California Healthcare Giant's Maine Bid Raises Questions

As Prime Healthcare Foundation (PHF) sets its sights on Central Maine Healthcare, the California-based nonprofit's business practices and financial structure may clash with Maine's strict rules on executive pay at nonprofits.

The numbers tell a striking story: 79% of PHF's gross income flows from government sources, with Medicaid providing 28.1% and Medicare making up most of the rest. By 2023, Medicaid and self-pay patients accounted for 33% of the organization's gross patient income.

This heavy dependence on public money brings PHF under Maine’s 2008 law limiting nonprofit executive compensation. The statute mandates that nonprofits getting 25% or more of their funding from government sources must cap director or officer pay at $250,000 yearly. This limit covers all payments and benefits, except for cars, insurance, and housing support (restricted to $20,000 annually).

PHF's past raises serious concerns. In 2018, the organization paid $65 million to resolve accusations of Medicare fraud at 14 California hospitals. Federal prosecutors proved that between 2006 and 2013, PHF ran what they called a "deliberate, corporate-driven scheme" to admit Medicare patients for expensive inpatient care when they needed only outpatient treatment.

This pattern of converting outpatient visits to inpatient stays—which brings much higher Medicare payments—showed a focus on financial gains over patient needs. The settlement also addressed "up-coding," where PHF allegedly fabricated patient diagnoses to boost Medicare payments.

Recent events suggest continuing problems. Last December, medical staff at four PHF facilities in Southern California stopped work over insufficient staffing, dangerous conditions, and substandard patient care. The strike involved emergency room staff, nurses, and other medical workers.

For Maine's medical system, already struggling with staff shortages and money troubles after COVID-19, PHF's record sets off alarms. Central Maine Medical Center finished 2023 owing $20 million, making it susceptible to the same cuts that caused issues at other PHF locations.

Steven Michaud, who runs the Maine Hospital Association, says: "The current situation means fewer services, less access, and several hospitals face serious problems." While PHF promises to invest $150 million in Maine, its past behavior suggests this money might bring unwanted changes.

Maine's pay cap law could cause particular difficulties. The rules, written to keep nonprofits focused on their social mission rather than executive wealth, allow courts to shut down groups that break these limits. This forces PHF to rethink how it pays its leaders.

PHF's unusual approach stands out: instead of watching market share like most healthcare providers, it concentrates on "pushing operational efficiency in markets with poor payment rates." This strategy, while good for financial results, might hurt Maine's community-based medical traditions.

PHF's expansion would add to Maine's pattern of outside control over vital services. Maine tops U.S. states in foreign-owned land percentage, and outside companies now run its major utilities. Adding medical care to this list would reduce local influence over basic needs even further.

PHF's success rate varies in places with strong competition. Their Suburban Community Hospital near Philadelphia shows how their efficiency-first approach often sparks controversy.

Some defend PHF, saying it keeps hospitals open where others might close. Their 2021 income included $61 million in extra funding through provider taxes and special payments for serving poorer areas, showing skill at working within complex funding systems.

Yet Maine's specific rules, particularly on nonprofit pay, create new challenges. PHF's big share of government money—which triggers the state's pay limits—means they must change significantly to follow Maine law.

As Maine works to provide medical care everywhere, including rural areas, PHF's offer presents both opportunities and risks. The promised investment sounds good to a struggling system, but PHF's troubled past and possible conflicts with state law demand careful review. Maine must balance financial health with public trust—something PHF's history suggests it finds difficult.