State illegally cut payments to hospitals, group claims.

Byline: Tim Christie The Register-Guard

The state agency that runs the Oregon Health Plan made an end run around the public and the Legislature when it decided to reduce what the state pays urban and large rural hospitals for treating indigent patients, hospital leaders said Friday.

The 12 percent reduction in hospital reimbursement rates for Oregon Health Plan patients means hospitals will be forced to cut services and raise prices for people with commercial insurance - and that means more people will lose health coverage, said Ken Rutledge, head of the state hospital lobby.

The Oregon Association of Hospitals and Health Systems is preparing to sue the state Department of Human Services and the federal government for cutting those reimbursement rates without following the correct public process, said Rutledge, the group's president.

"This is not something the Legislature has endorsed," he said. "A state agency made a decision on its own with no public input or legislative oversight."

The issue has so irked hospitals that it brought together Alan Yordy, chief executive of PeaceHealth in Oregon, parent of Sacred Heart Medical Center, and Roy Orr, his counterpart at McKenzie-Willamette Hospital. Yordy, Orr and Rutledge met with The Register-Guard editorial board to discuss the issue.

Yordy and Orr have been at loggerheads for more than a year since McKenzie-Willamette filed an anti-trust lawsuit against PeaceHealth. Trial is set for this October in federal district court in Portland.

But Friday, they joined Rutledge in expressing their concern about the reduced reimbursement rates.

McKenzie-Willamette stands to lose a little more than $1 million over the next 28 months because of the lower reimbursement rates, while Sacred Heart expects to lose about $5.5 million.

Rutledge said DHS tried repeatedly last year to get legislative approval to reduce the reimbursement rates to hospitals, but was repeatedly rebuffed.

Soon after the Legislative Emergency Board rejected the rate cuts last November, DHS officials secretly asked the federal government to grant a waiver to make the cuts, Rutledge said. The emergency board is a special committee of legislators that meets when the full Legislature is out of session.

State officials say they cut the reimbursement rates as part of a larger effort to patch gaping holes in the state's budget, and that they provided opportunity for public comment.

"It's just part of the overall economic downturn of the state and the fact that funding keeps getting reduced," said Jim Edge, acting assistant administrator in the Office of Medical Assistance Programs, which runs part of the Oregon Health Plan. "We've just been making cuts like this it seems like monthly for the last little while."

He said the Legislature's House Bill 5100 authorized state agencies to make necessary budget cuts if Measure 28 failed. Voters rejected the temporary income tax increase in January. It was intended to provide stopgap money to shore up state finances.

Edge said when DHS changed the administrative rule to reduce reimbursement rates, the hospital lobby expressed its displeasure in a letter to the agency.

Hospitals lose money on Medicare and Medicaid patients, including those on the Oregon Health Plan, and make up the shortfall through patients covered by commercial insurance. The Oregon Health Plan is the state's health insurance plan for low-income residents.

DHS has cut reimbursement rates from an average of 59 percent of actual costs to 52 percent, a reduction of 12 percent.

Yordy said hospitals don't expect to escape state budget cuts unscathed, but questioned whether the reimbursement cuts are proportionate. Because state dollars spent on indigent health care are matched by federal dollars, cutting those rates hurts doubly, he said.