Coney Island is the place to go for sand and surf, the Cyclone and zany side shows. But Steven L. Volla thinks the oceanfront community's real attraction sits just north of the boardwalk at Ocean Parkway and Avenue Z.
Volla, chairman of Wayne, Pa.-based Primary Health Systems, is negotiating for control of Coney Island Hospital, a 460-bed public facility operated by New York City Health and Hospitals Corp., the nation's largest municipal hospital system. Coney Island is one of at least three hospitals up for sale or lease under Mayor Rudolph Giuliani's embattled privatization plan.
As part of his election-year platform in 1993, the mayor suggested turning over HHC hospitals to the private sector, which he believes is better prepared to make the kinds of investments that will enable the public facilities to thrive in today's managed-care environment.
According to City Hall, the long-term lease of Coney Island will save taxpayers an estimated $100 million from operations, capital improvements, subsidies and debt repayment over the first five years of the 49-year contract. In the year ended June 30, 1995, the hospital's operating expenses alone exceeded $212 million. But City Comptroller Alan G. Hevesi seriously doubts the city's estimate. From what he's been able to learn, the proposed sale of Coney Island and other public hospitals "will hurt uninsured patients, for sure" and "will cost the city more money," he said.
Coney Island's saga illustrates the difficulties involved in reforming a large public hospital system. Politics and emotions tend to cloud the task at hand: restructuring the public "safety net" to cope with the financial and competitive pressures imposed by managed care.
The mayor has been roundly rebuked for failing to reveal the specific financial and operational effects of privatization. Public health advocates also charge that the mayor lacks a specific list of criteria for measuring proposals from would-be operators, and that the process has been so secretive even HHC board members didn't receive advance notice of the PHS deal.
But Maria K. Mitchell, the mayor's health policy adviser, says these are "code words" for criticizing the mayor and his policies. The goals-improving quality, running more efficient hospitals and providing the same or better access-always have been clear, she said. In fact, she said, the city has produced a letter of intent that meets those goals.
Under the letter of intent, PHS-New York, an affiliate of Volla's private, for-profit hospital chain, tentatively agreed to defease or tender Coney Island's $43.6 million in debt and spend at least $25 million on major capital improvements. City officials now are engaged in negotiating a final contract for a 49-year lease with PHS. However, the city council is suing the mayor on the theory that the council has a role to play in the disposition of any city hospital. The suit, filed in state Supreme Court in Manhattan, is scheduled for argument this month.
Coney Island gives PHS a foot in New York's not-for-profit-dominated hospital community. It also provides the raw material for wresting tremendous efficiencies.
For starters, Volla said PHS would convert Coney Island's old four- and six-bed wards to private and semiprivate rooms, modernize obstetrical services, clean out emergency room congestion and expand ambulatory-care services. To attract locals who don't use the hospital, the company plans to develop geriatric-care services and seek Medicare managed-care contracting opportunities, he said. In 1995, the hospital generated 30.8% of net patient revenues from Medicare, 54% from Medicaid and the balance from the Blue Cross and Blue Shield plans, self-paying patients and other payers.
Volla said he intends to do things that will erase Coney Island's "public" stigma, boost revenues and serve the community. As it is now, the hospital loses two-thirds of its potential market share to competing facilities, he said. According to the city's offering memorandum, the hospital's major competitors are Manhattan's academic medical centers and Maimonides Medical Center, a private, not-for-profit teaching hospital in Brooklyn. Volla said the company also intends to build a three- to four-hospital network in Brooklyn within the next 18 months.
"If it looks like a public hospital, walks like a public hospital and talks like a public hospital, then it must be one," he said.
But a "public" hospital is exactly what some community activists and public health advocates are fighting to preserve. They believe Giuliani's attempt to spin off Coney Island and two hospitals in Queens is a policy borne of political favoritism and fiscal greediness, having little to do with what's best for the city's poor and uninsured. Privatization, they say, puts HHC in the hands of operators with very different concerns.
