Clarifications appended.

The kennels and cages at Hannah the Pet Society's facility near Mall 205 in East Portland are nearly empty.

As of Wednesday morning, the company had only five remaining animals - two dogs, a cat, a rabbit and a guinea pig - available for adoption, according to Hannah chief executive Fred Wich.

The controversial pet-leasing company decided to stop sourcing and placing pets about a month ago, Wich told The Oregonian/OregonLive in an exclusive interview Wednesday.

The decision comes as the company works to remake its image after a flurry of bad publicity, as well as an ongoing Oregon Department of Justice investigation and two lawsuits filed against Hannah.

As an Oregonian/OregonLive examination found in February, Hannah faced growing criticism and scrutiny after the questionable euthanasia of three dogs in November. The justice department launched its investigation after receiving complaints of Hannah failing to provide pets with proper care and neglecting to clearly describe the ownership model, among other things.

Wich insisted that neither the state investigation nor the The Oregonian/OregonLive's reporting prompted it to abandon one of its key services.

"We're not serving a need - at least in this area - with (pet placement and sourcing), and it's becoming an increasingly small part of our business," he said. "It simplifies our business model; it allows us to be more focused."

However, because the company has stopped placing pets, Wich said, Hannah might not have a need for its retail locations at Washington Square mall and Clackamas Town Center.

A shifting model

At its core, Hannah's business model is an unconventional approach to pet insurance: In exchange for a monthly fee, the company provides health care (and food, for an extra fee) throughout the life of the dog, cat or other animal. However, Hannah retains ownership of the pet, giving the company final say in all of the animal's medical decisions.

Hannah says the model allows it to save money on taxes, insurance, licensing fees and other costs. It says it passes those savings on to its members, enabling people with pets to avoid unexpected vet bills. Its base monthly rates for health care are $59 for dogs, $29 for cats and $19 for rabbits and guinea pigs.

Now the company is pivoting, getting out of pet placement entirely to focus on providing care, training and food for its pets. Wich said the company has more than 4,500 members with over 6,000 pets. It only lost 20 members who cited media coverage as their reason for leaving, he said.

The decision to end placement services was rooted in two factors, he said: A decline in the number of people getting their pets from Hannah and a lack of local shelter pets.

Over the last year, Wich said, pet placements have dropped to just 10 percent of the company's overall business, with the remaining 90 percent coming from those who put their existing pet on Hannah's program.

Additionally, Hannah wasn't getting as many local shelter pets as it had expected, he said.

Wich wouldn't say how many shelters were working with Hannah when it decided to stop its placement program, other than to say "not very many" and "a handful."

"There's a lot of bad publicity, so a lot of shelters didn't want to work with us," he said.

The Oregon Humane Society refused to work with Hannah because it wouldn't say where it sourced its pets. Columbia Humane Society cancelled its contract with Hannah late last year, after learning that Hannah had euthanized two of the dogs it had provided.

But Wich said Hannah is ending its pet placement and sourcing program because the assumption that there was a surplus of local dogs and cats in the area proved to be wrong.

In this market, he said, the shelters need to bring pets from outside the area because the local demand for pets is greater than the number of local pets available.

Oregon Humane Society spokesman David Lytle said his organization fills its kennels based on a pet's risk of being euthanized. When it has empty space in its kennels, it first looks to Oregon shelters, he said. But often, they're in good shape, so they look for at-risk pets in Washington, California, Utah and Hawaii, he said.

And Lytle said Portland seems to have pet overpopulation under control. He said the area has seen a decrease in the number of pets coming to shelters over the past 10 years due to the success of spay and neuter programs.

The six largest shelters in the area have seen a 42 percent drop in cats since 2010, while the Oregon Humane Society saw a 58 percent decline in the number of puppies coming through its doors between 2010 and 2014, Lytle said.

The point, Wich said, "is there's not a problem in Portland that we need to address with sourcing. ... We don't really add a lot of value in terms of physically sourcing the pets."

Hannah's future

Because dropping pet placement affects new members, the thousands of existing "pet parents" on Hannah plans may not see big changes in their service.

Wich acknowledges the company has made mistakes. But since he was brought on to run the company in August, Wich has sought to improve Hannah's operations.

The company now employs six licensed veterinarians (including founder Scott Campbell, who isn't involved in day-to-day veterinary procedures), and has replaced half of the company's staff, Wich said.

Hannah's membership agreement has changed, too. Wich said the new one is more member-centric, with a la cart options so members can decide which extras to add to their health care plan.

Wich said the company will soon update its website, and is considering new marketing tactics.

Wich said Hannah hasn't yet decided whether it will keep its Washington Square mall and Clackamas Town Center storefronts open.

The company, founded in 2010 by Oregon veterinary mogul Scott Campbell, has yet to turn a profit, but Wich said that's only to be expected of a new business model.

"Starting up a business that's a novel concept is really, really hard," he said. "We're still not quite profitable. Is Dr. Campbell happy we're not quite at break even yet? No. Is that unusual? No."

He pointed to Uber, which was founded in 2009 and has yet to be profitable.

Ultimately, Wich hopes to bring Hannah to another metro area, then the rest of the nation, possibly with a franchise model. But first, the new model - without adoptable pets attracting new members at retail locations - must succeed in the Portland area.

"It's hard to start a business, and it's hard to start a revolutionary business," Wich said. "It just takes time."

-- Anna Marum

amarum@oregonian.com

503-294-5911

@annamarum

Clarifications: A previous version of this article included a paraphrased comment from Fred Wich saying the decision to stop placing pets was partly rooted in a lack of local shelter pets available to Hannah. He meant there was a lack of shelter pets overall.

A previous version of this article misidentified Scott Campbell's role. While he is involved in day-to-day operations, he is not involved in daily veterinary procedures.