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Hospitals: Back payments will boost cash reserves and could prevent layoffs and service cuts.

By DIETER BRADBURY, Political Correspondent February 26, 2009

Southern Maine hospitals will collect about $90 million in back payments for services to MaineCare patients from the state and federal governments in the next two years.

The payments, for care that dates back to 2005, will be taken from the $300 million that Maine expects to receive for Medicaid reimbursements under the federal economic stimulus.

Hospitals say the money will boost depleted cash reserves, keep construction projects moving and enable them to avoid future layoffs in a recession that has already forced job and service cuts.

"It doesn't wipe the slate clean, nor does it deal with the issue of more problems going forward, so this is only part of the solution," said Chuck Gill, spokesman for Central Maine Healthcare, which owns hospitals in Bridgton, Rumford and Lewiston. "Is it a stimulus? Yes, it is."

The state owes Maine hospitals a total of $424 million in back payments for patients covered by MaineCare, the state's version of the Medicaid health coverage program for low-income people.

That equals about 25 cents out of every $1 billed for MaineCare services, according to the Maine Hospital Association, the hospitals' trade group.

Mary Mayhew, the association's vice president for government affairs, said the debt piled up because the state used outdated data to calculate reimbursements and consistently underestimated the number of MaineCare patients hospitals were serving.

Hospitals have been pressuring the state to settle the debt, and in 2006 Gov. John Baldacci committed to paying off the MaineCare bills for 2005, 2006 and 2007.

Baldacci's plan to use stimulus funds to help pay off the debt is consistent with that agreement, Mayhew said.

The Legislature also has set a policy of paying the hospital debt. When lawmakers approved a $166 million emergency supplemental state budget last month, they established a trust fund for the deposit of any increased federal Medicaid revenue under the stimulus bill.

Priority was given to paying off the hospital debt.

The projected $300 million in stimulus funding reflects a federal decision to increase its Medicaid reimbursement rate to states.

Ryan Low, Maine's commissioner of finance and administration, said the rate will rise from 64 percent to nearly 73 percent.

Low said the administration will act as quickly as possible to make the payments to hospitals, some of which have been tapping credit lines to make payroll and cutting staffing or services.

"Certainly the intent is to prevent some of the reductions, some of the layoffs that are going on," Low said.

Darlene Stromstad, president of Goodall Hospital in Sanford, said the MaineCare reimbursements are critical to the hospital's financial health.

The state will owe Goodall an estimated $10.6 million by June, she said, and the hospital has been forced to open a line of credit and dip into its endowment to maintain cash flow.

"We look at cash flow every single day, and we look at sending people home every single day," she said. "And we've been doing this since before the economy went south."

Goodall eliminated 30 positions last month, and Stromstad said increased MaineCare reimbursements won't bring any of those jobs back.

"It's more of an insulation" against further cuts, she said, at a time when unemployment and rising costs are driving up the numbers of people without health insurance.

Gill, the spokesman for Central Maine Healthcare, said hospitals are also concerned about proposed changes in MaineCare going forward.

The state recently decided to reduce the reimbursement rate for hospital-based physicians, and other modifications are expected as part of the $6.1 billion budget for the next two fiscal years that Gov. Baldacci has submitted to the Legislature.

Low said the state needs to take a broad look at the MaineCare program and fund it adequately...