Maine hospital officials are pushing back against the LePage administration’s budget proposal, arguing that if millions of dollars in MaineCare reimbursement cutbacks are combined with the proposed property tax on nonprofit organizations, needed medical services would be reduced or eliminated.

“This budget is not in any way realistic. The hospitals cannot just absorb these cuts,” said Jeff Austin, vice president of the Maine Hospital Association. He estimates the reimbursement cuts total $55 million statewide on top of $10 million to $20 million in extra property taxes.

Primary care, mental health and substance abuse treatment, and other outpatient services are most threatened by Gov. Paul LePage’s budget proposal, hospital officials said.

But administration officials and some legislators have argued that the budget reflects new priorities, such as eliminating the MaineCare waiting list for adults with intellectual disabilities and funding more positions at the troubled Riverview Psychiatric Center in Augusta.

“I was pleased with the budget. We believe what we are funding is of a higher priority,” said Rep. Richard Malaby, R-Hancock, a member of the Legislature’s Health and Human Services Committee.

Mitchell Stein, an independent health policy analyst, said some reimbursement cuts are probably warranted, to wring inefficiencies out of hospitals and accelerate payment reforms.

“The hospitals have to learn to do things differently,” Stein said. But he also said cuts should be gradual and not drastic.

Malaby said that although he’s concerned about the budget impact on small rural hospitals, he’s less worried about the financial impact on large hospitals that have extensive networks, such as MaineHealth, the parent corporation of Maine Medical Center in Portland.

“They (larger hospitals) do great things, but I think they have some room to trim,” Malaby said. He also said he believes that after negotiations with the Legislature occur, the cutbacks won’t be as severe as they currently are under the LePage proposal.

Austin agreed that rural hospitals operate on thinner margins – close to zero – but said the cuts are severe and would affect all hospitals.

Health and Human Services Commissioner Mary Mayhew, in budget testimony before lawmakers March 4, pointed to Maine’s historically generous reimbursement terms, and the administration’s desire to create incentives for certain changes to health care systems as reasons for the funding shifts. For instance, one reimbursement cut would encourage hospitals to discourage unnecessary use of hospital emergency rooms.

“One-third of submissions through the (emergency departments) are for typically preventable conditions when patients have access to timely and effective primary care,” Mayhew said.

The Portland Press Herald surveyed four hospital organizations – MaineHealth, York Hospital, Central Maine Health Care and Eastern Maine Healthcare Systems – and officials at all four said the reductions represented deep cutbacks that could result in services being reduced.

Most vulnerable to cuts are mental health, substance abuse and outpatient services, hospital officials said.

“If this budget is passed, it would do considerable damage to the fabric of our health care system,” said Frank McGinty, executive vice president and treasurer at MaineHealth, who projects $28 million in combined cuts and property taxes.

The proposal to allow municipalities to levy property taxes on nonprofit organizations – which would greatly affect hospitals – attracted much publicity when LePage unveiled the budget earlier this year, but the MaineCare reimbursement cutbacks initially flew under the radar.

The depth of the cuts was not immediately apparent, and the administration did not consult with hospitals to let them know what was in the budget, Austin said.

“Some of these cuts were literally two sentences in the budget,” Austin said. “It took us a while to determine exactly what was happening.”

Austin said that unlike in previous years, the MaineCare budget is balanced, so the hospital cuts would entirely be undertaken to fund other priorities.

Jud Knox, CEO of York Hospital, an independent hospital, said the $700,000 to $850,000 in cuts “would be very detrimental to us,” but he’s hopeful that budget negotiations will result in a more reasonable budget.

Katie Fullam Harris, senior vice president of government relations at MaineHealth, said that when people think of a hospital, they might only think of a large building filled with specialists, nurses and other health professionals.

But increasingly, hospitals are called on to provide services to people who could not otherwise obtain health care, Fullam Harris said. For instance, a primary care doctor working for a hospital must accept a MaineCare patient, while a doctor in private practice could limit or refuse to accept MaineCare patients. MaineCare reimburses at a lower rate than private health insurance, so MaineCare patients are less financially lucrative.

As a result, many primary care services for low-income patients, such as behavioral health and primary care, could be on the chopping block if the cuts go through.

“This could tear apart what’s left of the safety net in the state,” Fullam Harris said. “We were really shocked at this budget.”

About 80 percent to 90 percent of Maine’s primary care doctors are employed by a hospital and are not in private practice. Although the LePage budget would cut hospital reimbursements, it would maintain MaineCare reimbursement rates for primary care doctors in private practice. Those doctors would have seen their rates slashed because the federal government is reducing reimbursement rates. But for doctors unattached to a hospital, Maine is filling the gap with state dollars – about $8 million.

In addition to the proposed MaineCare cuts, the hospitals also are being asked to shoulder federal Medicare cuts and are taking in more charity care cases when uninsured or underinsured patients use the emergency room, hospital officials said. The state’s decision not to expand Medicaid – called MaineCare in the state – has exacerbated charity care costs in emergency rooms, hospital officials told the Press Herald.

“We have accepted the societal challenge of caring for Maine’s poor. Meanwhile, the state has stepped away,” said Lisa Harvey-McPherson, a vice president at Eastern Maine Healthcare Systems, the parent company of Eastern Maine Medical Center in Bangor. EMHS has estimated that it would be hit with $20 million in cuts under the LePage budget.

Chuck Gill, a spokesman for Central Maine Health Care in Lewiston, said if hospitals have to reduce the number of primary care doctors they employ, it would not only threaten the safety net, but would make it difficult to recruit health professionals to Maine. Gill said doctors like to know they have a stable employer, and not have to worry about state cutbacks threatening job security. As highly skilled professionals, they could choose to live anywhere in the country.

“Why would we want to put these jobs at risk with these cuts?” said Gill, who estimated a $13 million net reduction for CMHC – the parent company of Central Maine Medical Center in Lewiston – from the LePage budget. “They’re already critical to Maine’s economy,” he said.

In the past, if the state cut reimbursement rates to hospitals, often the cuts would be made up by the hospitals charging higher rates to insurance companies, which would then pass on the rate increases to private policyholders, said Stein, the health policy analyst.

He said cost shifting is much less likely to happen under the Affordable Care Act, which prohibits insurance companies from cherry-picking younger, healthier consumers and rejecting those with pre-existing conditions who are more likely to need benefits. Companies are now putting more focus on volume and keeping consumers happy.

McGinty, the MaineHealth treasurer, agreed that substantial cost shifting to insurance companies would be unlikely.

And what about the LePage administration paying down the hospital debt in 2013, eliminating $183 million owed to hospitals?

Austin said Maine hospitals still appreciate LePage’s move to repay them the overdue MaineCare reimbursements. But he said that doesn’t help hospital finances going forward.

“That money was not a windfall. It was revenue that was already booked against expenses years before. It was money that was already spent,” Austin said.