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.