Oregon pays record settlement of nearly $23 million in lawsuit filed by former Medicaid insurer

The Oregon Health Authority has agreed to pay a record $22.5 million to FamilyCare, Inc. in a long-running dispute. (Oregon Health Authority)

The Oregon Health Authority has agreed to a record settlement of nearly $23 million in a long-running lawsuit filed by FamilyCare, Inc., a former Medicaid insurer.

The suit alleged the health authority used bad data which resulted in the agency underpaying FamilyCare. The company insured about 115,000 Medicaid recipients in the Portland area. The firm said the agency’s poor rate-setting put it out of business at the end of January 2018.

In 2017, FamilyCare sued the health authority in Marion County Circuit Court, its second suit against the agency. The case was transferred to the U.S. District Court in Eugene in 2018. It was due to go to trial next month. 

FamilyCare’s latest amended complaint sought $125 million in damages.

Robb Cowie, lead spokesman for the health authority, told the Capital Chronicle that this was the most expensive settlement the health care agency had ever paid. 

The case also racked up legal expenses. As of last October, the health authority had paid $7.4 million in legal fees in the case, with more than $6 million of that going to the Markowitz Herbold law firm in Portland. Its contract with the firm set a limit of $10 million. The settlement includes the health authority and Lynne Saxton, former director of the agency who was pushed out by Gov. Kate Brown following revelations that the agency had been fomenting a public relations smear campaign against FamilyCare. Agency staffers proposed using lobbyists and legislators to feed stories to reporters that would portray the insurer as being more concerned about its bottom line than the health of its members. 

FamilyCare’s CEO Jeff Heatherington told the Capital Chronicle his firm has paid $17 million in attorney fees in the case. Each side will pay their own lawyers. The health authority did not admit liability, but Heatherington said the size of the payout indicated culpability.

“The state is tacitly admitting fault in this case,” Heatherington said. “That’s the only way you can read that much money. We’ve recouped the money and it’s going to go for a good cause so we’re pleased. Nothing will make up for the fact that we had to close our doors – that’s unfortunately a done deal.”

The settlement agreement said the $22.5 million will go to one of Heatherington’s longtime charities: the College of Osteopathic Medicine of the Pacific Northwest in Lebanon. 

The health authority will pay the settlement in portions, with two payments totaling $4 million by Sept. 1. According to their agreement, the agency will ask the Legislature for the authority to pay the settlement no later than in its next general budget request next year when lawmakers will determine the state’s next biennial budget. Within 30 days of the request, which presumes the Legislature’s stamp of approval, the agency will pay $6.5 million, followed up with three more payments of $4 million each in 2023, 2024 and 2025. 

The agency’s current two-year budget, which runs through the end of June 2023, is about $32 billion.

The settlement agreement also states that the Heatherington Foundation will contribute an unnamed sum to the college. The foundation has donated more than $2.5 million to the college since 2019, the settlement agreement said.

The health care agency oversees Medicaid, but 16 regionally based insurers, known as coordinated care organizations, work directly with members. The health authority sets the monthly per-member rates. FamilyCare said that it paid primary care providers more than the other organization in the Portland area, Health Share of Oregon, to save overall costs by keeping members out of emergency departments and specialists’ offices. FamilyCare said the health authority’s rates would have led to a $95 million loss in 2018, after losing more than $90 million in 2017. When it closed its doors, it had $130 million in reserves, Heatherington said. 

He said that was about 20% of the company’s annual expenses and was typical for an insurer to sock that much money away to cover losses.

Oregon Capital Chronicle is part of States Newsroom, a network of news bureaus supported by grants and a coalition of donors as a 501c(3) public charity. Oregon Capital Chronicle maintains editorial independence. Contact Editor Les Zaitz for questions: [email protected]. Follow Oregon Capital Chronicle on Facebook and Twitter.

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