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Reform History and Outline

Dirigo Reform History

Policy Intro

On January, 9, 2003, Governor Baldacci's first official act as Governor was the creation of the Governor's Office of Health Policy and Finance (GOHPF). Governor Baldacci directed this Office to develop and implement his plan to achieve access to quality and affordable health care for all Maine people. On June 18, 2003, Governor Baldacci signed into law Dirigo Health Reform. Dirigo Health Reform was enacted by two-thirds bi-partisan majorities in both the Maine House of Representatives and the Maine State Senate.

The creation of the Dirigo Health Agency was part of the Dirigo Health Reform Legislation.

When enacted in 2003, Governor Baldacci's Dirigo Health Reform Initiative was widely heralded as the first to seek universal coverage. It was the first major health reform to be enacted in any state in over a decade. In the years since passage of Dirigo Health Reform, other states have followed suit.

Dirigo Health Reform is a work in progress requiring providers, business, insurers, labor, consumers and government to work together. With legislative direction and support, and the collaboration of stakeholders, Dirigo Health Reform will continue to evolve to better meet its goals of assuring all Maine citizens have access to affordable, quality health care.

Dirigo Health Reform was named a top government innovation for 2006 by Harvard University's Ash Institute and the Council for Excellence in Governance.

Strategies to Address Health Care Costs

Making Maine the Healthiest State: The State Health Plan

How we use health services and how healthy we are affects premiums. Becoming healthier and addressing the chronic illnesses that drive cost will lower the growth in our health care costs.

To improve our health and make Maine the healthiest state, the Dirigo Health Reform requires the Governor - advised by a citizen and stakeholder council known as the Advisory Council on Health System Development (ACHSD) - to issue the State Health Plan every two years. The Governor's Office of Health Policy and Finance is responsible for staffing this Council.

Strengthening the Certificate of Need Program

The purpose of the state's Certificate of Need (CON) program is to ensure that the health care infrastructure meets the needs of the population. Numerous studies have shown that, unlike in traditional economics where demand drives supply, the opposite has been shown to be true in health care. That is, if a service is there, people will use it and pay for it whether they really need it or not, driving costs -- and ultimately premiums -- up. By making sure that investments only occur when there is a demonstrated need for a service, CON programs can help prevent unnecessary increases in health care spending.

The Dirigo Health Reform strengthened the CON program, which requires certain hospital and other capital investment projects to get state approval before investment can occur -- for instance, before a hospital buys an MRI or a builds new wing. Maine is one of 36 states with a CON program. Roughly 20% of hospital capital expenditures are subject to CON review.

Dirigo made three important changes to CON:

Facilitating Collaboration Between Providers

The Legislature followed the recommendation of the hospital study commission that was created by the Dirigo Health Reform by amending the Hospital Cooperation Act to make it easier for hospitals and other providers to voluntarily collaborate and to share services to achieve cost saving efficiencies and/or quality improvements.

Reducing Cost Shifting from the Uninsured and Underinsured

The debt that hospitals accumulate when the uninsured and underinsured are unable to pay for services received, are shifted to the privately insured through increases in the cost of services, that ultimately results in increased premiums. These costs are shifted to the privately insured as bad debt and charity care expenses. By bringing down growth in the number of uninsured and underinsured, Dirigo Health Reform reduces cost-shifting.

Reducing Paperwork for Providers and Insurers

Medical claims have historically been submitted on paper, creating an administrative burden for both insurers and providers. The Dirigo Health Reform requires providers to submit their claims to insurers in a standardized electronic format to lower administrative costs throughout the system. .

Regulating Premiums in the Small Group Market

For the first time, Dirigo Health reform regulates premiums in the small group market requiring that insurers operating in the state spend at least 78 cents of every dollar of premiums over any given three year period on medical expenses, limiting administration, marketing, tax payments, and profit to 22 cents of each premium dollar.

Increasing Transparency of Cost and Financial Data

Dirigo made several changes to how providers and insurance companies report their cost and financial data to make it easier for the public to understand how premium dollars are spent.

Voluntary Targets for Hospitals and Insurance Companies

Reviewing Medical Malpractice in Maine

Medical malpractice is frequently brought up when discussing health care costs, so the Dirigo Health Reform asked the Bureau of Insurance to review medical malpractice lawsuits and insurance rates in Maine. BOI found that medical malpractice rates in Maine have not been experiencing the kind of inflation seen in other states. In 2005, malpractice coverage in Maine was less than half the cost seen nationally and among the lowest in the country.

Enhanced Public Purchasing The Dirigo Health Reform also created the Public Purchasing Group, a group representing public purchasers, including state employees, the University system, Maine Education Association, Maine Municipal Association, Maine School Management Program, some large municipalities, MaineCare and Dirigo Choice. The Group's charge is to coordinate and collaborate where feasible in the purchase of cost effective, quality health care services. The group has issued two reports which detail the purchasing power of public entities, including a finding that public entities spent $2.5 billion in health care expenditures in 2004, a significant portion of total health care spending in the state. Updated reports will be available early in 2007.

