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State 'error' inflates foster care costs by $29 million

Pamplin Media Group/EO Media GroupSALEM — The Oregon Health Authority negotiated a faulty methodology to calculate payments to foster homes caring for adults with mental illnesses, inflating costs $29 million over budget and jeopardizing the program.

Managers at OHA discovered the problem almost immediately after the inflated payments began in January 2014, but it took two years for the state to rein in costs because the rate methodology was written into a contract with the union representing foster home operators. Reduced rates took effect in January, amid outcry from providers who said the reduction in pay would force some of them to close.

Rather than paying rates based on the actual level of care needed, OHA paid rates on each client equal to the rates paid for patients in secure residential treatment facilities, which house people who require a higher level of services including some of the more serious cases of people found guilty except for insanity by the courts.

As a result, the state paid the average home twice as much as before for the same level of services.

It’s unclear how the rate structure was negotiated, and why its impact caught the state by surprise.

Lynne Saxton, director of the Oregon Health Authority, attributed the payment increase to a “calculation error.” She told lawmakers last month that “without the right-sizing of rates, the program can be in jeopardy as it’s unsustainable financially.”

Emails released by the Oregon Health Authority appear to support Saxton’s description of the 2014 rate hike as an error. A week after the new methodology took effect in January 2014, mid-level managers at the agency were already alarmed that adult foster home costs were beginning to skyrocket.

“We need to address this!” Trevor Douglass, a Medicaid manager, wrote in a Jan. 10, 2014 email to another Medicaid manager, Don Ross. “You will see a trend of substantial increases,” Douglass wrote, referring to an attached document with a sample of data on foster homes that were on track to receive larger payments. “That can’t avoid a budget impact. My hair is smoldering, not on fire.”

Ross responded within minutes.

“These are outrageous,” Ross wrote, referring to the foster homes’ rate increase requests. “How did we end up on a provider-driven methodology, with no ceiling, for January 2014?” Ross said the Oregon Health Authority should hit the brakes until the agency better understood what was happening. “The exposure built into this is kind of unprecedented during my time here,” Ross wrote.

The state ultimately paid the higher rates while negotiating a new payment structure with the Service Employees International Union, which represents operators. A union representative did not respond to a request for comment.

Exceptional needs rate

The foster homes, which can each house up to five residents, had gone from receiving an average of $135,000 from the state in 2013 before the rate change, to nearly $269,000 in 2014.

The state estimated that with 2016 revisions, adult foster homes will receive on average $154,000 this year.

The payment reductions prompted foster home operators to criticize SEIU for agreeing to the new rate methodology. Foster home operators told lawmakers last month that the state should find the money to pay them the higher rates that were in place for the last two years.

April Gunter, an adult foster care provider in Washington County, was one of several industry members who warned lawmakers that homes would shut down unless the state returns to the higher rates.

“You know that these people will be out on the streets,” Gunter said, referring to adult foster home residents. “The bottom line is we have to find a resolution for it, resolution meaning you guys have to find the money somewhere to fund us ...”

Foster home operators told lawmakers that it takes a lot of work to care for their residents, and in at least one case the additional money in 2014 and 2015 allowed a provider to expand services by purchasing a new van to drive residents to community events.

Although the new payment structure remains in place, the state is bargaining with SEIU over an existing “exceptional needs rate,” which could allow some foster homes to receive more money from the state if the rate increases or it becomes easier for residents to qualify.

The rate, which was already in the current and previous contracts, applies in temporary situations when residents require a higher level of care, such as when a resident who lives at a foster home due to severe persistent mental illness breaks his or her leg and temporarily requires additional assistance, Douglass said.

According to Douglass, OHA returned to the bargaining table after SEIU filed a grievance because the union and OHA did not bargain for a new exceptional needs rate during contract negotiations last year.

The Capital Bureau is a collaboration between EO Media Group and Pamplin Media Group. Hillary Borrud can be reached at 503-364-4431 or This email address is being protected from spambots. You need JavaScript enabled to view it..