Skip to comments.Hospital Business in New York, Once Prized, Braces for a Crisis
Posted on 04/10/2005 11:09:03 PM PDT by neverdem
Two years ago, St. Agnes Hospital in White Plains was failing financially, so politicians and Roman Catholic leaders pressured Westchester Medical Center to take it over. That rescue was the old way of handling a hospital crisis in New York State.
A few months later, Westchester Medical Center, choking on its own losses, concluded that St. Agnes was beyond hope and shut it down. That decision represents the new way of looking at hospitals in the state, and it now appears to be a precursor to a vast change in one of New York's most important industries.
The hospital business in New York, one of the largest and most prized sectors of the region's economy, is deep in financial trouble, which is forcing it into a sharp, swift contraction. Across the city and state, public and industry officials agree, hospital doors are likely to begin swinging shut over the next year, and thousands of jobs could be lost.
Twelve New York hospitals have closed in the last 27 months, and others have shut wings, wards and clinics. The industry as a whole has lost money five years in a row in New York, while turning a profit nationally each year. Even some of New York's biggest, most sophisticated teaching hospitals, like Mount Sinai and St. Vincent's in Manhattan, have been hemorrhaging money. Just last week, county officials scrambled to assemble a cash infusion for Westchester Medical Center.
Though it has lost 20,000 beds in the last 15 years, New York still has almost 20,000 more hospital beds than it needs, according to Dennis P. Whalen, the state's executive deputy health commissioner - nearly one-third of the current total, equivalent to dozens of hospitals and tens of thousands of jobs. Hospital officials call that figure exaggerated, but they concede that whatever the true number, it points toward a wave of closings still to come.
At the moment, it is too early to say which hospitals are likely to go under. But there is widespread agreement in government and the industry that those most likely to close are smaller, financially weak institutions with other hospitals nearby. Frequently mentioned names in New York City include Cabrini Medical Center in the Gramercy Park area of Manhattan; North General Hospital in Harlem; and St. Mary's Hospital in Crown Heights, Brooklyn. Hospitals that duplicate one another's services in smaller cities upstate are also vulnerable.
The consensus view is that some hospitals will be spared, no matter how poorly they fare financially. They include those that are far from other hospitals, are closely tied to medical schools, have very busy emergency rooms, or are rated as Level 1 trauma centers, those that can handle the most serious cases. Most of the city's public hospitals will probably remain open, but some smaller ones, like North Central Bronx Hospital, have a questionable future.
Many of those excess hospital rooms were built by politicians and religious institutions, and any attempt to close hospitals was met by fierce resistance in Albany and in union halls. But in the last few months, Gov. George E. Pataki and other elected officials, along with hospital industry and labor leaders, have said that more hospitals must close so that the survivors can thrive. Such talk is a startling turnabout in politics and tone, but it merely acknowledges what is already happening.
In part, the crisis was the inevitable result of having too many hospitals in New York. But the road to closings was also paved by several economic and political factors: longstanding state laws that set New York starkly apart from the rest of the country, sharp changes in federal aid policies that hit New York's hospitals hard, and market forces and health trends that have been tougher on New York than the rest of the country. And in many cases, the hospitals contributed to the problem, having been unable to respond effectively to those changes, whether through mismanagement or simply because of the overwhelming size of the task.
Too Many Beds
New York City's hospital building boom began in the 19th century, rooted in the city's traditions of serving the poor and welcoming immigrants. It was an era when people who could not pay generally had to go without medical care, and generations of city officials made a commitment to public health care through a sprawling network of municipal hospitals and clinics far bigger than any other in the country.
Religious groups also contributed to the century-long boom, as did the city's unusually heavy concentration of medical schools, and philanthropists whose names turned up on buildings. Hospitals became a favored source of political power, jobs and prestige.
As a result, while Los Angeles County, with more people than New York City, has four county hospitals and no city hospitals, there are 11 city hospitals in New York. On the state level, New York has 20 percent more hospital beds per person than the national average.
The attachment to hospitals prevailed long after studies made it clear that New York City had more capacity than it needed. When Mayors Edward I. Koch and Rudolph W. Giuliani proposed closing city hospitals, they were met with protests, and while Mr. Koch succeeded in closing Sydenham Hospital in Harlem in 1980, the other city institutions remain.
