The effects are devastating,” said Steven Michaud of the Maine Hospital Association. Michaud said the state’s hospitals by 2005 would experience a $750 million budget shortfall due to a voluntary or mandated cap on operating margins and “profits.” That’s equivalent to the current budget of 24 of the state’s 39 hospitals, he said.

This oft-quoted figure and its implications has frightened hospital administrators, doctors, staff and patients alike. Will Dirigo Health truly devastate the state’s hospital system? It seems highly unlikely that concept behind the governor’s health plan, which has been judged by 28 states nationwide as highly creative and path breaking, is suicidal by design.

While a cap on operating margins will reduce revenue into a hospital’s budget, it is important to understand that reducing operating margins is a reduction in profit, not the essential budget that pays for the salaries, supplies and services from which hospitals deliver daily medical care. Furthermore, the Baldacci heath care plan creates several new patient populations for the Maine state medical system, and thereby creates new revenue streams for doctors and hospitals alike.

Under the Baldacci health care plan, perhaps 60 percent of current charity care and bad debt that cannot be collected is added to the charges for paying patient customers by the hospitals. Those low-income citizens who previously accrued bad debt with hospitals and other providers will now be covered by Dirigo Health, an affordable and effective health care coverage plan. For example, if a hospital now loses $10 million annually due to emergency room care given to those of lowest income, those who could never afford the bill, perhaps $6 million of that financial loss is curtailed using Dirigo Health.

Therefore, $6 million goes back into the hospital’s annual operating budget: “a penny saved is a penny earned.” If most of the individuals represented by that 60 percent figure soon have affordable health care coverage, there will be less use of the emergency room for illnesses or traumas that a primary care physician could easily treat. These individuals will start using the medical system in a more routine and effective basis in a manner in which doctors, labs and hospitals get paid for the services provided. Hospital revenue stream sees a second new source of funds. Individuals can engage preventive and early-stage disease health care with great benefit to themselves and a great reduction in unrecoverable charity costs to the medical system.

Within its first few years, Dirigo Health will insure the 180,000 Maine citizens now uninsured, plus additional thousands who go on and off temporary insurance plans, and those whose policies are so dysfunctional they rarely use the medical system (very high deductibles, draconian screening for what cannot be covered). These Maine citizens are – many for the first time – responsible candidates to use the medical system and pay for services rendered in a timely and fair fashion. Hospitals and doctors would now receive the cash benefits of three new additional revenue streams and thousands of new paying customers.

A fourth additional revenue stream may be identified to the medical system at large, and the state’s hospitals in particular. There are thousands of Maine citizens who purchase health insurance on their own for themselves and their families. The coverage proposed by Dirigo Health will be vastly superior to current insurance products by virtue of expanded coverage, low deductibles and terms that allow easy access to preventive health care. Maine citizens by the thousands will freely choose this coverage over their present plans for the simple reason that it is vastly superior, a much better value for dollars spent.

So, what is the problem? From the point of view of hospitals and the Maine Hospital Association, I see several concerns and issues.

From their perspective, Dirigo Health does not allow for business and profit margins as usual. Hospital operating margins will be capped at 3 percent either by voluntary compliance or possible state regulation. However offensive that idea may seem, the reasons are obvious and the limit set is hardly as severe as Michaud would like the people of Maine to believe. International Development Banks, such as the IMF and the Asian Development Bank, are chartered to loan at interest rates in the range 0.5 percent to 4.5 percent. That interest rate is, in essence, profit on the bank’s product (i.e. loan principle).

If such highly successful global banks can survive and prosper with such profit margins on their “product,” likely Maine hospitals can do so as well. Maine hospitals will do quite well because they will also be facing a large increase in their customer base and use of services as outlined above.

Michaud has repeatedly objected to the Dirigo requirement to disclose real costs for hospital and doctor “products.” The fact remains, it has become known that a wide range in pricing exists for doctor services and diagnostic services, a price range that is dependent upon state, institution and context. Lab test costs, in particular, can be documented to vary over a range of several hundred percent when one compares pricing at the usual hospital-affiliated labs vs. nationwide lab services such as Health Check USA. This striking example illustrates that an assumed fixed cost, which is judged very expensive by the public, is not fixed at all.

Furthermore, recent information reveals that in 2001 Maine hospitals incurred costs amounting to more than $318 million resulting from “problems” resulting from hospital care (i.e. less than perfect medical service delivery). This figure is 115 percent of the $275 million cost to the hospital system for uncompensated bad debt and charity care. Certainly there are significant cost savings to be found within this huge figure, with important and direct benefits to patients as well.

Finally, I wish to briefly mention hospital insurance costs which are as outrageous as those for individual and group medical insurance policies. At the May 22 Rockland health forum, the hospital executives present were in quick agreement that their insurance costs are terribly high and a severe financial burden. Perhaps it is time for a new advocacy coalition to demand reform in insurance industry profit and pricing models. I can see a coalition between two groups often seen as opposed – individual health care consumers and the executives of hospital corporations.

The citizens of Maine deserve no less than the comprehensive affordable and extensive health care coverage Dirigo mandates.

Bennett Blumenberg is president of Global Financial Consulting Inc., an international business consultancy and financial advisory firm. He lives in Waldoboro.