Hospital review | Steven Michaud, president of the Maine Hospital Association, talks about patients, bills and competition among Maine hospitals
Photo/Whit Richardson
Health matters: Unpaid Medicaid reimbursements, rising electricity and heat prices, and a physician shortage are putting the squeeze on Maine's hospitals, says Steven Michaud, president of the Maine Hospital Association
Maine hospitals together employ more people than most companies in Maine and are some of the largest energy users, which means hospitals aren’t immune to the escalating pressures other businesses feel when it comes to energy and labor. To top it off, the state and federal government currently owes Maine hospitals $600 million in unpaid Medicaid reimbursements, a fact that undeniably makes it harder for hospitals to maintain a positive cash flow or even meet their payroll, says Steven Michaud, president of the Maine Hospital Association.
However, in the next month or so, Maine’s hospitals should begin to see some of that money start rolling in, Michaud says. In late 2006, the MHA signed an agreement with Gov. John Baldacci to settle the Medicaid debt issue. As part of that agreement, the state is expected to pay close to $300 million of the total debt, which Michaud says will be a welcome development for the state’s hospitals. “If we stop bleeding now and the state starts paying off old debt, we should be back in the ballgame here of having Medicaid pay its bills, and that’s the bottom line,” Michaud explains.
Mainebiz recently sat down with Michaud to discuss some of the major issues facing hospitals, from escalating costs to how free market theories work in the health care industry. An edited transcript follows.
Mainebiz: How have Maine hospitals operated for so long with such a large amount of money owed to them?
Steven Michaud: They do it a variety of ways. There’s no question, in some cases, you increase your charges to the other payers to make up for the shortfall. Once the debt’s paid, those charges should go back down. The most significant thing we’re seeing is hospitals are going, literally, to their local banks — I don’t mean all of them, but a good chunk of them — and taking out lines of credit, paying interest on it, in order to meet payroll. And then you postpone investments, you suppress wages — I mean 60% of our costs are labor — you don’t do the renovation you were going to do, you don’t add a service that may be needed, you don’t replace equipment. Those are the things you do. And there’s what’s critical. You can do those things for a little while, but we can’t do that much longer. That’s why there’s such an urgency to this. It’s a miracle they have survived — in particular in rural Maine — as long as they have.
You talked about how money owed from Medicaid forces hospitals to postpone investment, suppress wages, etc. Will these necessary cost-cutting measures have long-term impacts on health care in Maine?
If it’s resolved, hopefully there won’t be any long-term impacts. In other words, if the second part of the governor’s agreement is fulfilled in this next budget — this is critical — in January when the Legislature convenes they will consider another two-year budget that begins July 1 next year. If it isn’t [resolved] there will be serious impacts, in particular on the workforce; that’s the majority of our expenses, that’s not a secret. You either have to not hire, lay off or suppress wages. And more important, I think, is access to care. If this isn’t resolved in the next budget cycle, then you’re going to see reductions in service, reductions in access, reductions in the ability to provide physicians. That’s not a hyperbole, it is a fact. We’re fortunate we haven’t seen a lot of that yet. And it’s only because the hospitals are resourceful. They’re Band-Aiding this whole problem, but there’s a time limit to that and I think we’re about to reach it.
I think, though, a greater issue — it’s not one I’m really addressing — is I think the state needs to grapple with the fact they have a Medicaid program that they can’t afford. They’ve grown it to a point where they can’t afford it.
Some hospitals are not doing well. Parkview Adventist Medical Center in Brunswick and MaineGeneral Health, for example, landed in the red this year. Is this because of the Medicaid issue, or are there other pressures on hospitals in Maine?
