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Twin Crises In Health Care

by Joshua Brustein, Dec 11, 2006
 

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Five more NYC hospitals are slated to be closed

St. Mary's Hospital in Central Brooklyn closed its doors in the summer of 2005, succumbing to long standing financial pressures. The emergency rooms in nearby hospitals were suddenly packed; patients in St. Mary’s mental health and detoxification units were forced to travel over an hour away to a hospital in Jamaica, Queens; and some patients simply stopped getting treatment they had been receiving at St. Mary’s, said Jin Hee Lee, who works against hospital closings for the New York Lawyers for the Public Interest. The closing caused a crisis that, she argues, may soon be repeated in other neighborhoods in New York City.

The Commission on Health Care Facilities in the 21st Century, a powerful state panel set up to restructure health care in New York State, recommended closing five more hospitals in New York City when it published its report on November 28. It wants 10 others to change the services they provide.

"What happened in Central Brooklyn is a precursor of what could happen to other communities affected by hospital closures," said Hee Lee.

But not everyone saw the closing of St. Mary's in such stark terms. At nearby Interfaith Hospital, which was also suffering financially, the closing did indeed cause a surge in patients. But if the hospital was overwhelmed at first, it was soon able to increase its own services to handle these new patients. Interfaith broke even for the first time in recent history last year, and expects to turn a small profit in 2006.



NYC Hospitals Scheduled For Closing Or Restructuring
Click on map for a larger version and more details.

"We were the beneficiaries," said Interfaith spokesperson Melissa Krantz.

The differing views illustrate the complexity of the problem facing the health care system. In fact, there are two health care crises facing New York.

• Fragile Finances: Melissa Krantz's perspective comes from her experience at an institution that is financially unstable – one common to those working in hospitals. Money problems plague the state's hospitals, and have led 12 hospitals in the city to close in the last 10 years.

• Lack of Access to Care: Jin Hee Lee, on the other hand, sees the shocking lack of care (report in pdf format) available to many New Yorkers -– 13 neighborhoods have been designated "health care professional shortage areas," and over half of the city's zip codes have an inadequate supply of primary care physicians willing to see Medicaid patients.

Big changes are in store for New York's health care as the commission attempts to fix the state's ailing health care system. Its report is being described as "probably the most massive, dramatic, impactful reorganization of health care in New York State", and "one of the most important documents to hit Albany in years." And it is being billed as only the first step in a fundamental change in the way New Yorkers get medical care.

Whether these changes will fix either of the two crises facing New York health care is a question that will likely take years to answer.

CHANGES IN HEALTH CARE

Victory Memorial Hospital , Brooklyn

Because state laws and regulations guide the shape of the health care system, many trends in health care happen on the state level. In New York, that system is big. The state has an extensive hospital system that has been built up over a century by philanthropists, religious groups, and the government itself, and the country's largest Medicaid program, a public insurance program serving the poor. Both the Medicaid and the hospital system are seen as unsustainable.

Medicaid: Four million New York State residents are insured through Medicaid, a public insurance program for the poor. Two million people additional people in New York City alone lack any health insurance, even though they may be eligible for Medicaid. There is a push to increase enrollment among people who are eligible for Medicaid but currently uninsured.

But at $45 billion annually, New York's Medicaid system is an enormous expense that strains both state and local coffers, since the two levels of government split the cost. Officials in Albany are being pulled both to increase coverage and reduce the overall cost of the program.

Hospitals: There are about 200 hospitals in New York State, and about 70 in New York City. They are the most visible part of the health care system, with their emergency rooms, wards of beds for patients, and large staffs of doctors and nurses. But an increasing amount of care is actually being provided in other settings. Clinics that don't have the capacity to do the heavy lifting – complicated surgery, elaborate testing, overnight stays – are able now to provide an increasing amount of care that in the past required hospital stays. Many people receive all their health care from private doctors or small clinics, only seeing the inside of a hospital if they become seriously ill or badly injured. Fewer procedures are done in hospitals, and the average length of hospital stays is dropping.

For people suffering from a range of health problems, care at clinics is more comfortable, safer, and cheaper. AIDS patients, for instance, were likely to spend long periods of time in the hospital during the 1980s, but now the disease is treated largely at community clinics, allowing the patients to live relatively normal lives. As a result, hospitals are not as central to the health care system as they once were.

