Maine hospitals forecast financial disaster if Gov. John Baldacci’s proposed health reform measure becomes law, and the insurance industry says it may pack up and leave the state.

But consumer advocates say the plan is flexible and well thought out, while its primary architect stands firm in believing it will improve health care for all Mainers.

A lively debate over the proposed reform is shaping up for Thursday afternoon’s public hearing in Augusta.

The bill, LD 1611, would establish Dirigo Health, a first-in-the-nation state-sponsored program to provide affordable health insurance for all Mainers, starting with the struggling small business and individual markets.

The plan would cap private insurance company premium increases and profits and mandate that information on the costs of specific medical treatments be posted publicly.

Establishing a moratorium on expansion, the plan calls for reform of the review process under which the state decides whether hospitals can add new equipment or services.

Perhaps the most controversial part of the proposal is a request that Maine hospitals and physicians abide by a state-wide budget, a move some say would threaten the existence of many of the state’s hospitals.

Stephen Michaud of the Maine Hospital Association predicted Tuesday a $750 million gap between 2005 hospital expenses and the budget called for under Baldacci’s formula. That’s a number he says is equivalent to the combined operating budget of 24 small Maine hospitals.

But Trish Riley, principal architect of the bill, says the formula is negotiable and compliance voluntary. “If it’s not the right level, then let’s figure out what it should be,” she said. “We are asking hospitals to come to the table, to think differently about how they do business.”

Riley said she has been surprised by the “venomous” response of the MHA. But Gordon Smith of the Maine Medical Association said Michaud’s numbers make sense.

“We’ll stand with the MHA on this one,” he said.

Smith, whose organization represents most physicians in Maine, said the idea of a global budget may be in the best interest of the state, but he agreed the figures presented in the bill would lead to job losses at hospitals and increased difficulty in attracting needed physicians to Maine.

The MMA also opposes the extension of the state’s certificate of need review to private physician’s offices as called for in the plan. Hospitals have a distinct advantage in the CON process because of their financial and political clout, according to Smith.

“Hospitals want to protect and expand their monopoly,” he said. “This bill plays right into their hands.”

The Maine Association of Health Plans, representing for-profit insurance companies, opposes the plan’s proposed 4.1 percent assessment on their premium revenues that would be used to fund subsidies for the Dirigo insurance plan.

The bill prohibits insurers from either raising premiums or reducing reimbursement rates to make up the difference.

“All our major insurers are Fortune 500 companies,” said MAHP executive director Katherine Pelletreau. “They’re not under any obligation to stay here and do business.”

Joe Ditre at Maine Consumers for Affordable Health Care said despite the concerns of provider groups and the insurance industry, the time is right to pass the governor’s reform bill.

“We shouldn’t let the perfect become the enemy of the good,” he said. “If there are problems and we need to fix them, we can certainly do that at a later date.”

Ditre predicted the hospitals’ “Chicken Little scenarios” won’t derail the legislation. “They’ve overplayed their hand,” he said. “Their numbers don’t support their argument.”

Ditre isn’t sympathetic to private insurance companies either.

“All they really want is to make a great deal of money and offer crappy coverage until they’re told they can’t do it any more,” he said.

The public hearing on the reform package will begin at 1 p.m. Thursday in the State Office Building and promises to run into the evening. Sen. Michael Brennan, D-Portland, co-chairs the specially appointed committee made up of members of the Health and Human Services and Insurance and Financial Services Committees.

The legislation is surrounded by a sense of excitement and urgency, Brennan said. With 140,000 Maine people lacking insurance and increasing evidence that the situation is compounding economic development problems, he said, “This is a significant proposal that people have been waiting for for a long time.”