(3) Subtracting from the amount reached in subparagraph (2) the hospital taxes paid to the State during the hospital's fiscal year; and

(4) Dividing the amount reached in subparagraph (3) by the product of:

(a) The number of inpatient discharges, adjusted by the all payer case mix index for the hospital; and

(b) The ratio of total gross patient service revenue to gross inpatient service revenue.

For the purposes of this paragraph, a hospital's total hospital-only expenses include any item that is listed on the hospital's Medicare cost report as a subprovider, such as a psychiatric unit or rehabilitation unit, and does not include nonhospital cost centers shown on the hospital's Medicare cost report, such as home health agencies, nursing facilities, swing bends, skilled nursing facilities and hospital-owned physician practices. For purposes of this paragraph, a hospital's bad debt is as defined and reported in the hospital's Medicare cost report.

C. By October 1, 2005, the Maine Hospital Association and the Governor's Office of Health Policy and Finance shall agree on a target for increases in hospitals' expense per casemix-adjusted inpatient discharge. Each hospital's expense per casemix-adjusted inpatient discharge is calculated using the following process:

(1) Each patient's expense per discharge is calculated by applying the Medicare cost report ratio of cost-to- charges for the matching cost centers to the charge detail on each patient's discharge abstract as reported in the Maine Health Data Organization's discharge abstracts;

(2) The hospital's average expense per discharge is calculated by adding the costs of all discharges and dividing the sum by the total number of discharges; and

(3) The hospital's expense per casemix-adjusted inpatient discharge is calculated by adjusting the