For years, the industry and the hospital workers' union, 1199/S.E.I.U., led by Dennis Rivera, insisted that each hospital should be saved.
"In the old days, Dennis and I were the biggest impediment to closing hospitals," said Kenneth E. Raske, the president of the Greater New York Hospital Association. "We would get communities riled up, we would get politicians together, to save this, save that."
And now, he said, they find themselves supporting some hospital shutdowns. "Well," he explained, "hospitals are closing anyway, and we're getting crushed."
New York has also used hospitals more intensively than elsewhere. In most urban and suburban areas, patients go for outpatient care to big doctors' offices that house general practitioners and often a range of specialists, offering a kind of low-cost, one-stop medical shopping. But by the time that trend arose, New York City already had its own tradition of outpatient care provided in hospitals, often in emergency rooms, where care is most expensive.
The Price of Regulation
Having encouraged the construction of all those hospitals, New York took unusual steps to keep them under its thumb. From 1983 to 1996, New York was one of a handful of states that dictated the prices hospitals charged for everything from appendectomies to chemotherapy, a system put in place after several hospitals suffered financial difficulties beginning in the 1970's. Gov. Mario M. Cuomo's administration and the Legislature struck a bargain with the hospital industry: the rates the state set would cover the hospitals' costs, but they would have very slim profit margins and would not be allowed to accumulate big cash cushions.
"It was exactly backwards," said Steven Malanga, a senior fellow at the Manhattan Institute, a conservative policy group, and a persistent critic of both the hospitals and the state. "If a hospital managed itself well and generated a surplus, then that hospital was punished with lower rates, whereas if a hospital was inefficient, they found ways to give it more money and cover its costs."
New York still is one of the few states that make it very difficult to open a profit-making hospital, and it prohibits investor-owned hospitals and multistate chains. In other parts of the country, many hospitals can pay for new wings or equipment with cash reserves or stock sales, while in New York, hospitals must borrow to raise capital.
Those restrictions have helped force New York's hospitals into becoming the most deeply indebted in the country, with $15 billion in outstanding long-term debts.
After Mr. Pataki defeated Mr. Cuomo, he set out to let market forces, not officials in Albany, mold the industry. Beginning in 1997, he did away with the price-setting law, insisting that hospitals should negotiate prices competitively with the insurers who paid the bills, a practice that he said would force hospitals to become more efficient.
The shift to the new system, however, coincided with the rapid rise in managed care that squeezed hospitals nationally. Hospitals around the country had decades to learn about tough bargaining with insurance companies, but New York's hospitals, cash-poor and deeply in debt, had to learn all at once, at a moment when insurers were gaining in power.
"The hospitals were poorly prepared for those negotiations, and their margins were so thin, they were in no position to tell the insurers to take a hike and take their business down the street," said James R. Tallon Jr., the president of the United Hospital Fund, a Manhattan-based study group, and a former majority leader of the State Assembly.
Mr. Raske, the hospital association president, put it more bluntly: "These H.M.O.'s have eaten the hospitals' lunch. They've made obscene profits by strip-mining communities."
A Push to Expand
The start of competition in the late 1990's touched off what state officials call a "medical arms race" in New York, with hospitals rushing to enter high-profile, lucrative businesses, opening cardiac catheterization laboratories, cancer centers and cardiac and orthopedic surgery centers. The result was often saturation of the market, turning expensive new projects into money-losers.
Hospital officials and industry analysts say the state is partly to blame, having fueled the arms race by approving too many expansion projects, some of which are still going on. Unlike most states, New York requires hospitals to get permission before making large capital investments, a provision originally intended to control excessive expansion. But critics note that under Mr. Pataki, the state has allowed the proliferation of ambulatory surgery centers that have taken some of the hospitals' most lucrative business, and has largely set aside its use of planning councils to determine what was needed from hospitals in each region.
More recently, the governor has tried to regain some of those functions. He appointed a commission last year to look at the health care industry and consider changes to it, and he and legislators have embraced the commission's idea of another panel to recommend hospital closings. But many lawmakers consider the effort too little, too late.
"There's been a lack of guidance or strategic thinking about what the industry should look like," said Assemblyman Richard N. Gottfried, a Manhattan Democrat and chairman of the Assembly's Health Committee. "The problem with that is, if market forces force a hospital to close, it doesn't necessarily have anything to do with whether or not the hospital was needed by that community."
