• 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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    • I’m sympathetic about New York’s situation. My next door neighbor was a hospital administrator laid off from a Manhattan hospital in 2003.
      The article, like a lot of New York magazine – to which I subscribe – is an uneven hodgepodge.
      On the other hand, it says a hospital bed shortage looms and this will cause overcrowding. On the other hand, it cites studies as recent as 2005 that document an excess of hospital beds.
      Then it says Queens has far fewer hospital beds per capita than the rest of the country, ignoring the fact that Queens is pretty close to, say, Brooklyn, and New York has a mass transit system that can address the mismatch.
      The focus of the article seems to be Catholic hospitals, and as a Catholic I can say the Catholic Church has struggled over the past few decades because it owns lots of churches and schools in areas that can’t support them because of population shifts.
      And any time the church tries to close a shrinking parish school, it faces enormous protests. Given the government influence in health care, it probably gets even harder with hospitals.
      I think the article should be saying that New York has too many beds and the beds it has are in the wrong place, and a free market system will have a hard time allocating resources in humane manner.
      However, the article does point to success stories in the Bronx and it scorns something I think you have endorsed in the past, such as:
      “To be economically viable, then, the hospitals of the future will have to evolve into high-performance cost-cutting machines. Increasingly, they will no longer regard inpatient care as their main function and will strive to do as much of their business as possible in less expensive locations outside hospital walls. They will aim to provide more preventive care to keep patients out of hospitals and more follow-up care to keep them from returning. They will try to reduce unnecessary tests and treatments. They will seek to put an end to the expensive free agency of physicians by pressuring private doctors to become hospital employees, as concerned about cost management as care. They will search for ways to combat what many hospital executives describe as the tyranny of insurance companies.”
      I think you have endorsed all of these propositions, except you have taken a bit more measured attitude toward insurers.

    • “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.”

      Very dramatic. Care to continue the analysis? What might then be the response of the economic system? Or do things freeze at the point we want them to be bad?

    • Great article. Calls into question a lot of basic assumptions. Many folks assume that if you decrease payments to hospitals, they will charge less. Instead, it looks like they just go under. The narrow operating margins should make claims about waste and abuse come into question.

      From my POV, it all centers on the uninsured and on the percentage of Medicaid patients. Payer mix is everything in hospital finance. With a high percentage of privately insured patients, it is hard to not make money. With lots of uninsured or Medicaid, you go broke. I was listening to Paladino last week. If elected he claims he will drastically cut Medicaid. That should knock off a few more hospitals.

      This all makes me think that more than anything else, we really, really need to have every patient in the same kind of health care system. Getting paid vastly different sums for the same care based on the kind of insurance one carries distorts the market beyond repair.

      Steve

    • “makes me think that more than anything else, we really, really need to have every patient in the same kind of health care system.”

      Like the one we have for MP3 players.