AUGUSTA — The proposed two-year state budget hurts hospitals to fund tax cuts. If the spending plan is enacted, Maine hospitals would lose more than $66 million per year when each of the various cuts are fully implemented. Hospitals in Maine oppose the budget as drafted and urge the Appropriations Committee to oppose it as well.

Medicaid provides coverage for medical care, nursing homes and a variety of other health care services to nearly 240,000 low-income Maine citizens. Generally speaking, when the Medicaid program is in a financial crisis, the state seeks to make cuts like the ones proposed in the budget.

However, the Medicaid program is not facing a financial crisis, or even a challenge. In fact, the Medicaid budget is balanced. The cost of the program has grown less than 2 percent per year for several years now. The proposed budget shrinks the Medicaid program in order to fund tax cuts.

There are a number of reasons why the Medicaid program’s costs have slowed in recent years. The primary reason is that enrollment in the program has dropped by more than 75,000 people. When fewer people are served, state costs go down.

But hospital costs go up. Almost all of the 75,000 people who lost coverage are eligible for free care in Maine hospitals because of a state mandate. The state cut people from Medicaid knowing that hospitals would be obligated by Department of Health and Human Services policy to continue meeting some of these patients’ health care needs for free. This shift of responsibility from the state to the hospitals has contributed to Maine hospitals losing about $250 million per year in uncompensated care costs, which are costs associated with care that is provided but for which patients do not pay.

These changes have also contributed to a sharp reduction in the operating margins of hospitals. The average operating margin for Maine hospitals is about 1 percent: That is, 99 percent of the revenue that flows into a hospital flows out in the form of expenses such as nurses’ salaries, prescription drug costs and the like.


Unfortunately, a third of hospitals are operating at a loss. An additional $66 million in cuts is not sustainable.

The state budget hurts hospitals in four ways.

 First, it increases the state tax imposed on hospitals for the third time in six years to about $103 million annually.

 Second, it cuts the reimbursement rate for small, rural hospitals, known as critical access hospitals, by more than $6 million per year.

 It cuts reimbursement to primary care physicians who work for hospitals by more than $16 million. This cut is particularly curious since the LePage administration has repeatedly said more care should take place in the primary care setting.

 Finally, the budget would eliminate Medicaid coverage for another 20,000 people. Hospitals would lose over $36 million per year once those cuts were fully implemented. And, under state law, every single one of those individuals would be eligible for free care. That care, however, is not comprehensive: For example, hospitals are not pharmacies and do not provide free prescription drugs to people.


If cuts of this magnitude were to be enacted, services would be cut, hospital employees would lose their jobs and the survival of some Maine hospitals would be threatened. And Maine people would be sicker.

It’s not as if hospitals have seen pay increases from Medicaid, either. In fact, Maine hospitals are paid about 72 cents for each dollar of care provided to a Medicaid patient. This is down from approximately 77 cents five years ago. Hospitals need a rate increase, not a tax increase. The state has not raised hospital rates in over a decade; in fact, hospital outpatient rates were cut 10 percent three years ago.

Thankfully, the Appropriations Committee has rejected each of these cuts in recent years. Each of the hospital proposals in the budget has been tried before. Local elected officials understand the devastating impact these proposals would have on the health of their citizens and the health of their local economies.

On behalf of Maine’s 36 hospitals, their 30,000 employees and hundreds of thousands of patients, we urge legislators to oppose the cuts proposed in the biennial budget.

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