By Hillary Borrud and Molly Harbarger

Oregon's second largest Medicaid carrier will shut down, after the company and state officials failed to agree on a contract for 2018.

The state must now transfer more than 100,000 children and adults in the Portland area who are currently served by FamilyCare to other Medicaid administrators. Earlier Wednesday, the Oregon Health Authority gave the company just over 24 hours to decide whether to accept the state's 2018 contract proposal.

Then, FamilyCare's president and CEO Jeff Heatherington met with Gov. Kate Brown Wednesday afternoon. Heatherington said the governor delivered the same ultimatum he'd heard from state health officials: FamilyCare could accept the state's 2018 contract offer, or a 90-day contract extension at the same 2018 rates so the company could help the state move patients to other Medicaid administrators. Heatherington said he declined, because the rates were too low.

"She said, 'Fine, we'll begin the transition,' and they all got up and walked out," Heatherington said. "So that's it. We're done."

A spokeswoman for the governor declined to describe the conversation, but wrote in an email that Brown found reports that Medicaid members in FamilyCare's network were already being denied services unacceptable.

Oregon official gives FamilyCare 24 hours to decide whether to keep working with the state

FamilyCare manages Medicaid benefits for approximately 113,000 children and adults in the Portland area. The company's board voted last week not to sign a new contract with the state, and Heatherington gave the company a slim chance of survival. FamilyCare and the state have a long-running dispute over reimbursement rates that FamilyCare contends are too low and would force the company into bankruptcy next year.

The coordinated care organization, one of 16 the state contracts with to administer Medicaid, also contends that Oregon Health Authority officials have worked against it. Public records released earlier this year revealed top agency staffers had indeed drafted a plan to damage FamilyCare's reputation, and Brown asked then-director Lynne Saxton to resign.

The state is working with three other coordinated care organizations to take on FamilyCare's members: Health Share of Oregon, Yamhill Community Care and Willamette Valley Community Health.

Patrick Allen, director of the Oregon Health Authority, said in an interview on Wednesday that the decision to give FamilyCare a deadline to sign the contract was "driven by the fact that there is now a lot of concern by providers and patients ... We're also becoming aware of actual denials of care. Providers not willing to see people even this year, transportation providers not willing to schedule transportation for appointments in January."

Allen said state health officials even learned of one case in which a skilled nursing facility declined to admit a Medicaid patient who'd been discharged from a hospital.

Those denials of care would violate existing contracts with FamilyCare, Allen said, and the company has worked to correct them. But Allen said the problems made it clear that the state needed FamilyCare to make a final decision by noon Thursday on whether to sign a 2018 contract with the state.

The situation does not affect patients' eligibility for Medicaid, and those currently undergoing treatment can continue to see the same health care providers for at least 90 days, Allen said.

In an interview while he was on his way to meet the governor earlier Wednesday, Heatherington said he was aware of just one case of a Medicaid member who was denied the ability to schedule services in 2018. He and Allen both said FamilyCare had resolved the problem. Heatherington disputed Allen's statement that there were other examples.

"That is a flat out lie and you can quote me on that," Heatherington said, followed by an expletive.

"We're on the hook to pay for all bills until December 31, which we will," Heatherington said, adding that FamilyCare sent a letter to health care providers making it clear they must continue to serve Medicaid patients. "But if that's a true story, and I don't know that it is ... (the state) should be telling us and we should be making sure the patient is taken care of."

One challenge for the state in transitioning Medicaid patients to other coordinated care organizations is arranging contracts with enough mental health care providers. There is less overlap between Portland-area Medicaid administrators when it comes to mental health care, compared with physical care providers. Allen said FamilyCare also paid mental health practitioners more than some other Medicaid managers.

Brad Larsen Sanchez, psychologist and owner of Portland Mental Health and Wellness, said losing his contract with FamilyCare could jeopardize his clinic. FamilyCare's higher rates reflect an ethos of prioritizing access to mental health treatment, Larsen Sanchez said, and they save money in the long run by helping patients avoid psychotic breaks or suicidal episodes that could land them in the hospital.

Larsen Sanchez also claims that if he must accept lower rates, he will be faced with seeing fewer Medicaid patients. "These are people with limited resources and it feels like a miracle to them when they can find a provider with whom they feel safe," he said.

-- Hillary Borrud

503-294-4034; @hborrud

-- Molly Harbarger

mharbarger@oregonian.com

503-294-5923

@MollyHarbarger