AUGUSTA – Adults on Medicaid, hospitals, and businesses that contract with the Department of Health and Human Services would feel the impact of $179 million in proposed cuts over the next two years, budget documents reveal.

“These are what we are proposing to meet the target set by the governor,” DHHS Commissioner Brenda Harvey said in an interview. “There are not any good choices here.”

In a memo to Finance Commissioner Ryan Low, Harvey lists five broad areas of cuts to meet the goal of $100 million a year in cuts. It falls short of its target, listing $80.2 million in cuts the first year and $98.9 million in the second year of the budget.

“We really tried to be surgical about this process,” she said. “What we did is look at specifics about the groups of people who are eligible for MaineCare [Maine’s name for the Medicaid program] and the optional programs.”

Harvey said the goal is to craft a package of services that best serve an individual, and separate them from coverage of other optional services. Maine offers many optional services not required under the federal Medicaid program.

“We are actually giving them a designed benefit,” she said, “but that does mean, however, that some people will not get services that they used to get.”

The memo lists social services, podiatry, optometry, physical therapy and psychological services as some of the services eliminated under the proposal for those over age 21 with income between 100 percent and 150 percent of the federal poverty level, childless adults and some people with disabilities.

More than half the proposed savings in the package are in contracted services. All administrative services would be capped at 10 percent, and some of the more than 150 contracts for services would be eliminated. Transportation services would be reduced, and efforts to recover from insurance companies would be bolstered.

“We can’t continue to do things the way we have been doing them,” she said.

Harvey said an example of contracted services that would be eliminated is home studies for adoptive placement of state wards. She said the caseloads of state adoption workers have been reduced, so they will do the home studies instead of using contracted social workers.

She acknowledged some of the proposals have been discussed by the administration in the past but rejected. For example, DHHS is proposing to save $17.6 million over the two years by tightening the eligibility for both and adults and children admitted to private, nonmedical institutions including residential services. That proposal also would require prior authorization by the state for all such services to be covered.

Another set of proposals rejected in the past would reduce reimbursements to critical-access hospitals and pay hospital-based doctors on a fee schedule. That would save an estimated $9.2 million a year.

“At a time when we are trying to encourage more people to use a physician’s office as opposed to using an emergency room, this is the last thing we should be doing,” said Mary Mayhew of the Maine Hospital Association. “Remember, hospitals are still owed money for care they provided to MaineCare patients going back to 2005.”

Mayhew said lawmakers will face very tough decisions as they seek to balance the budget in the economic downturn. She said many of the proposed cuts by DHHS will have long-term effects on the ability of all Mainers to get adequate health care in the future.

“These are just terrible, terrible,” said Sen. Joe Brannigan, D-Portland, the co-chairman of the Legislature’s Health and Human Services Committee. “It’s imminent that these cuts are coming; I think you will see many of these that are in the biennial budget proposals show up in the curtailment order.”

Harvey is preparing a plan to cut current spending to help meet the estimated $150 million shortfall in revenue for the current budget year. Gov. John Baldacci is expected to use his emergency budget-cutting powers this month to start the process of bringing spending into line with revenues before the two-year budget is considered.

Brannigan said cutting Medicaid has a huge economic impact on the state as it is battling the recession. For every state dollar spent on Medicaid, the federal government matches with about $2.

“People need to be telling the Legislature and the governor what these cuts mean,” he said, “and they need to be doing it now.”

Sen. Kevin Raye, R-Perry, serves with Brannigan on the Health and Human Services Committee. Newly elected as the Senate GOP floor leader, Raye said Medicaid will have to be cut but it should be done carefully to protect the most vulnerable Mainers.

“The Medicaid program cannot escape unscathed,” he said. “With this kind of economy and the shortfall that is looming before us, it can’t be off the table.”

Raye said that with 80 percent of the state budget in human services and education, both will have to be cut to bring spending into line with revenues. He said tax increases will not pass, with the voters’ support of repealing the beverage taxes a clear message to lawmakers that taxes are not the answer to the state’s budget woes.