New York is having trouble adjusting to this change, experts say. There are 3.3 hospital beds per 1,000 people in the state, putting it above the national average of 2.8 beds per 1,000 people in the country as a whole (though much lower than some other states, like South Dakota, which has 6 beds per 1,000 people). The average hospital stay in New York State is 1.2 days longer than the national average; in New York City the stay is a full two days longer, according to the commission.

While the structure of New York's health care system may guarantee that hospitals keep a central role, it does not ensure that the hospitals remain financially viable. In fact, there is wide agreement that New York's hospital industry is near collapse.

FINANCIAL TROUBLES IN NEW YORK HOSPITALS

Cabrini Medical Center, Manhattan

As a whole, the state's hospitals have lost money for eight consecutive years, and bled $2.4 billion since 1998. Individually, only one of every 10 hospitals statewide makes enough money to properly reinvest in infrastructure and update their services, according to a recent report from the Healthcare Association of New York State. Over 30 hospitals have closed in the last ten years, 12 of those in New York City. Several more have filed for bankruptcy.

The main task of the Berger commission – as the panel is known – was to address this financial crisis. It acted on what it sees as the major reason for the squeeze – the glut of hospitals in the state – while leaving other tasks to be dealt with in the future.

The Berger Commission: Too Many Hospitals

The Berger commission began its work from the assumption that the supply of hospitals in New York State far outpaces demand. The occupancy rate in the state's hospitals dropped 17.5 percent between 1983 and 2004, and the panel estimates that as many as one-third of the state's hospitals beds are empty on any given day. Further, hospitals continue to provide many services that could be provided less expensively in outpatient clinics. This view is shared by a wide range of experts, including hospital trade groups and health care workers unions who have long been the major opponents of hospital closings.

Berger has repeatedly insisted that he is not operating a "hospital closing commission." But from its inception, the structure of the panel was designed to provide political cover to state officials undertaking this unpopular task. The legislature does not have to approve the report – if it does not act by the end of the year the recommendations become law – so no lawmaker will have to vote to close a hospital in his or her district. The recommendations can only be rejected in full, meaning that the legislature may not pick and choose. Finally, a federal Medicaid waiver worth $1.5 billion is tied to the state's enactment of the plan, meaning lawmakers would have to choose to forgo this money in order to reject the commission's recommendations.

As expected, the main feature of the commission's report was a list. Nine hospitals, it said, should close, and an additional 48 that should downsize or otherwise reorder the services they provide. If accepted, the recommendations will affect about one quarter of the state's hospitals, including fifteen in New York City. The changes to the city's hospitals would reduce the number of hospital beds by eight percent.

The intention of the hospital closings and reconfigurations is to eliminate duplicative services, which in theory will make the system as a whole more efficient. With unneeded beds eliminated, hospitals will operate closer to capacity, leaving them more financially sound. In areas with many hospitals, the commission believes that closing one will ease the financial strain on the others, leaving them better able to care for patients.

For example, New York Methodist Hospital and New York Community Hospital in Brooklyn now compete for patients, but neither provides ambulatory (outpatient) services. The commission would have the two hospitals merge into a single institution, eliminating about 100 beds between them, and using the space to create an outpatient clinic.

Both Governor George Pataki and incoming Governor Eliot Spitzer have said they support the commission's plan, and the major health care unions and trade groups that could have mobilized a serious campaign against them have indicated they will not do so. This makes it almost certain to become law.

Will Restructuring Hospitals Save Money?

Parkway Hospital, Queens

Yes

All of this will save significant sums, the commission believes. Berger estimates that these changes will save $1.5 billion a year. Health care providers will save about $720 million annually, while public and private insurers will save $800 million each year. The annual savings for Medicaid alone is expected to save about $250 million.

Berger estimates that it will cost $1.2 billion to make these changes. Between the Medicaid waiver, known as FSHRP, and another pool of state money, HEAL-NY, there is about $2.5 billion available to implement the plan.

Not everyone agrees with the recommendations, however.