There are other issues. Obviously [the Medicaid issue] has an impact, but what we’re seeing across the state right now — and this is just a peculiar thing with hospitals — is patient volume. For reasons I can’t explain yet — we’re looking at it — volume has dipped in the last year. It hasn’t dropped off the cliff, but even if it flattens out or dips even a little bit, then that has a serious impact on the ability of the hospitals to maintain any sort of positive margin. So that’s going on. And then there are incredible cost pressures. Number one is the physicians. The pressure on us in what is a nationwide shortage of physicians is always going to be more acute in a state like Maine, and more difficult to recruit in rural Maine. We are spending a lot of money trying to recruit and retain physicians in Maine. We’re also one of the largest energy users in the state of Maine. You never shut the place down. You got heat and air conditioning 24/7, 365. Same with the lights, so we’re not immune to enormous increases in the cost [of energy]. And the cost of blood, the cost of medical technology. By the way, this is a little bit of a circular thing, the cost of health insurance — we’re not only part of the issue with the cost of health insurance, we reap the problems with it as well because we provide coverage to 20,000-some employees in Maine. All those things are driving our expenses.
The Maine State Health Care plan for 2008-2009 says Maine’s total emergency room visits in 2005 were 43% higher than the national average. Is that a function of a lack of access to health care? Those numbers are a few years old -- is that rate still accurate?
Oh yeah, it is. And there is a task force the state has developed, that we welcome, to look at that because we’re all scratching our head a little bit. What people make the mistake of doing is they’re assuming that’s the uninsured. They don’t have coverage, so they don’t have a doctor, so they go to the emergency room. Well, that’s true to an extent, but when you look at Maine’s uninsured rate, I think we’re a little below the national average, so that wouldn’t explain why we’re so much higher on ED — emergency department — use. That’s obviously part of it. You always have some inappropriate ED use, but if you have appropriate or adequate access to physician services that number would be nowhere near because people would be going to the office.
There seems to be competition between hospitals, whether it’s Maine Medical Center and Mercy Hospital in Portland or MaineGeneral and Inland Hospital in Waterville. How does competition affect hospitals? Is competition a good thing or a bad thing in the hospital industry?
I think what we’ve seen since the 1990s, and we continue to believe generally, is that collaboration is the better approach to reducing costs. Tell you this, five to 10 years ago I would have said, ‘No way competition is going to do anything but escalate costs and cause problems.’ I’m not as sure anymore. When we look at how do hospitals really compete with each other, they tend not to compete on price. So those free market theorists out there who say, ‘Deregulate everything, let a thousand flowers bloom, let the market decide who survives,’ I don’t think, with all respect, they understand what happens in health care. That it’s different. People still by and large make their choice of hospitals based on where their physician sends them.
Then you have third-party payers who also distort the market, where you have [had] historically very little out-of-pocket costs. And that’s where I’m getting to where I think things have changed. Well, where’s your incentive to shop? That’s why I always caution the free market theorists that I’m not so sure the same forces work in health care that you see in the private sector. The reason I hesitate now is, I still believe collaboration is the more effective way to get costs out of the system and to make care more rational, but where I hesitate is with the change in out-of-pocket costs. It’s only escalating. High deductibles and copays. I think that will change some of the competitive dynamics. In other words, I think you’re going to start to see people — we are seeing them — [who] say, ‘Well, wait a minute. …If I have a deductible of $1,000, now can I get the MRI for $300 or $500?’ You’re going to start to see that take place, and hospitals and providers will start to be more competitive on some pricing. I think it’s a mixed bag. I still believe we’re better off taking costs out of the system in a collaborative way and letting pure free market go, but I think you’ll start to see some level of free market in there — some more consumer attention because it’s costing [consumers] money.
Getting back to the labor force shortages you mentioned earlier. Are hospitals doing anything new and innovative as far as training goes or in attracting the right labor force?
There’s a lot of collaboration with the community colleges and the education community and that is growing. [A] great example is what Maine Medical Center is doing with their collaboration with Tufts [University in Medford, Mass.]. That was announced last winter. And that’s on the physician side, but a great example of, ‘Okay, if we don’t do it, who is?’ They are entering in agreement with Tufts to expand access for Maine kids to medical education opportunities. That’s not only great for Maine kids and Maine people, it’s by design. We need a future workforce on the physician side.
Does Maine need its own medical school?
It’s interesting. I don’t think so. I think the cost of starting one is so prohibitive I don’t think it’s in the cards. Would it help? Obviously. But if you look at the Maine Med-Tufts partnership and the potential of growing that and other programs like that, if we can grow those things, we don’t need a medical school.
Whit Richardson, Mainebiz staff writer, can be reached at wrichardson@mainebiz.biz.
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