Two steps forward: the plight of Maine’s community hospitals

Legislative report: March 11-12, 2013

This week it felt as if the Legislature and the Governor finally both took two steps in the right direction on the hospital debt.  With both sides plainly committed to making the hospitals whole, the negotiations now appear to hinge on whether its better for the state to build the new liquor contract to cover the debt with a large up-front payment from the successful bidder or to borrow against a larger stream of future liquor-fueled revenue.

If the past few week’s political heat and noise continue to subside, I’m hopeful that the Legislature’s:Legal Affairs Committee will do a good job in hashing that out.

The Democrats and the Governor also appear to have moved towards some agreement about the potential benefits of accepting additional federal dollars under the Affordable Care Act to cover Maine’s uninsured.

On Tuesday, I had breakfast with executives from some of Maine’s smaller community hospitals.  As one might imagine, they are relieved about the prospect of the state making quicker progress on their debt.  But they are also very concerned about the effect of the biennial budget on their weakened operations.

Unlike large hospitals, by federal designation, these hospitals are reimbursed on the basis of a restricted range of “allowable costs”.  Moreover, the state actually imposes an additional, partially reimbursed “tax” on these hospitals because this mechanism leverages additional federal funds to the state’s benefit.

Currently, hospitals pay the state $80M in taxes.  In return, the hospitals receive $20M back from the state augmented with $40M in federal money.  So the net “tax” loss to the hospitals is $20M.

The state uses the $60M it received from the hospitals to fund the state’s Medicaid program which draws a federal match of $120M into the state.

In the past, the cost reimbursement rates were sufficient to cover the margin that the small hospitals lost in this “tax and match” transaction.  But those reimbursement rates have been steadily eroding.   And, once again, the Governor’s biennial budget proposes to reduce the reimbursement rate by 8%.  Although they are also subject to broader medicaid and medicare curtailments, this change in reimbursement rates alone will put most of these community hospitals terminally in the red.

Worse, under the reimbursement model, for every state dollar that’s cut from a community hospital’s operations, they lose two dollars of federal match, a corrosive spiral to the bottom.

Our own MDI Hospital, for example, under the proposed state budget is facing the grim prospect of losing an additional $1.5M this coming year on top of last year’s operating loss of $3.4M.

Not surprisingly under these circumstances, these small hospitals are also feeling unfairly compared to the large corporate hospitals whose operations were recently spotlighted by a sensational article by Steven Brill  in Time magazine, Bitter Pill: Why Medical Bills Are Killing Us.

The mission, financial compensation, and billing structures of Maine’s community hospitals, they point out, are totally different from those outlined by Brill.

Truly I sympathize with our community hospitals — but we are all suffering in this together.

I, for one, hope this immediate concern compels Maine hospitals jointly to add their voice and obvious political influence to the greater effort to reform the currently broken hospital reimbursement system into a saner and more effective model that efficiently supports community health, wellness, and primary care.

2 thoughts on “Two steps forward: the plight of Maine’s community hospitals”

  1. Hi Brian, As always, thanks for all your efforts & the detailed information you provide us. It’s sort of difficult to swallow any discussion of losses or shortfalls from MDI Hospital in light of the properties they have acquired. I’m sure they have explanations like honoring donors wishes,etc., but the Maine Street Motel is getting no maintenance or refurbishment toward their stated goal of 5 or 6 years ago. It’s essentially a $3 million parking lot & storage shed. I’m sure their purchase of the Cadillac Motor Inn seemed like a good idea to them also, but there’s a lot of empty space there now. Their partnership with the Y to develop the lot behind the Y into a dedicated lot for the hospital also cost them $. All of these properties have come off the tax roll as well adding to the burden of taxpayers. I had heard from a few informed sources that they were planning to acquire the store lot as well. If they ever do that, they will be getting property that will probably need “cleaning” of hazardous materials…but I doubt if that will come under discussion prior to acquisition. I’ve heard that a couple of reasons they haven’t developed the Maine Street Motel is that they didn’t realize they would have to reconfigure parking if they changed the use & that they thought there was an elevator in the motel. Doesn’t appear that they do their due diligence prior to property acquisition.
    I know we are lucky to have a facility like it in our small town & recognize that we have some top notch doctors & personnel. It’s just tough to hear them cry “wolf”, lay people off & then buy multimillion dollar properties. Thanks for letting me rant.

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