This story was updated at 2:55 2/24/13 to correct David Sorenson’s title

AUGUSTA – As lawmakers finished the job of closing a $153 million state budget gap last week, partisan tensions deepened over a key piece of the next two-year budget: Gov. Paul LePage’s plan for paying hospital debt with money from a new state liquor contract.

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Franklin Memorial Hospital in Farmington last week announced it was cutting 35 to 40 jobs, mostly through layoffs. Courtesy Franklin Memorial Hospital

Sparking the debate was an announcement Wednesday by Franklin Memorial Hospital in Farmington that it was cutting 35 to 40 jobs, mostly through layoffs.

President and CEO Rebecca Ryder said the move was prompted by a 13 percent decline in revenue, driven by several factors, such as fewer patients, more spending on charitable care and reduced government funding.

Ryder said those factors were compounded by a $15.4 million debt the state owes the hospital for care under the MaineCare program, the state’s version of Medicaid.

The Maine Republican Party pounced on the hospital’s announcement Thursday, blasting Democrats, who control the Legislature, for not scheduling hearings on LePage’s hospital debt plan, which was introduced Jan. 15.

“It’s very clear that the new Democratic majority is either lacking leadership or putting politics before good public policy,” Republican Chairman Richard Cebra said in a written statement.

House Minority Leader Ken Fredette, R-Newport, likewise criticized Democratic inaction on LePage’s plan in a television interview Friday.

Sen. John Tuttle, D-Sanford, chairman of the Veterans and Legal Affairs Committee, which will hold hearings on LePage’s plan, said in an interview Friday that there’s no partisan delay. He said he agrees with the governor’s concept and, “Republicans know I’m nonpartisan to a fault.”

The committee has since scheduled a hearing March 11 on the governor’s plan and on several bills on related topics, according to House Democrats.

“It’s fair to the public if you have bills on two, three, four issues, you have the hearings on the same day,” Tuttle said. “I’ve always done things in a fair manner, and I assure you I’m going to do that here.”

The partisan tensions underscore the stakes in the hospital proposal and foreshadow the debates that lie ahead as lawmakers shoulder the task of forging a new state budget.

Maine hospitals are owed $484 million in MaineCare debt. If the state paid its $186 million share, it would unlock $298 million in federal funds to fully pay down the debt. That’s been a top priority of LePage since his 2010 campaign for office.

But Democrats have been noncommittal toward his proposal to pay the debt with the proceeds of a new contract for the exclusive right to wholesale liquor in Maine.

LePage wants the state to control the proceeds from liquor sales, with “a private-sector person to provide administration, trade marketing and distribution and warehousing activities.”

On Thursday, Senate Majority Leader Seth Goodall, D-Richmond, introduced a bill that would get the state out of the liquor business entirely and establish payment systems for private bidders. No liquor money would be allocated to any programs – including hospital debt.

LePage argues that paying off the hospital debt is an obligation the state should meet, as well as a good economic development move. He said hospitals would use the money to provide jobs through new construction, renovations, expansions or other capital investments.

Ryder, the Farmington hospital CEO, said in an interview Friday that having the $15.4 million owed by the state would not have prevented the layoffs, because a decline in patient volume of some 6 percent to 7 percent effectively dictated a reduction in staffing.

However, she said, if the state paid off its MaineCare debt, the hospital would have cash to pay bills and make capital improvements, like buying new medical equipment and upgrading facilities.

David Sorensen, spokesman for House Republicans, said the party wasn’t trying to suggest the debt is the only factor in the Farmington hospital’s layoffs, but “their financial situation would be better if they got a check from the state for the $15.4 million that’s owed to them.”

Tuttle, the Democrat who heads the committee that will hear the liquor bill next month, said he’s sympathetic to the Farmington hospital’s plight, because Goodall Hospital in Sanford, a city in his district, has faced pay cuts in recent years.

Ryder also said $2 million per year in federal Medicare money her hospital received since the 1990s ran out in December, and the program wasn’t renewed by Congress.

That’s coupled with a $500,000 increase in charity care and bad debt over the last fiscal year, along with economic difficulty and health care reform dropping reimbursement rates relating to state, federal and private insurance plans.

“Everybody wants to rein in the spending,” she said.

Jeffrey Austin, spokesman for the Maine Hospital Association, said rural hospitals have faced similar problems before. While debt is “a significant factor,” it isn’t the only one facing them.

“I don’t think you can tease out one of them as being to blame,” he said. “There are a number of challenges right now.”

Michael Shepherd can be reached at 370-7652 or at:

mshepherd@mainetoday.com