Within the next few weeks, Saint Francis Hospital and Vassar Brothers Hospital in Poughkeepsie, N.Y., will seek a private-letter ruling from the Internal Revenue Service to see whether its "hospital without walls" complies with the federal tax code.
Mid-Hudson Medical Center, which is licensed by New York State as a hospital but has no beds and no employees, was created in 1992 as a collaborative effort between Poughkeepsie's only two acute-care hospitals. It was designed to keep patients from leaving Dutchess County when they seek healthcare services, to eliminate duplicative services through joint planning among member institutions and to establish centers of excellence.
The arrangement is unique and one that other New York hospitals may replicate.
"There are at least two or three other groups that are looking at that as a possible option," said William Gormley, deputy director of the New York State Health Department's division of health facilities planning. The groups are in regions where two hospitals have been duplicating services to compete against each other, so "We think it's the right thing to do," he said.
The Mid-Hudson arrangement allows each hospital to retain its own separate identity and governance structure while bringing new business into the region.
For example, when Mid-Hudson was created, it added three new clinical services: Magnetic resonance imaging and lithotripsy are provided by the medical center at 295-bed Saint Francis; cardiac catheterization is a medical center service available at 315-bed Vassar Brothers. Using a complicated formula, revenues generated by those services are shared by the hospitals.
Late last year, the board of trustees of 71-bed Northern Dutchess Hospital in Rhineback, N.Y., accepted an invitation to join Mid-Hudson. To formalize the relationship, an amendment to the medical center's original certificate of need soon will be filed. The addition will allow Mid-Hudson to enlarge its geographic coverage and expand long-term-care services.
Mid-Hudson is looking to find other new partners, possibly crossing state lines into Connecticut.
Richard J. Henley, Vassar Brothers' senior vice president for administration and its treasurer, said filing for the private-letter ruling is the next hurdle in Mid-Hudson's strategic plan.
Private-letter rulings allow the IRS to reveal its interpretation of the federal tax code. In this case, the IRS will look at whether the collaborative arrangement poses a risk to the hospitals' tax-exempt status or generates any unrelated business income. Such rulings are routinely sought to determine whether legal trouble may occur if an organization moves ahead with its plans.
The effort to get the IRS ruling was delayed by the hospitals' need to obtain bondholder approval. The final sign-off must be given by the New York Medical Care Facilities Finance Agency, the state's bond-issuing authority. Approval is expected in coming weeks.
Mr. Henley said Mid-Hudson's structure incorporates numerous bondholder protections. For example, health planning decisions must be approved by a 75% "supermajority" of the medical center's governing board so representatives of one hospital can't wield more power than another.
Mid-Hudson has established several committees to seek new efficiencies and business opportunities. Ongoing negotiations between the hospitals and medical staffs could lead to the creation of a single medical staff or the development of a physician-hospital organization, Mr. Henley said. Meanwhile, the medical center is seeking a grant to investigate the feasibility of implementing a global budgeting experiment.
"Time will ultimately tell how far we can go with this collaboration," Mr. Henley said.