Oregon’s health care transformation received bad news on two financial fronts this week, with Oregon Health Plan spending growing faster than expected and a $41 million bill due to the federal government.

The Oregon Health Authority released revised rates it would pay to the state’s 15 coordinated care organizations, which care for nearly 1 million people on the Oregon Health Plan. The payments must cover all of their medical, dental and mental health needs.

The final rates for 2018 increased about 5.3 percent over the previous year, much higher than the 3.4 percent target established under an agreement between the state and the federal Centers for Medicare & Medicaid Services.

Rates for the Central Oregon care organization, run by PacificSource Health Plans in conjunction with the Central Oregon Health Council, will increase nearly 6 percent in 2018. Representatives from PacificSource and the council could not be reached for comment.

Preliminary rates released by the health authority last fall represented an increase of about 3.3 percent statewide but had to be adjusted after the state cleared the rolls of members who no longer qualified. Those members were healthier-than-average, so the state increased its rates to better reflect the health status and expected cost of those who remain.

The Oregon Health Authority also released the final tally for amounts the coordinated care organizations, or CCOs, must repay to the federal government for individuals who are eligible for both Medicare and Medicaid. The state mistakenly paid CCOs a higher rate for those dual-eligible members, as if they qualified for Medicaid only. But Medicaid was only supposed to pay for what Medicare does not cover. The state adjusted its payment system in 2016 to correct the error but still owes the federal government for overpayments in 2014 and 2015.

The state will collect the overpayment from CCOs over the course of the next year.

PacificSource Community Solutions, the Central Oregon CCO, had previously set aside $2 million for the repayment, but learned this week the final bill will come to nearly $3 million.

Oregon’s transformation project had been held out as a model for other state Medicaid programs struggling to contain health care costs. An evaluation of the first five years under the model by researchers from Oregon Health & Science University found that CCOs had fulfilled their mission by keeping cost growth under control and improving the quality of care for their members. They were generally successful in getting members connected to primary care and reducing costly hospitalizations. For the most part, the care organizations seemed able to survive under the 3.4 percent growth rate, though three CCOs lost money in 2016, and one ceased operation earlier this year.

The higher-than-expected rate increase may be the first sign that Oregon’s approach to reining in health care costs is more of a struggle than state officials had hoped. The new model was created in 2012, when the state struck a deal with the federal government to keep costs 2 percent below the national growth rate, in exchange for $1.9 billion upfront to fund the transformation.

During the first five years of the agreement, the state would have faced financial penalties if spending exceeded that annual growth rate. But the waiver was renewed last year, and while the 3.4 percent growth rate remains a target, the state faces no financial penalties if it exceeds it going forward.

While CCO payments make up the biggest chunk of spending, the higher growth rate for 2018 doesn’t guarantee the state will exceed its target, said Laura Robison, chief financial officer of the Oregon Health Authority. The final amount spent will depend on how many members are enrolled in the Oregon Health Plan and the amount of quality incentive payments paid out to the CCOs.

In addition, the growth-rate target is calculated cumulatively over the life of the waiver, Robison said. So years when growth exceeds the target can be offset with years when spending grew more slowly.

“That head room that we built in the waiver in the first five years does actually continue to carry over in our second five years,” Robison said. “But it does mean that we’re going to continue to focus on the sustainability of our program going forward.”

—Reporter: 541-633-2162, mhawryluk@bendbulletin.com