The patterns of diseases have also contributed to hospital woes. In the early and mid-1990's, AIDS, hepatitis C and drug-resistant tuberculosis were growing threats that generated a lot of business for hospitals. At one time, 3,000 H.I.V. patients were in New York hospitals on any given night.
But by the end of the decade, advances in treatment meant those diseases were far less likely to lead to hospitalization. The city's hospitals, having been hit especially hard by all three ailments, have been hurt the most by the loss of those patients.
Even before those treatments came along, the number of patients in New York hospitals had been dropping anyway, as other outpatient treatments advanced and health maintenance organizations pressured hospitals to shorten stays.
Though it was clear in the mid-1990's that the hospital industry would have to shrink, it did not shrink enough, or in the ways needed, to stave off the current crisis. The number of hospital beds has declined statewide to 62,800 today from 71,900 in 1990, according to the state. Hospital groups say the real decline may be even greater.
But many hospitals have added so many new services and outpatient clinics that the overall size of their operations has not changed. The number of people employed by hospitals in New York City was about the same in 2002 as in 1998; statewide, it rose slightly. The state law that forced hospitals to negotiate rates with insurers, which took effect in 1997, provided millions of dollars to retrain workers hit by anticipated layoffs, but most of that money was never spent.
The problems of New York hospitals since deregulation points toward an obvious question: If hospitals have had eight years to downsize and mold themselves to new challenges, why have so many failed to do so?
Nearly everyone agrees that mismanagement is a large part of the answer, but there is stark disagreement on the extent of the problem.
"There are some hospitals that have management and accounting systems that let them know what was going wrong, and what needed changing," said State Senator Kemp Hannon of Nassau County, a Republican and the chairman of the Senate's Health Committee. "And there are other hospitals that just plain have no idea."
That knowledge gap, Mr. Hannon said, is a remnant from the more heavily regulated days, when hospitals' costs were covered by the state, whether they had a clear notion of those costs or not. Too many hospitals are focused on fighting H.M.O.'s and getting more government money, he said, rather than asking themselves how they could be managed better.
Mr. Raske of the hospital association insisted that most hospitals were well run, noting that the ones Mr. Hannon deals with were those deepest in trouble, looking for a state bailout. Hospitals have inadequate billing and management systems, Mr. Raske said, because they have been too poor to invest in needed technology.
State and hospital officials now say that the way they thought about downsizing in the 90's was misguided. "You could go to any hospital and say, 'Take excess beds here, take excess beds there,' and that doesn't gain you much," Mr. Whalen said. Such trimming does nothing to lower "fixed costs" like real estate, heating, air-conditioning and computers.
Closing a single, 300-bed hospital could potentially save much more money than taking 30 beds from each of 10 hospitals. "There were people saying that 10 years ago, but no one wanted to accept it," Mr. Hannon said.
The shift to outpatient clinics in the 1990's was seen as the wave of the future, a way of attracting patients to more welcoming, less expensive settings. But while some hospitals, like Montefiore Medical Center in the Bronx, had great success with their clinics, others, like Mount Sinai, lost money on them and closed them. Not surprisingly, opinions differ widely as to how much of that difference is due to the quality of management, and how much to local competition, geography, and even luck.
Several health care consulting firms have concluded that hospitals in New York rate poorly in efficiency and management. One leading consulting firm, Solucient, found that in 2003, the average expense of caring for a patient in a New York hospital was 9.6 percent higher than the national average, even after adjusting for the type of case and regional differences in labor costs. In 2002, it found, the administrative cost per case was 13.1 percent higher in New York.
In study after study, the biggest difference between New York and the rest of the country is in length of stay, widely considered a measure of the quality of both care and management. Patients spend about 37 percent longer in the hospital in New York than nationally for similar cases, Solucient found, which contributes greatly to higher costs.
"These are valid criticisms, but New York is improving significantly," said Mr. Tallon, of the United Hospital Fund. "We're moving toward the national numbers, even if not as fast as we would like."
Rebecca Letz for The New York Times
St. Mary's Hospital in Crown Heights, Brooklyn, is one of three hospitals being considered for closing.