Strategies to Address Health Care Quality

Getting the Right Care at the Right Time: Reducing Variation & Increasing Use of Best-Practices

Patients in certain Maine communities are up to three times more likely to get some expensive procedures than an identical patient in another community, even when there is no evidence that the procedure is what's known as a "best practice" for a given medical condition. This variation - which can be high or low - is unrelated to underlying differences in the population (such as differences in age, for example, or the prevalence of disease), but instead are driven by the capacity of health resources in an area (or lack thereof) and the preferences and training of the medical personnel serving the population.

This variation can result in both wasted spending and in decreased quality and patient safety. To help raise awareness and reduce this variation to ensure we get the right care, the right way, at the right time, MQF collects and analyzes data on medical practice around the state and serves as a clearinghouse of the latest information on best, and evidence-based practice, all of which helps providers improve their performance, reduce inappropriate costs and improve quality.

Building a Statewide, Interconnected Electronic Medical Record System

The majority of medical records in the US are kept in paper files, making it difficult for doctors and hospitals to share records to guarantee the best patient care. If you are in a car accident and taken unconscious to an emergency room at a hospital far from home, the doctor won't know important information about you, such as what medications you are on, what medical conditions you may have, and so on, putting you at risk and subjecting you to duplicative, time consuming, costly tests and procedures.

There is an emerging consensus around the US that an interconnected electronic medical record (EMR) system will improve patient safety and quality of care, as well as savings millions of dollars each year.

With the help of the Dirigo Health Agency, Maine is leading the way among the states in developing a statewide interconnected health information system. In early 2006, following a year of feasibility studies and organizational development, HealthInfoNet (HIN) - an independent not-for-profit organization governed by a Board of Directors comprised of 19 representatives from the medical community, private business, state government, and related advocacy organizations - was created to build an electronic health care superhighway for sharing patient information, with care to assure confidentiality.

Creating Incentives to Use Higher Quality Providers

The Dirigo Health Reform amended Maine law to allow insurers to offer financial incentives to encourage patients to use providers that have been identified as providing higher quality.


Most of Maine's uninsured and underinsured work in small businesses or are self-employed. DirigoChoice is an insurance program for small businesses, the self-employed and individuals. It is a public/private partnership administered through the Dirigo Health Agency and Harvard Pilgrim Health Care. DirigoChoice offers comprehensive coverage and a subsidy program that reduces premiums and deductibles. Sliding scale subsidies are available to individuals and families with household incomes up to 300% of the federal poverty level ($58,050 for a family of four and $28,710 for a single adult). DirigoChoice pays providers commercial reimbursement - not Medicaid reimbursement - rates.

Financing Dirigo Health Reform- The Savings Offset Payment (SOP) & Beyond

Dirigo Health reform was designed as a comprehensive solution to Maine's growing health care crisis. It set forth a number of strategies to reduce the rapid growth of health care costs and stated that savings should offset the cost of any coverage expansions. In a compromise that helped win unanimous bipartisan Committee support and a 2/3 majority vote in each chamber of the Legislature, a savings offset payment (SOP) was created. The SOP can be assessed only if there are demonstrated savings in the system. The amount of the assessment cannot exceed the demonstrated savings or 4% of all claims, whichever is less. An initial state appropriation of $53 million started the program and was used to support in the first 3 years.

Controversy has followed the financing of the program. The state argues that SOP includes savings from the full range of Dirigo's reforms, including bad debt and charity care (BDCC) reductions from covering the uninsured and under-insured, the voluntary hospital targets, Certificate of Need changes, increases in MaineCare payment to reduce MaineCare cost shifting, and other Dirigo strategies.

For the most part, insurance companies and employers argue that savings should be limited to bad debt and charity care reductions from covering the uninsured and that other savings were not tangible, so they would have to raise premiums to pay for the SOP. The intent of Dirigo was to create adequate reductions in the growth of health care costs to assure that the program would be self supporting - would cost no more than would otherwise have been spent.

Adjudicatory hearings were held by the Superintendent of Insurance in 2005, 2006, 2007 and 2008 to determine the amount of savings. The combined savings of Dirigo Health determined by the Superintendent is more than $158 million.

Insurers and several employer groups filed suit against the state over the SOP. The Superior Court ruled that the SOP was constitutional and reasonable and was not a tax. The case was appealed to the Law Court and the decision of the Superior Court was affirmed by the Law Court.

In 2008, the Legislature enacted PL 2007; Chapter 629 which supports the funding recommendations made by the Blue Ribbon Commission and eliminates the ongoing cash flow problems created by the SOP. In 629 provides financing to replace the SOP and to fund individual market reforms; it repeals the SOP replaces it with a 1.8% surcharge on paid claims and adds a tax on beer, wine, soft drinks and syrups. Additional funding included Fund for Healthy Maine and a one time working capital advance

In the first year all revenues are directed to the Dirigo Health Agency and in subsequent years 18.8% of the tax and surcharge revenue is directed to the new reinsurance program which is a significant component of the individual market reform contained in P.L. 2007; Ch. 629.

The elimination of the SOP and enactment of the new taxes are suspended pending outcome of the People's Veto in November, 2008.

As a result of the potential People's veto the Dirigo Board of Trustees made the decision to assess SOP 3 as of July 1, 2008.