The Macroeconomic Patterns which Ensure Profitable Failure of Value-Based Contracts in Oregon

A Discussion Paper

Summary

The implementation of value-based payment (VBP) contracts in Oregon is unsustainable because of system failures which have no corrective processes. These failures stem from cultural, economic, and regulatory dynamics that begin with unfair and bad-faith negotiations and block important changes mental and behavioral health practice. This cycle is controlled by health plans, and it undermines providers, patients, other stakeholders, and the broader health care system.

Addressing the failures that increase stress among providers requires legislation that health plans must establish independent oversight mechanisms within the health plan. Health plans must create these departments independently of health plan management and ensure they are overseen by the Board of Directors. Typically, the Board of Directors will appoint a committee, directed by the board, which is responsible for internal audit and compliance. Only through health plan internal accountability will Oregon hope to break the cycle and achieve important and sustainable health care reform.

The Root Causes of Health Plan Failure

Solutionism (A False Sense of Progress)

Health plans in Oregon have embraced “solutionism,” a tendency to adopt superficial administrative and technological fixes while ignoring deeper structural problems. This approach prioritizes utilization review, data collection, and reporting platforms over genuine clinical improvements. Health plans fund third-party platforms for data collection, benefiting themselves while burdening providers with uncompensated administrative tasks.

Erosion of Trust (Unfair and Bad-Faith Dealings)

Over decades, providers have experienced repeated instances of bad-faith contract negotiations by health plans. These include vague policy and contract terms, retroactive policy changes, and undefined utilization review criteria. This historical pattern has fostered anxiety, distrust, and hostility. Health plans’ culture has become associated with deceptive practices and power imbalances, leading providers to approach negotiations defensively, expecting exploitation.

Legislative Voids and Regulatory Gaps (Lack of Accountability)

Oregon’s legislative and regulatory landscape exacerbates these issues. There are significant legislative voids and regulatory gaps in enforcement. Regulatory agencies lack the authority, processes, expertise, or will to act on providers’ complaints. Providers can file reports about fraud, antitrust violations, or breach of contract, only to encounter bureaucratic inaction. Legislators, reactive rather than proactive, defer responsibility to regulators who fail to respond.

Management Investigating Management (Conflict of Interest)

Unlike healthcare systems and hybrid healthcare organizations, which have internal audit and compliance departments reporting directly to their Board of Directors, most health plans lack similar independent oversight structures. In health plans, compliance functions are often embedded within management hierarchies, creating conflicts of interest and reducing accountability. Establishing a legally mandated, independent internal audit and compliance department within health plans—separate from executive management—will address systemic issues such as unfair contracting, service denials, and unethical business practices. This department must report directly to the Board of Directors, ensuring objective evaluation and corrective action. Without this structure, health plans will remain self-regulated, enabling ongoing misconduct that undermines trust and destabilizes the healthcare system.

Unreliable Reporting Pathways (Ethics Point Portal)

Accurate, transparent, and independent reporting is essential for identifying and addressing systemic failures within health plans. The use of an ethics point portal, open to consumers, employees, and providers guarantees early detection of issues such as unethical business practices, contract violations, and regulatory non-compliance. Independent internal auditors play a critical role by producing objective assessments and recommending corrective actions to the Board of Directors. Their reports reduce conflicts of interest and ensure that management cannot conceal operational failures. Mandatory reporting mechanisms backed by legal enforcement will increase accountability, prevent fraud, and restore trust among providers, patients, and stakeholders. Without a culture of independent reporting, health plans will continue to operate in secrecy, evading responsibility and perpetuating systemic failures.

Stakeholder Impact: A System in Crisis

Providers

Frontline professionals face excessive administrative burdens, payment delays, and contract violations. They experience mounting frustration when regulatory agencies ignore complaints or when legislators deflect concerns, claiming a lack of understanding or jurisdiction.

Patients

Patients suffer when providers cannot maintain sustainable practices due to denied reimbursements, unclear contract terms, and rising operational costs. In extreme cases, denied care has life-threatening consequences, as illustrated by the widely publicized murder of the UnitedHealthcare CEO. This tragedy reveals public sentiment about the human toll of unjustified care denials. The public suggests that health plans injure and kill people all the time and profit from doing so.

Legislators

Oregon’s legislators bear responsibility for creating effective legal frameworks. However, they often lack the technical knowledge or political will to address systemic failures. Their reactive approach leads to inadequate regulations only after there is evidence of fraud, public outcry, or legal challenges.

Health Plans

While health plans profit in the short term by exploiting systemic weaknesses, their long-term viability is threatened by escalating provider dissatisfaction and negative public perception.

Why the System Fails: Structural and Process-Based Issues

Regulatory Capture

Regulatory bodies designed to enforce health care standards often face “regulatory capture,” where they become influenced by or deferential to the industries they regulate. The Oregon Health Authority (OHA) has failed, establishing a value-based contract that was poorly designed and lacked necessary controls (i.e., guardrails). This lax oversight has resulted in a failure to hold the OHA accountable.

