New York Health Care Commission Recommends Closing Many Hospitals

The Commission on Health Care Facilities in the 21st Century has released their official report on the condition of New York's health care system. The report paints a bleak picture for the future of health care in New York without sweeping changes in the near future. The 240-page report was released November 28, 2006.

The Commission was created as a non-partisan panel to review New York's health care systems. According to the report the Commission was created to "undertake a rational, independent review of health care capacity and resources." The Commission was also charged with verifying that all areas of the state have adequate health care resources. "The Commission was specifically charged with rightsizing institutions." The report noted that rightsizing may involve consolidating, closing, converting and restructuring facilities and health care systems. The Commission, including representative advisory committees from each of six regions, spent 18 months evaluating each hospital and nursing home in New York State before issuing the report with the Commissions recommendations.

The report concludes that the New York health care system is not a unified system but a "fragmented patchwork" of health care providers and resources. New York has too much institution-based care and not enough home and community-based care options. Most areas of New York need additional community and home-based services. "Confronting and solving these problems will require difficult, perhaps unpopular, decisions and strong leadership from our elected officials and others. There is no other responsible choice. We cannot deny reality, bury our heads in the sand, or cling to established patterns. We must overcome our reliance on outdated institutions and strengthen those that remain. New Yorkers deserve and demand a 21st century health system that is more flexible, leaner, stronger and more affordable than the one we have today."

The New York Medicaid program has doubled in size in the past 10 years to $45 billion annually. New York's Medicaid program is the largest and most expensive in the country and is "growing at an unsustainable rate." Medicaid has become an unaffordable and unmanageable program that is no longer sustainable. Despite extravagant spending 20% of non-elderly New Yorkers still do not have access to any type of health insurance and consequently have limited access to medical care.

The Commission acknowledged that the current health care situation in New York is the result of a failure to make hard choices in the past. Past policies and decisions have clearly precipitated the current situation. The report suggests that New York's health care system needs to be reconfigured, including "rightsizing" facilities. "The Commission reaches a stark and basic conclusion: our state's health care system is broken and in need of fundamental repairs. Today, New York is struggling to maintain a 20th century institutional infrastructure in the face of mounting costs, excess capacity, and unmet needs for community-based alternatives."

The Commission also found that an alarming number of New York hospitals and nursing homes are financially unstable with chronic operating losses. Since 1983 New York has seen 70 hospitals and more than 63 nursing homes close. During the past eight years New York hospitals as a group have operated at a loss each year. Hospitals in New York lost $2.4 billion overall in the past eight years. The 2005 statewide hospital operating margin was actually a net loss of $95.4 million. The majority of New York's hospitals and nursing homes are operating at a loss even when the beds are full. Averages for hospital operating margins are lower in New York than national averages. New York City hospitals are the most financially vulnerable in the state with one-third of New York City hospitals classified as not being financially viable. Hospitals in New York are more heavily indebted than those in any other state in the country; they also have the worst access to capital of any state in the country. The chronic operating losses coupled with poor access to capital prevents facilities from investing in new technologies or upgrading physical plants. New York hospitals physical plants are considerably older than the national average. The majority of New York's nursing homes were built before 1960; most were built for other purposes and subsequently converted to nursing homes.

New York hospitals Average Length of Stay (ALOS) has decreased recently but is still considerably higher than the national average. In 1994 the New York hospital ALOS was 8.4 days; in 2004 the New York hospital ALOS had decreased to 6.1 days. The reports suggests that this length of stay is not justified by patient needs and should decrease more. Most payors reimburse hospitals on a per-stay basis. Hospitals are increasing losses by keeping patients in the hospital longer than they are being paid for.

New York's medical facilities are arguably over-bedded with a statistical average of 3.3 hospital beds per 1,000 New Yorkers compared with the national average of 2.8 beds per 1,000 people. One-third of these beds are currently empty. Were the Average Length of Stay to decrease to mirror national averages the number of unused beds in New York would increase even further.

Ironically, the Commissions primary argument for shortening the ALOS seems to be the health of the patients. "A shorter length of stay can often benefit patients, allowing them to return to their daily lives soon after hospitalization. Patients can be exposed to infections often present in hospitals and to the possibility of medical errors."