We have a big problem paying the medical bills for the millions of illegal aliens here. Our Governor doesn't seem concerned at all, but we are.
We have plenty of illegals here in NY, but it sounds dumb to close down hospitals in big cities, especially ones that have already been targeted by Al Qaeda. Talk about writing stories in a vacuum. I guess this author was the same guy who hired Jayson Blair, Howell Raines, IIRC.
ILLEGALS ALL OVER THE COUNTRY and ambulance chasing lawyers are major factors in hospitals closing and doctors leaving. Someone has to pay the bills. I keep hearing how ILLEGALS contribute more to the economy and cheap goods but they seem to forget about the healthcare costs, education, etc. that taxpayers are forced to pay. The employers of ILLEGALS should be forced to provide benefits for them. See how fast they find LEGALS to work for them.
I guess this author was hired by the same guy who hired Jayson Blair, Howell Raines, IIRC.
I thought Hillary was going to fix everything. I guess she lied AGAIN, miracle worker and smartest woman on the face of the earth that she is. /sarcasm
FReepmail me if you want on or off my New York ping list.
"Twelve New York hospitals have closed in the last 27 months.."
And hundreds more across the country will continue to close down as hordes upon hordes of 3rd world aliens continues the invasion of our country. Today is hospitals, tomorrow will be which institutions?
This may sound dumb, but not meant to be atagonistc, but how do you propose to keep these places open "just in case" if they are not making a profit? Is this not like any other business or industry that doesn't profit from the goods it sells to the public -- and their ability to pay for those goods?
Nationally, hospitals have become more efficient in the past few years, due to less invasive surgical techniques, shorter required stays, and more out-patient surgery. Seems like New York City ought to reap the savings that others are achieving.
To help ease the pain they can sell the expensive real estate to someone who can make better use of it.
What's your recommendation for casualty rich targets as far as WMD, terrorism and necessary medical care? To hell with them, it's New York City, Washington D.C. or some other big city? That's mighty white of you. I guess we need to worry about attacks on Bumfuk in the middle of nowhere.
The free market has a way of bringing these things into balance.
How does the free market deal with mass casualties after the fact besides activating units from overstretched reserve units of the Armed Forces?
"How does the free market deal with mass casualties after the fact besides activating units from overstretched reserve units of the Armed Forces?"
If a WMD hits New York or D.C., folks will be evacuated to more rural areas that you so lovingly refer to in a previous post. There are already plans in place to do exactly that, in a worst-case scenario.
Do you really think more hospitals in an area likely to be hit by a WMD attack would make a difference when everybody leaves those areas?
Closing these hospitals will have little, if any, effect on a WMD response, should one be required.
Hillary!Care would have shut down far more, quicker, and included teaching hospitals. When elected, she flip flopped and became a champion of the NY State hospital system and nurses' unions.
For the campaign contributions.
And we wait again for Hillary to blame Republicans in the state for implementing part of her cost management strategy from Hillary!Care, "costing New Yorker's jobs, medical care and protections against future terrorist attacks." Expect the regular Charles the Schmuck newsconference on the subject.
And labor leaders?? That's a switch. Usually "labor leaders" don't give a rat's pa-tooie over the fate of managment.
Between indigent care costs, HMO's squeezing the hospitals, and the lawyers/malpractice insurance disaster, there isn't enough money to go round. Those factions with their hands in the trough, Trial lawyers, Medical personnel unions, Employers of illegals, Insurance companies who must respond to malpractice lawsuits, need to be brought down a notch, for the situation to improve.
On your premise that there should be excess hospital space, then it's a classic tragedy of the commons.
IIRC, the name used in that reference was used by a First Sergeant O'Donnell of Combat Support Company, 1st Battalion, 504th Infantry, 82nd Airborne Division, at least when I heard it in 1981. I believe he was in the Army Special Forces in Vietnam.
"the name used in that reference was used by a First Sergeant O'Donnell of Combat Support Company, 1st Battalion, 504th Infantry, 82nd Airborne Division, at least when I heard it in 1981. I believe he was in the Army Special Forces in Vietnam."
Clearly Sgt O'Donnell did not demand enough push-ups from you to modify your attitude.
What's your proposal for another attack on NYC? It's not likely that you will be attacked unless you're in that location. I'm all ears.
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