Jeffrey S. Barkin, MD, DLFAPA, is a practicing psychiatrist in Portland and the former president of Maine Medical Association. He co-hosts “A Healthy Conversation” on WGAN.

In Maine, hospitals are more than buildings where people go when they are sick. They are pillars of the communities they serve. They deliver babies, treat heart attacks, repair broken bones and comfort families during the hardest moments of life. They also anchor local economies. When a hospital thrives, a town thrives. When a hospital struggles, the entire community feels it.

That is why a proposal now before the Maine Legislature — LD 2196 — deserves careful and sober evaluation.

The bill aims to reduce health care costs by capping what hospitals can charge commercial insurance companies at 200% of Medicare rates. On the surface, the idea sounds reasonable. Many Mainers are frustrated by rising insurance premiums and hospital bills. Employers struggle to provide health coverage. Families worry about deductibles and co-payments. Lawmakers want to help.

But good intentions are not enough. Public policy must also account for economic reality.

LD 2196 risks creating a financial shock that Maine’s hospitals simply cannot absorb.

To understand why, we must begin with a basic fact about how hospitals are paid. Medicare — the federal program that covers older Americans — sets its reimbursement rates nationally. Those rates are not based on what it actually costs a hospital to provide care. In many cases, Medicare pays significantly less than the real cost of treatment.

Hospitals across the country lose money on many Medicare services.

In Maine, the problem is even more pronounced because our population is older and more rural than almost any other state in the nation. A large portion of hospital patients are covered by Medicare or Medicaid, both of which reimburse below the true cost of care.

Hospitals survive by balancing those losses with payments from commercial insurance plans. On average, with variability, hospitals are paid at 254% of what Medicare pays by commercial insurers. 

This system, sometimes called “cost shifting,” has been part of American health care for decades. While imperfect, it allows hospitals to keep their doors open while caring for patients regardless of their insurance type. LD 2196 would sharply limit that balancing mechanism.

Imagine a hospital performing a knee replacement surgery. Suppose Medicare pays about $10,000 for the procedure, but the real cost — surgeons, nurses, operating room staff, implants, anesthesia, post-operative care and overhead — is closer to $16,000. That means the hospital loses $6,000 on each Medicare patient.

Currently, hospitals rely on higher payments from commercial insurers to offset those losses. If LD 2196 caps those payments at 200% of Medicare rates, the reimbursement might rise to around $20,000. At first glance, that seems workable.

But when hospitals are losing money on large numbers of government-insured patients, even those margins quickly disappear. Add emergency services, trauma care, mental health services and other essential but costly programs, and the financial picture becomes fragile.

Some hospitals in Maine already operate with margins that are razor thin. For smaller rural hospitals, the margin is sometimes close to zero or below. Some Maine hospitals have closed already and many others are at imminent or high risk of doing so as well. 

If revenues drop further because of reimbursement caps, those hospitals will face difficult choices. Services will be cut. Departments will close. Staffing levels will shrink. In some cases, hospitals may not survive at all. One of the largest hospital systems in Maine estimates it would have to lay off a third of its workforce. 

This is not speculation. Rural hospital closures have become a serious national problem.

Across the United States, more than 140 rural hospitals have closed during the past decade. Each closure leaves a hole in the health care safety net that is rarely filled. Just look at the closure of Inland Hospital in Waterville less than a year ago as one recent example. 

When a hospital disappears, emergency care moves farther away. Maternity services vanish. Cancer treatments become harder to reach. Elderly patients must travel long distances for routine procedures.

In a state like Maine — where winter weather, rural geography and an aging population already challenge access to care — those distances can become dangerous, especially when every second counts such as in a heart attack or stroke.

The consequences of LD 2196 would not stop with patient care. Health care is one of Maine’s largest and most important industries. Roughly one in eight jobs in the state is tied to health care. Nurses, physicians, therapists, laboratory technicians, radiology staff, administrative workers, custodians, food service workers and many others depend on hospitals for their livelihoods.

Hospitals are often the largest employer in their communities. If hospital revenue drops dramatically, layoffs will follow.

No organization can continue operating while absorbing major financial losses year after year. Staff reductions would become inevitable. Entire units could be eliminated. Hiring freezes would spread across the state.

The loss of health care jobs would ripple outward through Maine’s economy. When workers lose jobs, they spend less money in their communities. Local restaurants lose customers. Retail stores sell fewer goods. Contractors receive fewer home renovation calls. Car dealerships see fewer buyers. Each lost job weakens the economic health of the town around it.

In smaller Maine communities, where hospitals are economic anchors, the impact would be more severe. Losing dozens or even hundreds of health care positions would reduce household income, shrink local tax revenue and place additional strain on municipal budgets.

The very communities lawmakers hope to help would be among those most harmed.

There is another risk as well: workforce recruitment. Maine already struggles to attract enough doctors, nurses and other clinicians. Many hospitals work hard to recruit professionals to rural areas where staffing shortages are common.

If hospitals begin cutting services or laying off staff, recruitment will become even more difficult. Young clinicians deciding where to build their careers will naturally choose states where hospitals are financially stable. A reputation for instability will push talent away from Maine at the very moment we need it most.

Patients would ultimately bear the consequences. Longer wait times. Fewer specialists. Greater travel distances. Reduced services. Worse health outcomes.

None of this means that rising health care costs should be ignored. Mainers are right to demand solutions. Insurance premiums continue to rise, and businesses feel squeezed by health care expenses. But solutions must be grounded in a clear understanding of how health systems function.

Price caps that ignore underlying cost structures often create unintended consequences. Hospitals cannot simply “absorb” major payment reductions without changing the services they provide.

A better approach would focus on improving transparency, encouraging efficiency, strengthening primary care and supporting rural hospitals that serve large Medicare populations. Policymakers, insurers and health systems can work together to reduce waste while protecting access to care. Those reforms are more complicated than imposing a simple cap, but they are far more likely to succeed.

Maine has long been a state that values careful, pragmatic policymaking. We solve problems by examining the evidence, listening to affected communities and thinking about the long-term consequences of our decisions.

LD 2196 raises an important concern about health care affordability. But the remedy it proposes risks undermining the very hospitals that keep our communities healthy and our local economies strong. Hospitals cannot serve patients if they cannot survive financially. Simply: No margin, no mission. 

If this legislation passes, the result will be service cuts, workforce reductions and hospital closures. That will mean fewer jobs, less economic activity and diminished access to care for the people of Maine. Health policy should strengthen communities, not weaken them.

For these reasons, the Legislature should step back, reconsider the consequences and pursue solutions that control costs without destabilizing our hospitals. The goal of affordable care is shared by everyone. But the path forward must protect both patients and the institutions that serve them.

LD 2196, despite its intentions, risks doing the opposite. Maine lawmakers should not pass it.