The Baldacci administration and the Maine Hospital Association are moving toward a settlement of some $330 million owed by the state to medical facilities from the mid-1990s and through the end of the current biennium, in June 2007. The agreement reportedly would also set rates that would help avoid the state piling up Medicaid debt, a welcome change.

If finalized, the reimbursements, to be paid over the next three to four years along with debts incurred during that time, would give Maine a chance to re-examine how Medicaid charges are priced here and to devise a more sustainable system for this important part of government.

The potential agreement would be the culmination of long discussions in Augusta. With the administration and the hospital association signed on, the new payments would be assured unless Republicans objected, and they have been the party that has urged

the state to pay up.

Every year Maine uses a mix of federal and state dollars to pay hospitals for Medicaid services through two payments. The first is a prospective interim payment (PIP), which is an estimate on the medical bills, and the second is a settlement of previous years’ costs.

The two have increased substantially in recent years because about 100,000 more Mainers have signed up for MaineCare since 2000 and, to a lesser extent, hospitals have expanded their services by buying medical practices.

The problem goes beyond these, however. PIP rates are too low because they have been set based on outdated budgets. This causes the state to pay too little of its bills in its initial payment, leaving hospitals with cash-flow problems and Maine government with settlement costs higher than it can handle. The administration raised the PIP rate earlier; raising it to an adequate level based on current expenses would be a positive sign.

The state has been trying to pay for uncompensated costs going back a decade – for instance, $96.4 million of the $122 million in settlement payments last year were paid to settle outstanding balances as far back as 1996. The outstanding debt is unfair to

hospitals and makes any health care reforms more difficult because care providers can look at this debt and, naturally, doubt that the state would keep its word on future payments.

The debt has also made it impossible for Maine to have a serious discussion with providers over actual costs – looking within hospital budgets to see what every dollar used to pay for a medical procedure actually covers, from the skill of a surgeon to the light bulbs in the operating room, from CEO pay to the hospital grounds’ landscaping. Such a discussion must be accompanied by a review of how other states pay for care and this state’s certificate-of-need process.

But that discussion cannot happen while the state owes hospitals so much money. An agreement that allows the state to meet its obligation to the hospitals not only is the right thing to do, but it would move important health coverage reforms forward.