Maine Hospitals Incur Great Debt to Expand and Upgrade Facilities

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It goes without saying (but we’ll say it anyway) that cash flow is exceedingly difficult for hospitals to come by, especially with reimbursement cuts and the burden of federal and state debt.

Yet hospitals have capital investments that need to be made and facilities that need to be expanded, upgraded, or replaced, sometimes all three. How is the C-suite supposed to execute these changes and advance their provision of care into the future if they a.) don’t have the money and b.) aren’t being properly reimbursed by their state?

This is the dilemma facing three hospitals in Maine, according to Jackie Farwell at the Bangor Daily News. The state owes its hospitals $484 million in Medicaid reimbursements under the state health-insurance program MaineCare, a debt that began accumulating in 2009. Its hospitals need this money not only to keep their doors open and their employees working, but also to help with much-needed construction projects for aging and outdated infrastructure.

At least three of Maine’s larger hospitals and systems have decided to push forward with facility upgrades in spite of not receiving the money owed to them by the state. In fact, Farwell writes, “All three hospitals have financed their projects without assuming that the state will repay the debt, as Gov. Paul LePage has vowed to do. Each pulled together enough capital and loans to get the projects off the ground, even as they’re waiting for Maine to pay up on tens of millions of Medicaid dollars.”

It should be noted that these hospitals have primarily “pulled together” loans to pay for these projects.

That’s right. In order to upgrade their facilities, these organizations are incurring their own debt because the state cannot pay on its debt.

For example, the state owes MaineGeneral Health $45 million in Medicaid payments that it is never expecting to receive. The system needed to replace three of its hospitals, all of which were too small and too old to continue providing care effectively. In order to pay for its new 640,000 sq.-ft. facility that will consolidate services, MaineGeneral is financing the majority of the $322-million project through debt.

Eastern Maine Medical Center in Bangor is owed the most by the state–$75 million. Its executives feel that it has delayed a $250-million seven-story tower long enough (the project was first approved in 2008) and needs to moves forward. This doesn’t lessen the concerns about the long-term consequences of depending on loans to finance the much-needed project that will allow EMMC “to operate at its full-licensed capacity and modernize operating rooms built 30 years ago.”

According to CMO Dr. James Raczek. “If we had that [Medicaid money] in the bank, this project would be easier for us to finance. … It’s caused us to have to borrow more money, which in the long run leads the project to have more expense.”

Standard & Poor’s has warned MaineHealth that its AA-rating could be jeopardized after system hospital Maine Medical Center paid for its $40-million expansion and upgrade to operating rooms mostly through loans. The old operating rooms were first built in 1984 and were only 400 square feet. If MMC is to offer modern surgeries, the new “interventional rooms” need to be at least 650 square feet.

Debt upon debt. That seems to be the name of the game not just in healthcare, but also in our country today. What is it like in your state? Is the state government able to reimburse hospitals, or like Maine, is it so far in Medicaid debt that it can’t find a way out? How does this affect your facilities and expansion projects?

-by Pete Fernbaugh

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