Andy Davidson may be the highest-paid lobbyist in Salem. He earned $1.24 million last year. Until now, the reason for his big paycheck has been a secret.

Davidson is CEO of the Oregon Association of Hospitals and Health Systems, a nonprofit that lobbies for Oregon's 60 hospitals.

That $1.24 million paycheck puts Davidson in a league of his own in Oregon. It's a half million more than Jim Carlson, who heads the Oregon Health Care Association, which represents nursing homes, and four times the pay of Jay Clemens, who lobbies for Associated Oregon Industries, which represents the state's largest companies.

Part of the reason for Davidson's impressive compensation is that his organization and its members have benefited enormously from the expansion of the Oregon Health Plan, the state's Medicaid program for low-income Oregonians.

Thanks to Obamacare, total Medicaid spending in Oregon has tripled in the past decade to about $7.3 billion a year. Most of that total is federal money, and much of it goes to members of Davidson's trade association.

For helping administer the Medicaid payments, the hospitals pay a for-profit affiliate of Davidson's association nearly $6 million a year. It's this fee that is raising questions in Salem.

The money paid to Davidson's group has never before been disclosed publicly. Some stakeholders want to know why, when Oregon is facing a $1.4 billion budget deficit, a private nonprofit and its CEO are being rewarded handsomely from a program for the state's poorest citizens.

"There's a total lack of transparency around what [the OAHHS] does for that money and how they spend it," says Felisa Hagins, a lobbyist for Service Employees International Union Local 49, which represents health care workers.

Davidson says his pay is unrelated to the contract, and is in line with his peers in other states. (Records show, however, that the head of the Washington State Hospital Association made $760,000 last year. The leader of the California Hospital Association made $1.28 million. Both run far larger organizations than Davidson does.)

He says his organization provides a vital service for hospitals and Medicaid recipients by helping administer the provider tax.

"It's a really complex program," Davidson says. "We make it work efficiently and effectively."

Pediatric surgery at OHSU Doernbecher Children’s Hospital, March 15, 2017. (OHSU/Kristyna Wentz-Graff)
Pediatric surgery at OHSU Doernbecher Children’s Hospital, March 15, 2017. (OHSU/Kristyna Wentz-Graff)

A key part of Oregon's complex system of Medicaid reimbursement is a "provider tax" big hospitals pay the state.

Davidson's group currently gets paid both by the state and by the large hospitals to help administer that tax.

Here's how it works: The state's 28 largest hospitals levy a 5.3 percent tax on net patient revenues. That tax generates about $550 million a year. The hospitals pay that tax to the Oregon Health Authority, which oversees the state's Medicaid programs. OHA then obtains a federal match.

The feds match Oregon's provider tax with nearly $3 for every Oregon dollar. That buys more health care for low-income residents.

"It's a very good deal for Oregon," says Janet Bauer of the Oregon Center for Public Policy, which has cheered Medicaid expansion. (Every state except Alaska levies some version of a provider tax.)

It has also been a windfall for the nonprofit organization Davidson leads.
The OAHHS gets paid in at least two ways to help administer the provider tax. The first is a contract directly with the Oregon Health Authority that pays the association $428,000 a year.

Second, and far more lucrative, is a private arrangement between the hospitals and the OAHHS that pays the association 1 percent of the tax collected. That's currently about $5.5 million a year and compensates the association for helping redistribute federal matching dollars to hospitals.

"Is it appropriate?" asks state Rep. Mitch Greenlick (D-Portland), chairman of the House Health  Care Committee. "I don't know, but it's an awful lot of money."

Since signing the 1 percent contract in 2011, the hospital association has generated unusual wealth for a lobbying organization—it now has nearly $14 million in net assets, up from $4.9 million in 2010, records show. (Davidson's total compensation has nearly doubled since the contract went into effect, going from $673,000 in 2010 to $1.24 million.)

The association uses the money for a variety of purposes, including funding a political action committee. (Democratic lawmakers are pushing for strict limitations on political spending by groups that are primarily funded with Medicaid dollars. See sidebar, page 10.)

Davidson says his PAC's money comes from a variety of sources, not just Medicaid. He adds that his group also provides analytical and quality improvement services, particularly to medium-sized and small hospitals under its hospital contract. He acknowledges the Affordable Care Act was a boon to hospitals, but says profit margins are now plunging and that many Oregon hospitals will lose money next year.

"We're looking at the biggest package of cuts and payment reductions I've seen in 25 years," he says.

Because the feds are reducing their overall contribution to Medicaid across the country, the Oregon Legislature is currently considering increasing the hospital provider tax to help make up the shortfall. Davidson's organization has reluctantly agreed to the increase.

As lawmakers grapple with a $1.4 billion budget deficit, much of which is Medicaid-related, they are examining every expenditure, including the hospital association's contract with the state.

That contract is on the chopping block, and as part of a current Medicaid funding bill in Salem, Oregon Health and Science University is pulling out of the agreement under which it pays the association 1 percent of the provider tax. That way it can participate in a more beneficial federal program for hospitals affiliated with medical schools.

To be sure, nearly 400,000 Oregonians have obtained health care coverage from the expansion of Medicaid, and hospitals have received a windfall because previously uninsured patients now have government insurance. OAHHS's help facilitating the Medicaid expansion is a good thing.

But some people wonder if the group is providing value for the money.
State Rep. Dan Rayfield (D-Corvallis), co-chairman of the Joint Ways and Means Committee's Human Services Subcommittee, is negotiating the hospital tax bill.

He questions whether the OAHHS is getting excessively rewarded.

"When I see money shifted into a different entity, like the hospital association, I say could we be using that money to see more people get health care?" says Rayfield. "I want Medicaid dollars going to fund as much health care as possible. It's about efficiency."