Records obtained under Oregon Public Records Law show that total state costs have far exceeded the million-dollar mark, with the private law firm that Attorney General Ellen Rosenblum is using to pursue the Cover Oregon health exchange litigation billing $967,000 as of last week. Other state Department of Justice costs are at least $150,000, and may be much more.
The tally is significant because the state and Oracle haven't yet completed round one: a battle over whether the case will be held in state or federal court. Arguments to settle that issue will be heard Nov. 21.
The case is at an early stage, and the spending so far has achieved the equivalent of laying the foundation for a large building, said David Friedman, a Willamette University law professor who has been following the case closely. That means there's a lot of costly lawyering yet to be done.
"It's going to be expensive," he said, adding that an appeal of any initial ruling appears likely. "This could go on for years."
One of the wild cards in the case is what happens if Oregon eventually does win money from Oracle.
On Aug. 22, Oregon filed a lawsuit in Marion County Circuit Court accusing Oracle of racketeering, fraud and false claims.
Oracle, however, has defended its quality and blamed the state for failing to hire another contractor to oversee the company's work on the exchange. On Aug. 8, it filed a pre-emptive suit demanding $23 million for unpaid work.
Citing problems with the Oracle technology, the Cover Oregon board voted in April to hook up to the federal exchange, HealthCare.gov, in November.
If Oregon does win money in court, it will raise a question of whether the federal government expects reimbursement of the more than $300 million in federal grant funds it awarded Oregon to build and operate its exchange through the end of 2014. The federal government has also committed to contribute an additional $32 million for the state's efforts to rescue a portion of the Oracle technology to enroll people in the Oregon Health Plan.
In May, Sylvia Mathews Burwell, the newly appointed U.S. Health and Human Services Secretary, told a congressional committee that she would use "the full extent of the law" to recover any federal funds that were misspent on failed state health insurance exchanges such as Oregon's, according to the political news website Politico.
A spokesperson for Health and Human Services said the federal government will evaluate any successful litigation by state exchanges on a case-by-case basis.
Friedman, however, says Burwell's statements raise "a strange but potential outcome" that the bulk of any money won by Oregon in court would be returned, not to the state, but to the federal government. "You'd think that (federal officials) would want it back," he said.
If the state decides to try to keep a larger share of funds than it put into the project, it could create an "interesting fight between the state and the feds on that issue," Friedman said.
Asked whether the Kitzhaber administration has thought through that question, a spokeswoman responded with a statement: "The first step is to hold Oracle accountable and recover money that we believe was fraudulently taken from the state's taxpayers. At this point, however, litigation is ongoing and it is too early to speculate on how or where any funds recovered would be distributed, as further facts and legal theories need to be developed during the course of litigation."
A spokeswoman for Rosenblum, Kristina Edmunson, sounded a similar note: "In terms of funds recovered — it's simply too early. There are a lot of factors to consider, and it's too early in the process to know where any recovered funds would go, or how any recovered funds would be disbursed. As the litigation unfolds, there may be more clarity as to how or where any funds would go, but at this point it's too early."
Tallying up the exact total of legal costs is difficult because the state Department of Justice changed its system of accounting for the Oracle costs on June 1.
The Oregonian's conservative estimate derived from DOJ records is that at least $1.124 million has been spent on Oracle litigation.
Besides that, a white-collar criminal defense firm retained to represent the state in an ongoing FBI investigation — Garvey, Schubert Barer — has billed $137,000. The state also has paid more than $23,000 to Ron Hoevet and Larry Matasar, criminal defense lawyers retained by former Cover Oregon managers Aaron Karjala and Triz delaRosa.
Rep. Mitch Greenlick, D-Portland, spearheaded the bill that created a state health insurance exchange. He said he assumes the federal government will want its money back if Oregon succeeds against Oracle. "Of course they should. It's their money," he said. But he hopes Oregon gets at least its legal expenses and a fair share of any settlement.
"I don't think money is the issue," Greenlick said. "I strongly favor the suit because I think it's important that (Oracle) be held responsible for their screw-ups."
He said he agrees with the state's contention that Oracle committed fraud. "They were running a con game on us."
©2014 The Oregonian (Portland, Ore.)
