Forget HMOs And ACOs, Oregon Is Pushing CCOs To Save Medicaid

Oregon Gov. John Kitzhaber, a Democrat, wants to prove his state can contain soaring Medicaid costs without reducing services to recipients or slashing fees to doctors and hospitals. And when he’s done, he wants to apply this same strategy to saving Medicare.

Image by Darwinek via Wikimedia Commons

Kitzhaber is in Washington this week meeting with top federal health officials about his state’s plan to shift Oregon’s Medicaid recipients into “coordinated care organizations,” or CCOs, that would oversee patients’ physical, mental and dental health.

The state would pay each team of CCOs a set fee, and they would be rewarded for keeping patients healthy and out of the hospital. Unlike Medicaid managed care plans which focus just on medical needs of people, the CCOs would hire community health workers to help people with other things that can influence their health such as transportation or housing. “Ninety percent of what keep us healthy is outside the medical system,” Kitzhaber said in an interview at Kaiser Health News Tuesday.

While the Oregon legislature earlier this year approved the formation of CCOs, the state needs federal approval to go ahead, because it would involve so-called “dual eligibles” – people who receive Medicaid and Medicare.  This group comprises only a small percent of Medicaid enrollees but accounts for a large part of the costs of the program. While states can require Medicaid recipients to join certain types of managed care networks, federal law prohibits that for Medicare enrollees.


Audio Clip:  “The objective here is not to finance and deliver medical care, it’s to keep people healthy.”

Kitzhaber is hoping to launch the effort in July 2012, and his state is now working out the rules for the CCOs, calculating how much they would get paid and determining what stakeholders can run them. The CCOs would likely be made up of numerous health groups such as health plans, hospitals, physician groups and other community health organizations.

Oregon is counting on the new organizations to save the state $240 million over their first 18 months. Most of that savings would come from reducing hospital readmissions and unnecessary emergency room visits, the governor said.

Kitzhaber said doctors and hospitals have been supporting his plan because they know the alternative is more reimbursement rate cuts. This summer, Oregon slashed payments to hospitals, medical specialists and managed care plans by 11 percent.

If he can prove his CCOs can save money for Medicaid, which has 600,000 enrollees, Kitzhaber plans to extend the program to cover 300,000 state employees and public school teachers. Then he would want to extend it to Medicare for people in Oregon.

While the federal health law, which he supported, aims to slow rising Medicare costs using new financing methods such as ACOs and bundling payments to providers, Kitzhaber said the program’s costs are out of control.

“Medicare is not sustainable and will get whacked no matter who is president after 2012,” he said. “We need a rational alternative.”