Accountability Deficits

he use of Ethics Point portals and certified independent auditors has emerged as a mechanism for reporting and investigating concerns. However, without legislative action and clear regulatory frameworks, these tools provide limited recourse. An ombudsman may advocate for providers, but without supporting legislation, such advocacy serves only to delay intervention because the necessary laws and enforcement mechanisms remain absent.

Legal Action is a Prohibitive Option

t is wrongly assumed that providers can easily pursue legal action when contracts are violated. In reality, legal recourse is neither timely nor affordable. Litigation involves significant financial costs, lengthy timelines, and uncertain outcomes. Many small or independent providers cannot absorb these expenses, forcing them to continue under exploitative contracts or risk closing their practices. This inaccessibility to legal remedies disproportionately affects providers serving minority and underserved populations, reducing the availability of essential health services in vulnerable communities.

Defensive Contracting Culture

Years of bad-faith negotiations have created a defensive contracting culture where providers see deceit and negotiate with minimal trust. This defensive posture leads to inefficient, fragmented contracts that fail to achieve true value-based care. There is no real collaboration, which is essential for value-based contracting.

Legislative Inertia

Lawmakers often delay addressing health care issues until forced by public pressure. Providers’ concerns are frequently dismissed or referred to poorly managed and underfunded state agencies, perpetuating inaction.

Macroeconomic Principles Behind the Failure

Market Failure

he health care market suffers from asymmetry of information, lack of competition, and ineffective regulation, enabling exploitative behavior by health plans. Providers often lack sufficient market power to negotiate contracts that reflect the actual costs of delivering care, leading to distorted pricing and reduced care quality.

Principal-Agent Problem

Misaligned incentives occur when health plans prioritize cost savings over patient care, creating conflicts between providers and payers. Health plans as principals seek to minimize costs, while providers as agents focus on delivering patient care, resulting in conflicting objectives that hinder care quality.

Regulatory Capture

Health plans influence the regulatory agencies designed to oversee them, ensuring weak enforcement and accountability. This leads to rules that favor health plans and disadvantage providers and patients, perpetuating a cycle of ineffective oversight.

Adverse Selection

Plans attract providers willing to accept exploitative contracts, reducing care quality and increasing disparities. Providers who refuse these terms are excluded from the network, concentrating lower-quality care among less competitive providers.

Public Goods Problem

The lack of investment in oversight and regulation prevents equitable access to health care. Effective health care regulation is a public good that benefits all stakeholders but is often underfunded due to political and economic constraints. Government wants better, faster and cheaper services and expect providers to invest money and time to accomplish these goals with government sharing the risk.

Tragedy of the Commons

Providers are forced to self-regulate or withdraw, diminishing the system’s overall capacity. The lack of shared responsibility leads to a gradual erosion of health care services, affecting both care quality and availability.

Moral Hazard

Health plans deny services with minimal fear of consequences due to lax regulation. They shift financial risks onto providers, knowing enforcement is weak, leading to reduced care access and compromised provider stability.

Institutional Inertia

Government agencies and health plans resist change until forced by legal or public pressures. This inertia delays reforms and contributes to ongoing systemic failures that harm the entire health care ecosystem.

Why Health Plans Will Profit if These Failures Continue

Health plans have clear financial incentives to allow systemic failures to persist. By reducing reimbursements, restricting the number of appointments, delaying payments, and imposing measurement, analysis and reporting burdens on providers, health plans take time away from patient care and increase operating costs while maintaining revenue from premium contracts with employers. Lack of unbiased oversight and regulatory inaction allow health plans to prioritize profitability without their accountability while they offer solutions that are supposed to make providers more effective and efficient. The lack of independent internal auditing and compliance standards permits health plans to maximize their profits while using solutionism to assign responsibility to providers.

In mental and behavioral health services, these dynamics are even more severe. Health plans can profit by restricting access to essential services such as psychotherapy, psychiatric care, and addiction treatment. Through aggressive utilization review, they limit treatment sessions, forcing providers to discharge patients prematurely. This leads to cost savings while creating long-term consequences for patients’ mental health.

Additionally, health plans benefit from "risk transfer" models where financial responsibility is shifted to providers through value-based contracts. Providers must absorb costs related to uncompensated administrative work, denied claims, and compliance expenses. This financial shifting ensures that health plans continue to profit even when service quality declines. The lack of oversight also allows plans to channel funds away from patient care into corporate reserves or shareholder dividends. For example, excessive profits can be diverted to parent companies, further reducing resources available for care delivery.

Without systemic reforms, health plans will remain insulated from meaningful consequences, allowing exploitative practices to continue unchecked while maximizing their profit margins at the expense of the healthcare ecosystem.

DISCLAIMER and PURPOSE: This discussion document is intended for training, educational, and or research purposes only. The information contained herein is based on the data and perspectives available at the time of writing. It is subject to revision as new information and viewpoints emerge.

For more information see: https://www.mentorresearch.org/disclaimer-and-purpose