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More NYC hospitals on the brink

And a system of seven more hospitals teeters as St. Vincent's in New York City files for bankruptcy protection.

The largest unsecured creditor is CSC. The largest secured creditors are DASNY and Sun Life of Canada.

Hospital bailout on hold

Westchester County Medical Center, still another hospital to save, but not quite yet. But never fear. The legislative session's is far from over. I'd still put money on some kind of deal being worked out here.

Of course, the local folks want it saved (and assume that requires State money).

It's not DASNY financing

I'm actually relieved.

DASNY, New York's public authority which does health care financings did not do the Cabrini deal. So, at least the State isn't involved in making its own work more difficult.

Had a short, but useful conversation with a DASNY staff person who reminded me that the law creating the Commission lists a number of factors besides debt to be taken into consideration. And of course, very few hospitals have no debt. So, if that were the most important criterion, there wouldn't be many potential targets left.

But the truth of it is that the folks at Cabrini aren't the only ones who think that way. Far, far from it. And, if you're running an institution that's a potential State target anyway, you may as well make it as challenging as possible.

The Cabrini decision and the regulatory loop

Well despite my description of this decision as outrageous, it is rational.

The reason it's unsurprising is that we have a system at work in New York in which such behavior is rational. That's the larger and much more important problem. This decision is symptomatic but it's not the disease itself.

Somewhere in the files is a presentation I used to do on "The Regulatory Loop," on how many regulatory behaviors (in any industry) lead the regulated to shift their focus from improved efficiency and improved quality to reduced competition, regulated price fixing, and regulatory compliance as a proxy for true quality, and ultimately to view the regulator as the customer. These behaviors, perfectly understandable lead to higher costs and lower quality and then more regulation and oversight. And then?

Rinse and repeat. Endlessly.

More distorted behavior in a regulatory environment

From Crain's by way of HANYS e-Clips Daily News:

Cabrini survival plan details unfold
Crain’s Health Pulse, 6/17/05

Cabrini Medical Center has refinanced its mortgage, after the loan was nearly paid off, Crain’s says.  Crain’s calls the refinancing  “part of a two-pronged approach to surviving the machinations of the hospital-closing commission,” because hospitals that have mortgages “are less likely to be candidates for closure.”

How unsurprising and how outrageous.

The "regulatory mindset" doesn't just exist in the minds of regulators. Its more insidious form exists in the minds of the regulated. It manifests in decisions that are designed solely to influence the regulatory system and are often otherwise unhealthy, even self-destructive. We've seen it with debt; we've seen it with indigent care subsidies; we've seen it with deliberately weakened balance sheets designed to become eligible for extra subsidies as "financially distressed hospitals."

And, by the way, which hospitals in New York don't have mortgages? They've been doing projects and taking on debt for decades in order to increase their cash flow from the reimbursement system (the excess of depreciation over amortization during the earlier years of mortgage life) as well as to protect themselves in exactly the manner that Cabrini has done.

When the debt is small the debtor is in trouble. When the debt is mammoth, it's the creditor that's in trouble.

I've sent a note off to the DASNY, the State's public authority for such financings,  asking whether it did this financing. If DASNY rather than a private entity, did the financing, then Cabrini's position is even stronger because the State will have a bigger stake in their survival. Its already on the hook for about $10 billion in healthcare debt in New York. Perhaps there should be a moratorium on new financings until the Commission's work is done.

The analytical test for the Commission will be to ferret out similar cases that have not been so blatant. The test of its courage will be whether it resists gaming the system like this and resists itself being manipulated so blatantly.

Before the commission has even held a meeting

So while we're waiting for New York's closure commission to tell us which hospitals and nursing home should close, time marches on. We've just posted on one hospital closing (St. Mary's in Brooklyn).

And now here's another, the Hospital in Sydney on the brink. But what's with the former CEO who had his medical license revoked?

And here's another (gasp) one that would close (Westchester County) except that it looks like the State will bail it out. Note the outstanding debt at Westchester County ($750 million) while it continues to lose money. If it were to fail, the County itself would be on the hook for a big chunk of that debt.

How about a little over/under pool? The Rochester Democrat & Chronicle can't wait for the Commission to get started. Maybe we should keep score while the Commission meets.

Hospital price deregulation worked ... in the short term ... for some ...

Jack Zwanziger, a health economist formerly at the University at Rochester and now at the School of Public Health at the University of Illinois at Chicago and Cathleen Mooney a researcher in the Department of Community and Preventive Medicine at the University at Rochester conclude in the latest Inquiry that, with some caveats and at least in the short term, hospital price deregulation led to price reductions for managed care plans in New York. Here's the abstract of their article, "Has Competition Lowered Hospital Prices" (subscription required):

On Jan. 1, 1997, New York ended its regulation of hospital prices with the intent of using competitive markets to control prices and increase efficiency. This paper uses data that come from annual reports filed by all health maintenance organizations (HMOs) operating in New York and include payments to and usage in the major hospitals in an HMO's network. We estimate the relationship between implied prices and hospital, plan, and market characteristics. The models show that after 1997, hospitals in more competitive markets paid less. Partially offsetting these price reductions were price increases associated with hospital mergers that reduced the competitiveness of the local market. Hospital deregulation was successful, at least in the short run, in using price competition to reduce hospital payments; it is unclear whether this success will be undermined by the structural changes taking place in the hospital industry.

