The state is way behind on its payments to hospitals for Medicaid patients, with some claiming they’re being forced to take out lines of credit to pay their bills.

Approximately $200 million is owed to hospitals – $70 million in state funds and the rest in federal matching funds – to cover shortages in estimated payments for treatment of Medicaid patients in the last several years.

A suit also has been filed by a group of hospitals claiming they are owed $180 million – $60 million of which is state money – going back to 1992.

While the suit deals with a variety of disputed issues, including a special payment given to hospitals that serve a disproportionate number of the state’s poor, the more recent backlog is a problem everyone agrees exists. The question is how to deal with it.

“This is severely affecting cash flow,” said Mary Mayhew of the Maine Hospital Association. “For the first time hospitals are getting lines of credit … to meet payroll.”

The problem is with the prospective interim payments (PIPs) that the state pays hospitals to cover the expected number of Medicaid patients getting care each year. The payments are based on outdated history and don’t reflect the dramatic increase in the Medicaid rolls since the state allowed adults without children – just at the federal poverty line – into the system in 2002-2003. Since then the childless adult program has grown to 24,000 people and is now frozen because it has exceeded its federal cap.

The state is supposed to cover the difference between the estimated payments for Medicaid patients and reality based on reports filed annually by all hospitals, but has been slow to pay.

Daniel Coffey, chief financial officer for Eastern Maine Health Care Systems, told a hospital study committee in January that at the end of fiscal year 2004, the six hospitals in EMHCS were “owed conservatively about $70 million.”

“That cumulative loss of cash flow had to be made up in several ways: reducing operating costs; borrowing money on lines of credit; or increasing prices,” he said.

“Increased Medicaid eligibility should theoretically reduce hospital bad debt and free care, but only if the state pays its obligations,” Coffey said. “Otherwise, EMMC has traded patient bad debt and free care for a uncollectible state debt.”

Sen. Peter Mills, R-Somerset, has introduced a bill requiring the state to update its PIP payments to hospitals each year, based on the previous year’s actual numbers, and settle up the difference between estimated payments and real costs incurred within one year of receiving the hospital’s annual expense report.

The state, for it’s part, says it’s already budgeted increased PIP money in the 2006-2007 budget, but will require an audited version of the hospital’s cost report before it settles up the difference going forward.

Trish Riley, the director of the governor’s Office of Health Policy and Finance, said the PIP money has increased in the budget from $85 million in the current fiscal year to $111 million in 2006 and $120 million in 2007. She said there’s also $34 million in the proposed budget to start paying back what’s owed in shortages since the Baldacci administration took over.

“It’s a problem and we’re solving it,” Riley said, “in the worst budget environment in my recollection. That’s a huge move.”

Riley declined to comment in any detail on the hospital suit that goes back to alleged shortages since 1992.

According to public documents, it involves shortages in PIP payments for costs not covered by third-party insurers and supplemental funds given to hospitals with a high number of Medicaid, Medicare and uninsured patients.

Riley said the numbers are in dispute, but she confirmed Sen. Mills’ estimate that the hospitals want around $180 million in combined state and federal funds.