No

Alan Sager, a professor of public health at Boston University who has studied hospital closings in cities across the country, says that the cost of empty beds has been vastly overstated. Calling closings "a diversion, not a policy," Sager notes that closing hospitals has been used as a cost-saving measure in many places, including New York, yet health care costs continue to rise. Closing hospitals may be good for the bottom line of neighboring hospitals, he argues, but it could actually make health care more expensive overall.

"Consolidation would mean less price competition among hospitals," wrote Sager in a recent report. "That would bolster hospitals' bargaining positions, allowing hospitals to raise prices."

Daniel Sisto of the Healthcare Association of New York State said that the commission has significantly underestimated the cost of actually closing hospitals, describing its figures as " ludicrous." (in pdf format.)

Other critics agree with the underlying philosophy of the commission, but, like the New York Post, say it " punted " by making modest recommendations that won't put remaining hospitals on firm ground. By closing only seven percent of the hospital beds in the state, they argue, the commission has bowed to political pressure instead of making the changes necessary to fix the finances of the system as a whole.

"The commission should have called for tougher medicine - more closures, more mergers, more service-sharing, etc.," wrote Steven Malanga of the Manhattan Institute.

Berger acknowledged that the commission didn't eliminate all of the excess capacity it sees in the system. He says that more hospitals beds will have to be eliminated in the future. But closing more hospitals now would have been "massively destabilizing," he argued. There are other things that must be done first.

The Next Step: How Hospitals, Clinics, and Doctors are Paid

The Berger commission says its recommendations for specific hospitals are a way of dealing with the symptoms of the problem that have caused the financial crisis in New York's health care system. "It is equally or more critical to also address the 'root causes'," it writes in its report.

Stopping the Medical "Arms Race"

The next issue to be dealt with, says Berger, is the way health insurance companies pay health care providers – hospitals, clinic, and individual doctors – for the services they provide. Insurers determine the rates that they will pay a hospital for carrying out cardiac surgery, for instance, or for a clinic doing an annual checkup on a diabetes patient. Private health insurance companies negotiate rates with individual health care providers; the state sets the rates for Medicaid. This has great influence over the shape of the health care system, because it creates incentives to provide certain types of care and discourages others. Health care experts from all ends of the political spectrum see so-called reimbursement as an area that is ripe for change.

One major way that reimbursement has distorted the health care system, experts say, is by paying very well for high-tech, invasive procedures like brain surgery. Necessary services such as primary care pay low margins by comparison. This results in a "medical arms race," where the hospitals that can afford to make the investment in complicated technologies compete to provide services that may or may not be necessary while ignoring less profitable ones. Hospitals that cannot do so, meanwhile, are left to struggle financially with the money they earn from simpler procedures.

This has left some vital hospitals in dire financial straits. The commission cites New York Downtown Hospital as a prime example. It is the only hospital in lower Manhattan, but because its main operations are maternity care and an emergency room that serves a largely uninsured population, it is on the brink financially.

Creating Options for Non-Hospital Care

The current patterns of reimbursement were developed with hospitals in mind. This can make it difficult for health care providers to offer services in non-institutional settings. Even when hospitals have their own clinic where they believe patients could be treated more appropriately, they can't always afford to do it, said Sharon Salit of the United Hospital Fund.

"Hospitals, as status quo as they may seem, really do want to move patients out of the hospital and treat them in an outpatient setting," she said. "Their hands are tied."

How Can New York Change Reimbursement Patterns?

New York Westchester Square Medical Center, Bronx

In the mid 1990s New York State ceded control over the rates that private companies set, so its control over reimbursement is limited to the rates it determines for Medicaid. While New York has no direct control over the rates set by private insurers, experts say its Medicaid rates do serve as a basis for how much private companies charge.

The law through which the state sets Medicaid rates – the Health Care Reform Act – is up for renewal in June, so Governor Spitzer and the legislature will have a chance to deal with this issue soon. This is likely to be a difficult political subject. Any increase in the amount Medicaid pays for primary care must either come with a reduction in the rates for other services, or an increase in the overall Medicaid budget. Spitzer has promised to cut the cost of the Medicaid system.

