by Kenneth Artz, Heartland Institute.

Faced with a massive funding shortfall for a sweeping Medicaid expansion, Democratic Oregon Gov. John Kitzhaber successfully convinced President Obama’s administration to gamble on the state’s new, largely untested health care plan to the tune of nearly $2 billion in taxpayer funds.

After an eleventh-hour meeting in Washington, DC, Kitzhaber announced he had convinced the Centers for Medicare and Medicaid Services (CMS) to stake him the estimated $1.9 billion needed to cover the costs to reform Oregon’s Medicaid program.

Kitzhaber claims his plan can save the federal government $11 billion in Medicaid costs over a decade, and Oregon will keep its Medicaid costs growing 2 percent slower than in previous years. But the approach he is adopting is largely untested, and already Oregon lawmakers are pushing back against some aspects of his plan which would send these tax dollars to out-of-state firms.

Moving to Coordinated Care

Kitzhaber proposes to move Oregon’s 600,000 Medicaid enrollees into coordinated care organizations (CCOs). The CCOs will accept a flat fee for delivering each patient’s care while remaining within that budget, with bonuses for quality metrics. If patient care costs more than the flat fee, health care providers will be on the hook for the difference.

No other state has tried what Oregon is about to attempt with the backing of federal tax dollars, according to Dr. Roger Stark, a physician and health care policy analyst with the Washington Policy Center.

“The Oregon program is based on an HMO model which ties into quality controls to hold costs down. But Oregon is broke, and they didn’t have the seed money to start the program because like all the states, they’re broke. Oregon really stood on its head, and the CMS gave in. Oregon’s program lines up with Obama’s law, and they probably sold it to the administration as a sort of pilot program,” said Stark.

Like HMOs

Stark notes the CCO approach hearkens back to the HMO model of prior decades, which was unpopular with doctors and patients alike.

“The physicians hated it because they couldn’t control treatment decisions and had to focus on cutting costs, and the patients hated it because they couldn’t get complete treatment—they had no trouble seeing a primary care physician, but it was extremely difficult seeing a specialist,” Stark explained.

Stark says rationing is inevitable under this method.

“Oregon told CMS they could save money, which is pie in the sky. Instead, there will be some form of rationing because they’re dealing with a fixed amount of money. The rationing will be subtle and insidious. Say you’re 60 years old and need a hip or knee replacement; they will tell that patient, ‘Oh, you don’t need that operation.’ Or they will tell him, ‘Take these pills, not those,’” said Stark.

Conflict Over Out-of-State Firms

Kitzhaber sold his approach to the legislature in par

Editorial Staff

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