LePage’s DHHS budget ignores debt owed state’s hospitals

AUGUSTA, Maine — As lawmakers grapple with the governor’s proposal to close a more than $120 million shortfall in the Department of Health and Human Services budget for the next six months, the funding gap could be twice as big.

The state owes hospitals $125 million through the remainder of this fiscal year, debt that has accumulated since 2009 as hospitals continue to serve Medicaid patients without being fully reimbursed by the state.

“The hospital debt has masked the true size of the problem, I think for a long time,” Jeff Austin, a lobbyist for the Maine Hospital Association, told lawmakers last week.

Gov. Paul LePage’s plan to close the budget gap by overhauling MaineCare, the state’s version of the federal Medicaid program for the poor, doesn’t directly address the hospital debt. It sets aside up to $25 million in unappropriated funds that legislators could direct to cover the debt in the next fiscal year, according to Adrienne Bennett, the governor’s spokeswoman. Another $100 million shortfall is expected for the next fiscal year.

“It’s a very convenient way to balance a budget,” Austin said Tuesday. “Just take something out of the budget, just take it out and [say], ‘We’ll balance it later.’”

Historically, payments owed to hospitals have not been included in the DHHS budget, Bennett said. The debt remains a serious concern for LePage, she said.

LePage has said MaineCare will run out of money on April 1 without his reforms. His plan would drop 65,000 people from coverage, tighten eligibility requirements and cut services for others to bring the program closer to national averages for public health benefits.

It also would cut hospital reimbursement rates, limit payments for inpatient and outpatient hospital visits, and reduce funding for some rural hospitals to save $11 million. Another $3 million in administrative savings related to hospitals are included in the budget.

Red ink from the hospital debt stretches back at least a decade. Last year, LePage budgeted for hospitals to receive a long-awaited $70 million payment from the state that leveraged another $180 million in matching federal dollars. But the debt since has continued to accrue, now totaling roughly $400 million in both state and federal obligations.

The state has begun implementing a new payment system that’s expected to largely put an end to the hospital debt problem by paying claims faster. But in the meantime, in addition to the debt, hospitals face a $50 million hit from the proposed MaineCare reforms that could result in layoffs and service cuts, according to Austin. The $50 million doesn’t include indirect costs from LePage’s plan to drop childless adults, 19- and 20-year-olds and some parents from the MaineCare rolls, which would add tens of millions more in losses as hospitals pick up the tab for treating those patients, he told members of the Legislature’s Appropriations Committee last week.

Eastern Maine Healthcare Systems, parent organization to Eastern Maine Medical Center in Bangor and six other hospitals, projects that the tighter eligibility guidelines ultimately will cost it $13 million, more than half the system’s overall anticipated losses of roughly $23 million, according to Scott Oxley, interim treasurer and chief financial officer. The other $10 million would come from rate reductions and limits on hospital visits included in the governor’s proposal.

“It would be impossible to digest a $23 million cut come July 1,” he said.

EMHS is owed about $80 million in state and federal Medicaid funds, Oxley said. Plus, like other health care organizations in the state, EMHS already receives less money from Medicaid for services than it costs to provide them, he said.

“They only pay us about 80 percent of our costs,” he said. “So it’s a 20 percent haircut right off the top.”

In southern Maine, MaineHealth, parent organization to Maine Medical Center in Portland, anticipates a $20 million loss from the cuts to hospital reimbursements. The losses will force the system to eliminate jobs, reduce benefits and roll back voluntary community health programs, Katie Fullam Harris, senior director of government and employer relations, recently testified before lawmakers.

Under LePage’s proposal, hospitals would be paid for no more than five inpatient visits and 15 outpatient visits a year for each MaineCare patient, not including emergency room services and chemotherapy, radiation and dialysis treatments.

MaineHealth faces additional losses from the MaineCare proposal’s stricter eligibility limits, but hasn’t projected those decreases, Harris said Monday.

“There’s no question that if you eliminate coverage for 65,000 Maine people, it’s going to have significant impact on charity care,” she said. Hospital charity care programs cover services for low-income patients with no health insurance coverage.

The state’s third major health system, MaineGeneral Health of Augusta and Waterville, anticipates a $10.5 million loss next year as a result of the reimbursement rollbacks, according to Mike Koziol, chief financial officer.

Smaller, independent hospitals also will be affected, especially those that cater to a large number of MaineCare patients. Maine Coast Memorial Hospital in Ellsworth, where 18 percent of patients are covered by MaineCare, is bracing for a $2.3 million hit from the reimbursement reductions, according to CEO Charlie Therrien.

“We don’t have the margins to absorb that … . We’re going to have to look at every single expense,” he said.

How hard hospitals will be hit depends largely on where recipients dropped from MaineCare coverage end up, according to Joel Allumbaugh, health care policy director for the Maine Heritage Policy Center.

“If these people move to a private plan, it’s actually a benefit to the hospitals,” he said, because commercial plans pay better rates.

Many MaineCare beneficiaries had private insurance previously but were lured by the subsidized program’s “essentially free” coverage, he said.

“It’s a tough deal to walk away from,” Allumbaugh said.

Making MaineCare financially sustainable will also involve addressing the cost and quality of care provided by hospitals and other health care organizations, he said.

“We’ve got a delivery system that’s unaffordable out of the gate … It’s not like we’re paying for Mercedes and getting Mercedes. We’re paying for Mercedes and driving Yugos,” he said.