Excess capacity is one of the major problems in New York's health care system. The statewide hospital occupancy rate has decreased 17.5% since 1983. The 2004 hospital occupancy rate was 65.3% with some hospitals having less than 50% of beds occupied. Nursing home occupancy has also declined since 1994 despite a slowly aging population. While some hospitals have too many beds other hospitals do not have enough beds. There are several factors contributing to the occupancy rate decline. Recent years have seen a transition to home and community-based services. This transition has kept people out of hospital and nursing home beds. The recent proliferation of ambulatory care, walk-in clinics and outpatient surgical facilities has also contributed to a decline in hospital bed utilization. Compounding the situation is the fact that many of these outpatient services are much more profitable than many traditional hospital services. This deprives hospitals of funding they were accustomed to.

The Commission reports that excess capacity may contribute to a number of problems including a decrease in quality of care, unnecessary utilization of tests and procedures, proliferation of a "medical arms race," endangering of the safety net and ultimately increased costs.

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• Excess capacity may result in a decreased quality of care. The Commission argues that there is a positive correlation between the volume of care and the quality of care. As volume declines so does quality.

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• Excess capacity may result in unnecessary utilization. Tests and procedures may be performed unnecessarily to generate needed revenue when patient volume declines.

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• Excess capacity may result in the proliferation of a "medical arms race." As patient volume decreases so does revenue. The decreased revenue may lead facilities to pursue more profitable services to the exclusion of less profitable services. As facilities compete for profitable services New Yorkers may end up lacking access to necessary, but less profitable, services.

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• Excess capacity may result in endangerment of the traditional safety net. Financial pressures on hospitals due to lost revenue may result in closure of less profitable or less visible services or facilities. This may result in a lack of access to needed services.

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• Excess capacity may result in overall increased costs. As overall patient occupancy rate declines the per patient cost increases. Facilities operating near full capacity have a lower overall cost per patient. There are many fixed costs in operating a hospital or nursing home. These costs do not decrease because the facility is experiencing a low occupancy rate.
  

The Commission projects continuing demand for home and community-based services to be strong. An increase in nursing home placements is not projected until around 2020 as members of the baby boomer generation pass the age of 75. The report presents the following comment on the transition from institutionalized care to home and community-based care: "While the bulk of today's frail elderly, who were shaped by the Depression and WWII, are fairly trusting and accepting of institutions, the generations behind them - including the 'silent generation' and the 'baby boomers' show strong preferences for non-institutional alternatives."

Overall the Commissions recommendations address 57 hospitals (25% of the hospitals in New York). The Commission recommended reconfiguration, affiliation or conversion of 48 facilities and the outright closure of nine facilities. Together this would reduce New York's available inpatient beds by 4,200 (7%); available nursing home beds would be reduced by 3,000 (2.6%). Twice as many nursing homes would be downsized as closed. The plan would also create more than 1,000 new, non-institutional slots in New York.

The system restructuring is designed to increase financial stability and provide significant cost savings. The Commission estimates the proposed changes would save payors $806 million per year or $8 billion over ten years. This includes $249 million per year in Medicaid savings and $322 million per year in Medicare savings. Providers would also realize a benefit of $721 million per year. The combined benefit to payors and providers would equal $1.5 billion per year or $15 billion over 10 years.

The Commission acknowledge that there will be significant costs to implement the proposed changes. The Commission estimated overall costs at $1.2 billion. This includes $350 million for facility closure costs, $1.1 billion for construction costs and $11 million for affiliation planning costs. $300 million should be offset by the sale of real property from closed or merged facilities.

According to the report there is "vast and unprecedented" funding available to cover the cost of these implementations. The Health Care Efficiency and Affordability Law for New Yorkers (HEAL-NY) offers over $1 billion over the course of four years in the form of capital grant funds. The Federal - State Health Reform Partnership (F-SHRP) allocates an additional $1.5 billion for similar purposes.

Unless the Legislature of Governor Pataki reject the proposal the recommendations will have the force of law. Most of these changes will be implemented within one year of adoption of the Commissions recommendations.