New York City hospitals: Unwilling to take stronger medicine?

(Bloomberg) — New York City’s public hospitals are in critical condition with rising costs and plummeting revenue. There’s no dispute about that diagnosis. The problem is with Mayor Bill de Blasio’s proposed cure, according to health policy makers, hospital administrators and budget watchdogs.

As NYC Health + Hospitals President Ram Raju describes it, the largest U.S. municipal health care provider is an ailing system of 11 hospitals that’s losing revenue because of increased competition from non-profit hospitals for Medicaid patients and drastic cuts in federal and state aid for indigents.

His prescription: shift its 40,000-plus employees into a system of neighborhood clinics and transform campuses into affordable housing and long-term care, build enrollment of its MetroPlus insurance plan and persuade federal and state governments to spend more. That aid is projected to fall by almost $1 billion -– from $2.2 billion in FY16 to $1.4 billion in 2020.

Yet critics say his plan is destined to fail because it doesn’t move fast enough to shut or otherwise use its failing hospitals, including some operating half-empty, or risk the political damage it might cause to layoff workers who account for 70 percent of the system’s costs.

“It’s impossible to cut expenses if you start from the proposition that you’re not going to close hospitals and make dramatic cuts in the workforce,” said Stephen Berger, a private equity investor who supervised New York’s budget during its 1970s fiscal crisis and in 2006 led the statewide Commission on Health Care Facilities in the 21st Century.

The crisis threatens not just the health of the 1.2 million mostly poor and uninsured patients who rely on the system. It poses a risk to city taxpayers, too. While the city has enjoyed record jobs and revenue, growth has been slowing. Meanwhile, the city has budgeted $2 billion, up from an average $1.3 billion since 2012, including de Blasio’s pledge to pay $180 million-a-year in debt service. A $1.8 billion deficit in 2020 still looms. Without more state and federal aid, the system will require 4 percent of the city’s projected $90 billion budget in 2020, up from 2.4 percent now.

Fitch Ratings grades the agency’s $870 million in bonds A+, two levels below the AA rating it gives New York City’s general-obligation bonds. The rating is closely linked to the city’s credit because of New York’s significant financial support.

Employment consideration

Berger’s concerns are shared by John Rowe, a former chief executive of Aetna and president of Mount Sinai Hospital who now is a professor of health policy and management at Columbia University’s Mailman School of Public Health.

“What they are missing is the capacity to reduce the workforce in their inpatient facilities in order to provide the funding that would fuel the development of greater capacity in these ambulatory care, long-term care sectors,” Rowe said. “It really comes down to whether it’s a health care plan or a jobs plan.”

In an age when modern medicine has reduced the need for hospital stays, the health industry must move away from inpatient care and emphasize prevention and health, Rowe and Berger said. Hospital stays citywide dropped over 5 percent between 2012 and 2014. Over the past 13 years, 18 private hospitals have closed in the city. Health + Hospitals hasn’t closed any.

The latest in that trend came in May, when Mount Sinai Health System announced plans to close 825-bed Beth Israel in downtown Manhattan and use its sale to finance a $500 million transformation to a much-smaller inpatient unit and a network of outpatient clinics, physician practices and operating rooms.

Raju thinks New York City will need more long-term care beds and fewer inpatient hospital beds. (Photo: Allison Bell/LHP)

Future blueprint

Raju would first have to catch up to private hospitals that have already made such moves, and he’ll have to find the money to change into a community-focused agency, Rowe said. Since the city couldn’t afford to do both at the same time, it’s relying on increases in federal and state aid that may not be realistic, Berger said.

Raju outlines his plan in a 51-page blueprint for New York’s future health system, published in April and entitled, “One New York, Health Care for Our Neighborhoods.” The plan envisions consolidation of hospital services, electronic record-keeping and other system-wide operating efficiencies, expanding its 70 community-based clinics and developing land on hospital sites.