PORTLAND, Maine — Gov. Paul LePage unveiled a far-reaching plan Tuesday to repay the $186 million the state owes Maine hospitals for treating patients covered by Medicaid as part of a wider proposal to boost the economy.

The plan includes borrowing against future liquor revenue to fund the hospital payments, releasing voter-approved bonds for transportation and conservation, and bonds for a new correctional facility.

At an event at the construction site of the University of New England’s dental school, LePage said the state will issue the $186 million in revenue bonds against future liquor sales to repay the state’s hospitals. Under the governor’s proposal, the state would reacquire the liquor operations that were privatized in 2004 when the current contract expires in 2014. LePage submitted emergency legislation authorizing the revenue bond that now needs approval from lawmakers.

The hospital payments from the state would trigger a $298 million match from the federal government.

The state’s current debt to hospitals has accumulated largely since 2009 as facilities continue to serve Medicaid patients without being fully reimbursed by the state.

“We’ve gotten in a bad habit of having a very expansive and expensive health care system, but we use the hospitals to pay for it,” LePage said Tuesday. “It doesn’t work. There’s a day of reckoning, and we’re at that day.”

When the funds owed to the hospitals are secured, LePage said he will release the $105 million in bonds previously authorized by voters, which include $51.5 million for transportation infrastructure improvements and $53.5 million for conservation, clean water upgrades, and construction and energy efficiency at postsecondary educational institutions.

UNE’s dental school, set to open this fall, is due to receive $3.5 million in bond funding.

LePage has also proposed a $100 million facilities bond for the construction of new corrections facilities in Windham.

Corrections Commissioner Joseph Ponte suggested the bond to build a new prison to replace the Maine Correctional Center. He said at the time that building a new facility would yield future staffing savings.

LePage said earlier this month that he was holding out on authorizing the sale of state bonds because the state carries too much debt.

In all, the proposal would invest nearly $700 million into Maine’s economy, boosting job creation and protecting Maine’s credit rating, LePage said.

Bangor’s three hospitals will be reimbursed $90 million in state funds, of which $71.9 million will go to Eastern Maine Medical Center, which holds the largest single unpaid bill. Central Maine Medical Center and St. Mary’s Medical Center, both in Lewiston, would be paid $50.2 million and $28.85 million, respectively. Portland hospitals would be paid $94.2 million in state money, including nearly $68 million to Maine Medical Center.

“When the state pays the outstanding hospital settlement debt, hospitals will then be able to stem the tide of job losses that have been occurring over the past several years,” said Steven Michaud, president of the Maine Hospital Association. “It will also allow us to stop borrowing against lines of credit, which many of our hospitals have been doing just to meet payroll, and make vital investments into hospital facilities and, importantly, to pay local businesses for the services they provide to our members.”

If lawmakers approve the proposal, the administration will move swiftly to arrange payments to hospitals, said Adrienne Bennett, the governor’s communications director.

Democratic leaders questioned the governor’s proposal, saying potential revenue from the liquor contract must be considered within the governor’s two-year state budget, which was released last week.

LePage did not address the hospital debt in the supplemental budget he proposed Friday to close a roughly $112 million shortfall for the fiscal year that ends June 30. His proposed spending plan for the biennium that begins July 1, which Finance Commissioner Sawin Millett presented Friday, also did not include provisions to pay the hospital debt.

“The hospitals debt is one of the many competing obligations we have,” Democratic House Speaker Mark Eves of North Berwick said in a statement. “Our top priority must be to strengthen the economy and rebuild our middle class — not shift costs to Maine people and small businesses.”

Maine Senate President Justin Alfond, D-Portland, said in the statement that “asking Wall Street to pay our hospitals only leaves us in debt to Wall Street.”

The liquor contract is estimated to be worth $300 million to $400 million.

“I believe that we can do things that can enhance that, by lowering the price and stopping a lot of our Mainers from going to New Hampshire and buying liquor,” LePage said.

While the state would take over management of the contract, distribution of liquor in the state would continue to be contracted out, he said.

Republican leadership is “100 percent behind” the proposal, LePage said.

Red ink from the hospital debt stretches back at least a decade. In 2011, hospitals won a reprieve when LePage budgeted a long-awaited $70 million payment from the state that leveraged another $180 million in matching federal dollars. That was followed by another $26 million payment in August 2012. But the debt since has continued to accrue, now totaling $484 million in state and federal obligations.

Historically, payments owed to hospitals have been largely left out of the DHHS budget.

Dating to his 2010 gubernatorial campaign, LePage has made repaying the debt a priority and frequent topic during public appearances. In August 2012, LePage reportedly considered calling a special session of the Legislature to deal with the hospital debt. That plan did not materialize.

LePage said some lawmakers have suggested in recent months that the state pay hospitals just a percentage of what they’re owed, rather than the full amount.

“That’s not acceptable,” he said. “If we’re going to have a quality health care system we have to pay our bills like everyone else. And that’s what I fully intend to do.”

LePage pressed the Legislature to support his emergency legislation in the face of declining Medicaid match rates from the federal government. The feds pay hospitals $1.70 for every $1 the state kicks in, a drop from $3 several years ago, he said.

“Every year that we delay, we pick up a larger portion of the debt through the general fund,” LePage said. “The state simply cannot afford to do that.”

The state has implemented a new payment system that hospitals expect to largely put an end to the debt problem by paying claims faster. Under the previous system, the state estimated how much it would owe to hospitals over each upcoming week, using a flat fee based on their projected number of MaineCare patients. The state would then settle any discrepancies at the end of the year, but perennially ran short of money. Now, the majority of hospitals are reimbursed as they bill Medicaid for each procedure.

The Medicaid debt was a major factor in the delay of a $250 million project to construct a seven-story tower at EMMC’s campus in Bangor, said Lisa Harvey-McPherson, who handles policy issues for EMHS. The project, now back on track, was approved by the state in 2008.

“Had we had the funding, hundreds and hundreds of jobs would have been created in the Bangor community,” she said.

Jackie Farwell

I'm the health editor for the Bangor Daily News, a Bangor native, a UMaine grad, and a weekend crossword warrior. I never get sick of writing about Maine people, geeking out over health care data, and...