New York’s struggling hospitals

How health care is financed really does matter. In a New York Magazine piece published yesterday, Mark Levine documents the troubling state of New York’s hospitals.

The bottom line is sobering: In 2008, local hospitals spent $3 billion more delivering care than they took in. Overall, they operated at a 6 percent loss—an average that masks much deeper red ink at the worst-performing places. In contrast, hospitals nationwide have earned average profits of about 4 percent over the past decade. Within the hospital industry, a 3 percent surplus is considered necessary just to keep a hospital in decent working order. The only way unprofitable hospitals can do that is to enter a vicious cycle of indebtedness. New York’s hospitals carry twice as much debt in relation to their net assets as hospitals around the country, a fact that constrains their ability to continue borrowing money. When they do manage to find willing lenders, they are forced to pay high interest rates. “There is a cost to being poor, and it only makes you poorer,” says Sean Cavanaugh, director of health-care finance at United Hospital Fund, a nonprofit health-care-research group.

Indeed, it may turn out that profound problems with the ways health care is paid for, combined with the inherent disadvantages of doing business in New York, will make it virtually impossible for all but a small number of the city’s hospitals to stay afloat. If that’s the case, the health of low-income and minority residents will be most affected, but even New Yorkers who currently have access to high-quality care will feel the impact. Remaining hospitals, struggling to cope with the costs imposed by an influx of new, mostly poor patients left behind by the places that shut down, will increasingly be overcrowded and understaffed. Services will be curtailed. Facilities will be degraded. Long waits and uneven care could become the norm.

Could it be that the way care is financed for the poor and uninsured could affect access to care not just for those populations, but for the affluent too? In a word, “yes.” Getting everyone insured has positive externalities.

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