Five hospitals in New York's rural Finger Lakes region will enter a capitation experiment next year, placing all their non-Medicare revenue at risk.
It will be the first such experiment in New York this decade, although others are likely to follow. The state has received 13 applications for planning grants from regions and individual hospitals that hope to devise similar experiments. Some Reimbursements
$750,000 has been set aside for that purpose.
The overall, or "global," budget for the Finger Lakes region will be based on hospitals' 1994 costs plus an inflation adjustment. The projected cost base for 1996 is $29 million. The $750,000 will be placed in a separate regional access fund for equipment and modernization projects. That money will be allocated as the group sees fit.
"This is looked at as sort of a regional managed-care contract," said Michael A. McGinley, executive director of the Finger Lakes Area Hospitals' Corp., a not-for-profit consortium of hospitals dedicated to improving healthcare in the region. "It allows us basically to contract for the care in our regional community," he said.
Medicare, Medicaid and Blue Cross are the region's largest payers. "Right now there is virtually no capitation in the region, " McGinley said.
The hospitals have negotiated a basic agreement with the state and other private payers, although a final agreement on the 1996 global budget amount has yet to be reached, McGinley said. It's expected to be close to hospitals' current costs.
The participants are F.F. Thompson Health System, Canandaigua; Geneva (N.Y.) General Health System; Myers Community Hospital in Sodus; Newark-Wayne Community Hospital in Newark; and Soldiers and Sailors Memorial Hospital of Yates County in Penn Yan.
"The idea here it to spend more efficiently and to give providers incentives to provide efficient and effective care," said Aviva Goldstein, director of New York State's global budgeting project. The hospitals can make a profit by keeping costs below the capitated amount, but they'll also be at risk of losing money if they operate inefficiently, she said.
Goldstein said the state hasn't attempted to estimate savings expected through the experiment because it's still early in the process and there are many variables.
The Finger Lakes experiment resurrects an idea tried and abandoned by the state during the 1980s. The Finger Lakes hospital consortium participated in the state's global budgeting demonstrations from 1981 through 1987. In 1988, the state switched to a case-payment system based on DRGs for all hospitals.
During the experiment, the participating hospitals kept expenses 20% below comparable hospitals, according to McGinley. Despite the apparent success of the program, state officials opted for the DRG system.
Under the new program, hospitals will be given "some latitude and encouragement" to control the funding and consolidate operations, McGinley said. For example, the hospitals could consolidate low-volume services and move revenues from an underutilized service at one hospital to another.
It wouldn't be the first time the hospital consortium has demonstrated its ability to squeeze out inefficiencies. With community comment and long-term planning, it helped to close Seneca Falls (N.Y.) Hospital in 1986, Goldstein said.
Next year's demonstration will involve all of the hospitals' inpatient and outpatient revenues except Medicare. By 1998, the consortium hopes to include Medicare and other healthcare providers, such as home health agencies, nursing homes, physician clinics, mental health services and public health services in one global budget for the region.
A Medicare waiver would be required from the federal government for such an expansion. The state already has the authority to conduct the Medicaid portion of the demonstration project.