaid Directors, says there is a growing realization that curbing health care spending will require more spending on “outside the box things like supported housing, transportation, child care, food security, peer supports for people struggling with addiction, etc.”

But the federal caps recommended by the auditors would potentially discourage such spending, he says.

Groups overspent

The new report was conducted by federal auditors for the watchdog arm of the federal Department of Health and Human Services, known as the Office of Inspector General.

They looked at 11 of Oregon’s 16 CCOs, and found that of those, three of the organziations did not meet the federal standard of keeping administrative costs and profits to only 15 percent of spending.

One CCO in particular missed the mark by a wide margin, spending only 73.2 percent of its budget on medical costs.

The report does not name the CCOs it examined, a standard practice for federal audits.

Had Oregon held its CCOs to the 85 percent standard for medical spending, auditors found the program would have saved a total of $10 million in 2014. Of that, about $3.4 million came from state funds, not federal.

The federal audit recommended that Oregon adopt the requirements for its Medicaid program.

In a response to the audit, Chief Financial Officer Mark Fairbanks of the Oregon Health Authority said that the state plans to follow through on the recommendation starting in 2017.

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