December 1, 2002

The following op-ed piece ran in the Maine Sunday Telegram, December 1, 2002

Why is health care seen as a revenue source by state?

By Steven Michaud

Anyone reading the recent Bangor Daily News (11/13/02) head-line "Hospitals offer to pay state $3.5 million" to help solve the current year budget problem in Augusta would think that Maine's hospitals are flush with cash. Think again.

Nearly half of Maine's 39 not-for-profit hospitals lost money between the first quarter of this year and 2001. Most hospitals are working hard to maintain a thin positive margin in order to maintain the services on which we all depend.

So why the $3.5 million 'contribution' to the General Fund?

When faced with a choice between "bad" and "worse," most of us would reluctantly choose bad comforted by the knowledge that the other choice truly was worse.

That's precisely the situation Maine's hospitals found themselves in during the state's latest budget crisis in November. Faced with filling a short-term $240 million budget deficit for this current budget year, and with a larger billion dollar budget gap looming in the next biennial budget, Maine's hospitals faced several bad choices.

One choice was to accept the King Administration's proposal to reinstitute a hospital tax and match program. Tax and match involves assessing a tax on hospitals and using that money to leverage addition federal funds through the Medicaid program to return to most (but not all) hospitals more than they paid as a result of the new tax. Supposedly, this would be a win-win for hospitals and the state treasury.

We've all been taught that when something sounds too good to be true, it usually is. This was clearly the case with tax and match.

The Maine Hospital Association (MHA), representing 38 non-profit, community hospitals, hired national experts with experience in tax and match who concluded that the size of the match (new federal money coming to Maine) was overstated and that a majority of Maine hospitals would suffer financial loses under this new tax.

The Administration responded to our concern about their tax and match proposal by threatening to cut $3.5 million from the State's Medicaid budget. This alternative would have resulted in a $10.5 million loss to Maine hospitals (as every state dollar cut from Medicaid triggers a loss of two additional federal dollars).

At a time when rising health care costs are on the minds of every employer and employee, it seemed inconceivable to Maine hospitals that they were being asked to accept a tax that would drive up their costs even further or an outright cut of $10.5 million to serve the neediest among us.
Faced with a clear $10.5 million financial loss on one hand and a likely loss from a poorly developed tax and match scheme that would continue in future years, Maine hospitals chose instead to agree on a one-time tax that will generate the needed $3.5 million contribution to the General Fund. This tax will result in real pain to many hospitals who are struggling to meet the breadth of challenges from under-reimbursement from government insurance programs to increasing numbers of uninsured patients.
And with all the concern expressed about the Business Equipment Tax Rebate and Maine's economy, Maine hospitals' positive impact on the economy was largelyl overlooked.

The health care sector of Maine's economy employs more people than any other in Maine. Hospitals alone directly employ 25,000 individuals in well-paying jobs. Maine's hospitals are good, stable employers and economic engines in their respective communities. And hospitals are not threatening to pull up and relocate to a more tax-friendly state.

Maine's hospitals are the hub of a wide variety of important health care delivery services in their communities, from primary care physicians and long-term care for the elderly to home health services and public health outreach. Their mission-driven focus on improving the health of their communities is critical to solving the health care crisis in Maine.

Hospitals are acutely aware of the difficult financial challenges facing lawmakers and the new Baldacci Administration. We hope that if a tax and match plan is presented to the new Legislature, we will have been invited to work closely with Administration officials in crafting a plan that stands the best chance of passing federal scrutiny.

We also hope that when the new Legislature expresses concern about impacts of their actions on major employers in Maine, they remember that hospitals are one of Maine's largest employers. According to a recent Department of Labor forecast, more than 13, 000 new jobs will be created in the health care field in the period 2000-2008.

Medicaid will surely be a large and inviting target for budget cuts next year. What happens if Medicaid is cut? The 2-for-1 loss of matching federal dollars will be devastating to a poor state like Maine. Medicaid beneficiaries will still be treated by hospitals. However, the hospital will be reimbursed even less for its services than it is today, shifting more costs to other hospital users whose insurance premiums will go up yet again.

We need a better approach to meeting the needs of all Maine citizens. Budget proposals that tax but don't match, place in jeopardy much-needed federal Medicaid 2-for-1 matching funds, or shift costs from one group of patients to another are troubling approaches to solving the budget crisis. We need to develop a solution that does not jeopardize the financial health of our hospitals so they can continue to meet the diverse needs of their communities. The challenge for the new Administration and Legislature will be to find a way to balance the budget while keeping the health care system on which we all depend healthy.

Steven Michaud of Topsham is President of the Maine Hospital Association.