Others, meanwhile, want to see the burden shifted from struggling hospitals to the thriving health insurance industry. The City Council says that the state's deregulation has "largely failed to produce positive results for health care institutions". It published a report in November (in pdf format) recommending partially re-regulating the insurance industry, to make sure that insurers don't pay hospitals less than it costs the hospital to provide services.

A LACK OF ACCESS TO HEALTH CARE

The discussion surrounding the Berger commission has focused largely on how to pull the state's hospital system out of its current financial insecurity. New York officials regularly discuss how best to bolster industries whose financial success is important to the state's economy – retaining Wall Street firms, for example, or supporting what is left of the manufacturing industry.

From a purely economic standpoint, health care does rank among the state's most vital industries. But critics say that in its focus on the finances of the hospital system, the current debate has neglected the most serious health care problem facing the state: the lack of access to health care for millions of New Yorkers.

Critics of the commission do see some of their priorities reflected in its final report, which calls for:

• "Reimbursement reform" that would encourage preventive care and create incentives for serving vulnerable populations;

• Helping uninsured New Yorkers enroll in public health insurance programs; and

• Increasing access to primary care

These policy recommendations, unlike those pertaining to specific hospitals, are not binding. Whether these "idealized" principles are turned into policy, says William Van Slyke of the Health Care Association of New York State, is "the million dollar question" that will determine whether the Berger Commission is a success or a failure.

Others are more critical, saying that the commission has only paid lip service to these issues, and has completely ignored the question of inequity in New York's health care.

A History of Inequity

People of color are much more likely to live in medically underserved neighborhoods, and much less likely to have health insurance. Last year a report likened the difference in health care available to those with health insurance and the approximately 2 million New York City residents without health insurance to apartheid. (in pdf format.)

Those without health insurance or access to primary care tend to rely more heavily on hospitals, especially emergency rooms. This makes the hospitals that serve them particularly vulnerable to financial troubles.

When hospitals close, they tend to be those that serve the most vulnerable populations. Two-thirds of the hospitals that closed between 1995 and 2005 were in minority neighborhoods, according to the Opportunity Agenda, an advocacy group working to close racial gaps in access to health care.

A Planned Downsizing for a Failing Industry

St. Vincent's Midtown Hospital, Manhattan

Deciding which hospitals can be closed without aggravating these disparities is the point of the commission, says its executive director, David Sandman. Weak hospitals will be on stronger financial ground if the industry as a whole is "right-sized," he says. By reducing the size of the hospital industry in a planned, rational manner, New York can avoid struggling but necessary hospitals from succumbing to the whims of the market.

"Unless we act, future facility closures are almost certain to occur. Moreover, the ones that close due to market forces alone may be the ones most critical to preserving access to the services most needed by communities," he said.

The commission said that it took more than just economics into account when deciding on its recommendations for specific facilities. These included the services hospitals provided to vulnerable patients and the other health care options available nearby. Indeed, some critics have acknowledged that the result was not as bad as they had feared. In one case, the commission actually called for enlarging the public hospital that serves Jamaica, Queens, an area lacking access to health care.

A Future of Inadequate Service?

Not everyone agrees with the commission's arguments, however. Queens Borough President Helen Marshall, for instance, published a report in November arguing that Queens needed at least two more hospitals. "There are not enough beds to serve the health care demand of Queens residents," she wrote. (report in pdf format.)

Berger dismissed such arguments as parochial or self-interested. "Everyone believes their institution is necessary," he said. "Frankly, a 'Not In My Backyard' mentality will not solve the problem."

Not everyone who criticizes the planned reshaping of an entire industry is arguing that the hospital on their block deserves to stay open, however. Some are worried about the merger of public and private hospitals, or of hospitals with different religious sensibilities, seeing the potential for disruptions in care.

Hee Lee of the New York Lawyers for the Public Interest does not see herself as defending a particular institution; rather, she's defending a vulnerable class of people. Without new alternatives to closed hospitals in place, underserved neighborhoods will only be hurt by more closings, her group argues. It is considering legal action, which may include a lawsuit on civil rights grounds.

"Priority should have been given to addressing racial disparities in access to health care," the group wrote in a letter to Pataki and Spitzer, "disparities which have been known for decades, and which are intolerable in a modern society with resources such as ours."


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