Behind closed doors, the House and Senate leaders are trying to cobble together very different and complex provisions of their respective bills.

A key issue is the impact of the public plan, a government run health plan intended to compete against private health plans. In the House version of the bill (H.R. 3200), payment to doctors and hospitals will be pegged to Medicare rates. Specifically, the bill calls for payment for medical services to be set at Medicare payment levels with a 5 percent increase for only certain physicians.

In the aftermath of the debate on physician payment updates, much of the media focus has been on the impact on doctors. But what is often overlooked is that while doctors could lose income, there are many areas of the country where the expansion of Medicare payment for hospitals would cause many hospitals to go broke.

If millions of Americans are moved from private insurance to public coverage, with the introduction of a Medicare-like public plan and a massive Medicaid expansion, once reform is fully implemented annual reimbursements to hospitals could be reduced by $63.7 billion. Overall, if reform were to include a “strong” public option available to individuals and employers of all sizes, hospitals could see their total net income fall by $61.9 billion, which would essentially eliminate hospitals’ yearly margins. Although many hospitals would see their profits dry up, the effects would be even more pronounced in certain states.

The Maine Example. Hospitals in Maine, for example, could see their net annual income fall by $694.4 million, with hospital total margins dropping to negative 12.1 percent. This loss in hospital income in Maine would be greater than total hospital margins and it would be overwhelmingly attributable to the creation of a new Medicare-based public plan.

Today, Medicare hospital payments in Maine are 54 percent of the private payments in the state. So, the fact is this: if Congress’s health reform plan tries to expand coverage in a way that heavily relies on insufficient below-market payment levels, like the rates used in the Medicare and Medicaid programs, it would hurt—not help—most hospitals. Of course, this radically increased reliance on Medicare style administrative pricing could ultimately compromise the broad access to high-quality care that most Americans currently enjoy.

For further information on the impact of the public plan on doctors and hospitals, see