A grudge between two heavyweights in the local medical scene was finally settled last week--and the victor appears to be Legacy Health System.

The largest hospital system in the state, with assets exceeding $322 million, Legacy is the muscle-bound medical nonprofit that owns and operates several Portland hospitals, including Emanuel, Good Samaritan, Meridian Park and Mount Hood Medical Center.

Its opponent was CareOregon, a hefty nonprofit insurer that covers 87,000 of the state's poorest and sickest patients under the Oregon Health Plan.

The dispute, first reported in the Oregon Health Forum, arose last year after CareOregon accidentally overpaid three Portland hospital systems more than $7 million because of a screw-up in its Medicaid reimbursement formula. When CareOregon discovered the mistake, it asked administrators at Providence Medical Center, Portland Adventist Medical Center and Legacy to refund the money.

Penny-pinching hospital administrators were grumpy about forking over the dough. In particular, Legacy argued that CareOregon would have to live with any mistakes it had made.

As negotiations dragged on, CareOregon's patience frayed. Starting in the spring, it stopped payment on roughly $8.7 million worth of medical bills to Legacy in an effort to even up the score. Legacy struck back in July with a lawsuit alleging breach of contract. (For a more detailed account of the flap, call Oregon Health Forum at 226-7870.)

Last week, the two parties settled the lawsuit out of court. CareOregon spokeswoman Ruby Haughton declined to discuss the settlement, saying some issues remained unresolved, but Legacy CEO Bob Pallari implied that CareOregon had backed down.

"We had a disagreement if there was an overpayment, and we came to an agreement that we were properly paid," Pallari told WW.

The dispute comes at an awkward time for the Oregon Health Plan, which relies on CareOregon and a dwindling number of other insurers to cover the state's poor. Any financial problems at CareOregon are likely to focus more attention on the plan's swelling costs.

Pallari vigorously disputed the suggestion that Legacy bullied CareOregon into submission. "Legacy is not a big gorilla," he said. "We're the biggest provider of care under the Oregon Health Plan in the state. We didn't push anybody around. We had a civil disagreement."