Public health advocates are outraged by the city's attempt to cast off Coney Island, one of HHC's healthier hospitals, to a private, for-profit company. "This battle is about stealing public good for private gain," declared one community activist at a recent strategy session. "They've got more time. They've got more money. They've got more power. We've got people."
At a recent conference sponsored by the United Hospital Fund, a New York-based philanthropy, the challenge was summed up by Stanley Brezenoff, a former first deputy mayor who's now president of Maimonides Medical Center. Brezenoff said what must be avoided in a discussion of public or private ownership of hospitals is "a kind of ideological commitment to one form or another as if they are ends in themselves."
Ownership, said Charles Brecher, a public health professor and executive vice president and director of research for the Citizens Budget Commission, is "an inadequate concept for discussing the future of the hospital safety net." Brecher told the conference privatization is a good idea where there is "greater efficiency through means of competition," such as the small package delivery business pitting the U.S. Postal Service against the United Parcel Service. But in his view, "this model has little relevance to privatizing HHC."
A 1995 analysis co-authored by Brecher says the particular hospitals selected for privatization are not supported by "clear logic" (May 22, 1995, p. 17).
Publicly, the mayor and other top officials have said HHC's operating structure limits individual hospitals' ability to effectively compete in an increasingly competitive environment. With networks forming all over the city, Giuliani hopes to free HHC hospitals to strike new partnerships that ensure access, quality and cost-effective care.
But it's also clear the mayor doesn't believe the city can continue subsidizing public hospitals at the same level it has in the past. At Coney Island, for example, the city slashed tax subsidies to $181,000 in the year ended June 30, 1995, from the $10.3 million allocated in the previous budget. Obviously he believes the private sector can achieve efficiencies that will save the city millions on future operating subsidies and capital requirements.
The Giuliani administration wants to strike while the iron is hot. "If we wait until a new healthcare delivery system is in place," First Deputy Mayor Peter J. Powers wrote in a letter to Comptroller Hevesi, "HHC will be further isolated from the rest of the system-exacerbating the existing inequities and ensuring a two-tiered system that is beyond repair."
Researchers at New York University's Robert F. Wagner Graduate School of Public Service project that 12,185 fewer beds, or 36.4% of the city's total bed capacity, will be needed in New York by 2000. HHC alone is expected to close 3,000 beds because of anticipated reductions in utilization and loss of market share.
"I think the most irresponsible thing we can do is to do nothing," said Maria K. Mitchell, the mayor's health policy adviser and chairwoman of HHC's board of directors.
HHC must change, agreed Lani Sanjek, a member of the coordinating committee of the Commission on the Public's Health System, a coalition of public health advocates. "I think it's a question of in which direction you look for change," she said.
But some observers say community health advocates have failed to be heard because they haven't presented anything fundamentally different from the status quo. There are other options between preserving a public hospital system and parceling it off to private hands.
At the United Hospital Fund meeting, John H. Short, a managing partner with Phase II Consulting in Salt Lake City, presented one option. His model calls for spinning off a group of HHC hospitals as a private, not-for-profit corporation.
"The mayor should not be in the hospital business," Short said. HHC has inadequate control over labor relations, procurement policies and even its leadership because all these are determined by officials outside its own board, he said.
In New York, community ties to the public hospital system always have been strong. Recently, about 35 Coney Island-area residents, many of them senior citizens, turned out for a strategy session on scuttling the Coney Island deal. Meeting organizers described the fight to preserve Coney Island as a "war" and PHS executives as "sharks." One woman, referring to Nomura Securities' $100 million debt capitalization of PHS, declared, "We don't want Japan to come in and take over."
The community activists are part of the Campaign to Save Our Public Hospitals, a labor-backed coalition whose members include the District Council 37 of the American Federation of State, County and Municipal Employees; the Committee of Interns and Residents; the New York State Nurses Association; and more than a dozen other organizations.
There's a lot of fear that Coney Island Hospital no longer will take care of the uninsured and underserved as it had in the past, said Stanley Hill, DC 37's executive director. "History has shown us that, in terms of private hospitals, if you don't have insurance, you're not going to get the care," he said.
