While many of the nation's hospitals are having to swallow deeper price discounts to compete, New York hospitals are getting a raise.
In a special session late last month, state lawmakers passed a bill that extends the state's inpatient payment system for two years, boosting reimbursement by $160 million and allowing payment rates to rise by 3% to 4%.
With the increase, Medicaid, Blue Cross and commercial insurers will spend $12 billion to $13 billion annually on hospital inpatient care in the next two years.
Critics said the legislative package fails to do enough to control costs and encourage hospitals to work cooperatively. But the hospital industry said the bill provides a financial base to prepare for healthcare reform.
The Legislature and the governor passed a bill "to give us enough financing to react to the demands created by our epidemics (such as AIDS and tuberculosis), help us reorganize into community networks and (finance) primary care," said Daniel Sisto, president of the Hospital Association of New York State.
Rate-setting remains popular in the state because it adds predictability to annual spending on hospital services. However, the system stops at hospitals. Hence, spending on other healthcare services isn't controlled.
For example, a recent report by Families USA in Washington said the average family in New York paid more for healthcare-$9,185 in 1993-than families in any other state except Massachusetts, where the average bill was $9,352.
Last year, Gov. Mario Cuomo had proposed putting the brakes on healthcare spending by extending the rate-setting system to include physicians and ambulatory-care settings (April 5, 1993, p. 14). But, facing physicians' opposition to price controls, lawmakers failed to address outpatient rates. A state commission is studying the use of a resource-based relative value scale for physician payments.
Mr. Cuomo also proposed giving grants to enable communities to decide how best to spend their healthcare resources. Under the bill, $2 million annually will go to health network development and global budgeting demonstrations. But critics favored broader experimentation.
It became apparent that lawmakers would never agree to such radical changes before Dec. 31, 1993, when the state's 10-year-old rate-setting system was set to expire.
"Preserving the rate regulation is very important," said Richard Kirsch, executive director of Citizen Action of New York, the Albany-based affiliate of Ralph Nader's consumer advocacy group. In terms of cost containment, however, New York's latest rate-setting legislation is "really an utter failure," he said.
"I think it was an opportunity lost, to tell the truth," said Elliott Shaw, director of government relations for the Albany, N.Y.-based Business Council. The council's 5,000 members include half of the nation's Fortune 500 companies and 3,400 businesses with fewer than 50 employees.
New York businesses had hoped for greater incentives for communities to work together to control costs and eliminate duplication, as hospitals and businesses have in Rochester, Mr. Shaw said.
Lawmakers did agree, however, to add $181 million to hospital rates, mostly to cover higher labor costs, treat tuberculosis and implement infection-control precautions. The net increase to hospitals is $160 million after a reduction in workers' compensation payments.
The new money "is really uncalled for," Mr. Kirsch said. Hospitals that are doing poorly in the state are either poorly managed or have a disproportionate share of uninsured patients, he said. The problem could be largely resolved by providing healthcare coverage to the uninsured, he added.
But Mr. Sisto defended the increase, saying it's targeted to specific needs. Furthermore, he said hospitals provide $1 billion in uncompensated care, operate with virtually no capital base and face billions of dollars in Medicare cuts.
Two separate studies commissioned by HANYS last year found that more than half of the state's hospitals are in poor financial condition (March 29, 1993, p. 31).
Assemblyman Richard Gotfried, chairman of the Assembly Health Committee, admitted that the bill has weaknesses but pointed to the progress made, such as a $15 million loan repayment program for primary-care physicians and other primary-care initiatives and a $1 million allocation for the development of rural healthcare networks.-
A profile of New York hospitals
Number of acute-care hospitals 251
1992 total revenue* $25.0
1992 total revenue* $20.4
(excluding major public hospitals)
1992 net income** ($141.7)
1992 net income** $46.8
(excluding major public hospitals)
1991 average occupancy 85.5%
Sources: New York State Health Department and
American Hospital Associatio