In 2002, MaineCare, the state’s Medicaid program, paid hospitals $175 million for services; for 2006, it budgeted $399 million. Yet it will owe, by July 2007, some $300 million more than it has put in the budget. While recognizing that the Baldacci administration has made a serious effort to pay its bills, this breathtaking situation demands significant budgetary changes to ensure Maine does more to meet its obligations.

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 a sort of down payment 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 PIP rates are too low because they are set based on outdated budgets.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 has raised the PIP rate a bit, but it has more to go.

The state is trying to pay for uncompensated costs going back to the mid ’90s – for instance, $96.4 million of the $122 million in settlement payments this year is being paid to settle outstanding balances as far back as 1996. That’s an encouraging sign that will be further helped if the federal government approves a request by the governor

to raise the level of Medicaid payment for Maine’s small, critical-care hospitals from 101 percent of costs to 117 percent.

Raising payments on the remaining hospitals is limited in part by federal caps on payments. Maine is currently within $14 million of that limit, after which the federal match would end and, instead of paying approximately $1 of every $3 owed, Maine would

pay all of it.

Still, the payment gap exists, and not paying the bills on time is unacceptable. So in addition to raising the PIP level, the administration should come as close to the upper payment limit as possible and, with the Maine Hospital Association, it should create a deadline for settlements so the hospitals have increased certainty about when they will be paid.

Much of this problem occurred long before the current administration took office and it is fair to say the governor has worked to make up lost payments from years earlier. But the expected $300 million gap in this biennium’s payments not only is unfair to hospitals; the ill will it creates makes other health-care reforms much more difficult. That makes the gap even more costly.