On April 15, DC 37 and leaders of labor, political, religious and community organizations filed a $791 million lawsuit against the mayor and the city, charging that city subsidies of HHC have fallen short of the minimum required under law. Filed in state Supreme Court, the suit contends that under the 1969 law creating HHC, the city is obligated to provide at least $175 million in tax levy subsidies plus adjustments for inflation.
Based on inflationary trends, the city should have contributed $780 million to HHC in 1996 and allocated $800 million for 1997, according to the suit. But the city budgeted just $97 million in 1996. At least two other lawsuits challenging the city's authority to privatize hospitals and the mayor's authority to enter hospital lease arrangements also have been filed.
Marianne Engelman Lado, assistant counsel to the NAACP Legal Defense and Educational Fund, is assisting with legal challenges aimed at preserving the city's safety net for the uninsured. "The very mission of HHC is on the line," she said.
Mitchell, the mayor's health policy adviser, doesn't see it that way. She headed Giuliani's advisory panel on the future of HHC, which recommended steps for transitioning the city out of the business of owning and operating a hospital system. The panel recommended that the city maintain "a full commitment to serving the uninsured" throughout the transition, and that is what the city intends to do, she said.
In the letter of intent involving the Coney Island deal, PHS-New York agreed to continue providing "the same level of access" currently provided by the hospital up to a "trigger point." The stop-loss arrangement obligates HHC to "subsidize" PHS-New York or "provide other relief." Skeptics question whether poor and uninsured patients will really have the same access they've always been assured.
Mitchell is taking a good deal of heat. Critics have attacked the advisory panel's composition and recommendations, its failure to fully address indigent care in its initial report, the city's behind-the-scenes dealmaking and alleged lack of planning for community needs.
Why the city would parcel off HHC hospitals at a time when most New York City hospitals are attempting to form networks themselves also troubles some.
"It's ironic because in some ways HHC is a model of how healthcare is likely to be structured in the city," said Deborah Bell, DC 37's coordinator of healthcare policy.
But Mitchell said HHC hospitals never have operated as a network. The structure has precluded individual hospitals in the corporation from entering joint ventures with private hospitals that might result in better regional systems of care. How anyone could say private hospitals are trying to replicate the HHC system is "a bit of a leap," she said.
Critics ask, if the mayor is committed to real reform, why didn't he choose to spin off HHC's King County Hospital Center? It's the largest, most used and one of the most financially troubled of the lot. If the cream of HHC's crop of hospitals is skimmed off, what financial consequences will the city suffer?
"I think that would have been an easy choice to make, but I don't know that it would have been successful," Mitchell responded.
For the year ended June 30, 1995, Coney Island lost $11.3 million on $220.9 million in net patient service revenues. But there's little doubt PHS will turn it around. Healthcare executives said Volla, former president and chief executive officer of American Healthcare Management, runs a tight ship. In Cleveland, where the company has acquired or has agreements to purchase five hospitals, PHS executives have earned a reputation as tough negotiators.
But critics question whether the quality of care will be better. A May 1996 report by the Cleveland Health Quality Choice Program finds higher-than-predicted mortality rates in some departments of two PHS hospitals: St. Alexis Hospital Medical Center and Deaconess Hospital. However, because the data are about a year old, they generally reflect the performance of previous operators, according to Dwain Harper, D.O., the Quality Choice Program's executive director. Changes in quality take a minimum of six months to a year to affect, he said. PHS didn't acquire the hospitals until shortly after it was formed in June 1994.
A Coney Island agreement would represent a rough-and-tumble victory for the city's top Republican. So far, though, privatization has moved ahead in fits and starts, with no known commitments for either Elmhurst Hospital Center or Queens Hospital Center, the other two hospitals up for bid.
But if some "big conglomerate" were to make an offer, "Rudy Giuliani would sell our system in two seconds," Hevesi charged. As chief of the city's financial affairs, Hevesi has authority to approve all debt issuances and review changes in HHC's debt structure.
"I have no ideologic problem with privatization," Hevesi said. But so far, the city has failed to show how the proposed sale or lease of HHC facilities will improve patient care or reduce costs, he added.