For background, here's what we did in New York. And here's a summary of what we (at least some of us) thought was and was not accomplished.

Zwanziger and Mooney conclude that:

However, the key finding is the confirmation of a change in the pattern of prices negotiated between HMOs and hospitals after implementation of HCRA. Mean case-mix adjusted prices declined during this period, and the multivariate regression results showed that this decline in the average prices was related to decreases in prices paid to hospitals located in more competitive markets.

Actually the first real hint was a couple of years ago when Ken Raske, head of the Greater New York Hospital Association called for re-regulation. Why would he have wanted that? The same reason he didn't really want de-regulation, what economists call "regulatory capture," the effective control of regulatory policy by the regulated industry. But nobody bought that idea.

Zwanziger and Mooney also conclude that:

An increase in hospital costs tended to be reflected in the price it negotiated, but with an elasticity that was substantially less than 1; thus some of the cost increase was absorbed either by other payers or by the hospital in reduced profits. Similarly, an increase in the proportion of a hospital's patients insured by Medicaid was associated with an increase in prices. (Emphasis added.) Hospitals that became more heavily dependent on an HMO tended to agree to deeper price concessions.

Little acknowledged and discussed even less is the fact that New York did not change its method of calculating Medicaid prices when it deregulated private sector prices. However, its policies of using a variety of methods to shore up hospital finances have likely led to a reverse of the typical pattern, that of private payers cross-subsidizing Medicaid patients. In New York's case, the contrary appears to be true. Certainly there's been talk the past couple of years that Medicaid has become the "best payer" in New York.

The authors also document:

... this market change also induced hospitals to discover means of reducing their vulnerability to the pressures of price-based competitive markets.

It appears that the enactment of HCRA led many hospitals to become members of systems that included potential competitors. The resulting series of mergers has led to major structural changes in many hospital markets across the state with a concomitant decrease in the competitiveness of many hospital markets. The results of this study provide a preliminary indication that though HCRA may have increased price competition in the short term, in the longer term, the resulting increase in hospital concentration may have counteracted the observed effect on hospital prices.

So hospitals have reduced price competition by merging into systems. And now they've set up the State to further reduce price competition by forcing hospital closures. Nobody bought Raske's idea to re-regulate prices, but they did buy his proposal for the State to reduce competition. Different method. Likely to have the same effect.

 

 

 

The future happens anyway

So New York's hospital closure commission is getting underway.

In the meantime, hospitals are closing anyway. The latest is St. Mary's in Brooklyn. Of particular note in this Newsday story is the following quote:

Particularly frustrating, said some residents, is that they probably will be rerouted to nearby hospitals such as Interfaith Medical Center in Bedford-Stuyvesant, with poorer performance records than St. Mary's

Interfaith is the result of a State supported merger of hospitals the State was already shoring up. One of them, Brooklyn-Jewish, was the very first in a long line of hospitals that New York threw money and political capital at when they ran into financial trouble. That became institutionalized policy with an elaborate infrastructure and organizational bias.

When I asked her how many hospitals the commission would likely recommend closing, a colleague grinned wickedly and said: Oh, five or ten would have closed anyway. So that's what they'll propose and then ... take credit for their closure.

Do they get to take credit for St. Mary's?

The state of estates

Has anyone else noticed the irony of our current haste to attach more of the assets in personal estates to offset Medicaid spending for patients in nursing homes and our simultaneous haste to protect personal estates from Federal inheritance taxes?

Turns out that Robert Kuttner did four years ago. He credits political scientist Michael Lipsky with coining the phrase "pre-death tax."

This is the provision of the Medicaid law requiring middle class people to "spend down" their net worth to almost nothing before they can qualify for nursing home care, as paupers.

These increasingly incongruous policies are leading me toward the conclusion that we are going in exactly the wrong direction with respect to tightening Medicaid personal asset policies (check here and here). Kuttner and Lipsky reinforce that trend.

But all of the above are financial issues. There are healthcare reasons as well. They will be the subject of another post as soon as I can find the time to do the graphic depictions of what I've already written. (Don't hold your breath.)

Shocked I tell you! Shocked!

Here's Bill Hammond on Dennis Rivera and the politics of New York's budget process in yesterday's New York Daily News:

No matter how tight the state budget is, Albany lawmakers always find a way to do a favor for Dennis Rivera, the incredibly influential leader of the health care workers union.

This year, at Rivera's request, the Legislature quietly slipped $80 million into the Medicaid program for nursing homes north of Westchester County, which must use the funds to increase salaries, improve benefits or provide extra training for their direct-care workers.

OK, $80 million over three years, that's interesting enough. But sad to say it's not as if New York doesn't already throw those sorts of numbers around. In New York's budgeting $27 million a year is just a bit above a rounding error. But here's the most telling part:

Lawmakers even bent their own rules to make this happen. The $80 million never appeared in the budget resolutions adopted by the Assembly and Senate, nor was it mentioned during public negotiations.

Now why would they have done it that way? Did they think we wouldn't find out? Perhaps the legislative reform process has a ways to go yet.

Any bets on whether this is one of the items the Governor item vetoes next week?