The relentless march of managed care helped push two New York City hospital giants into each other's arms. Now, as their merger begins its second year, the physician executives who head the city's largest medical center are facing managed care head on.
Unlike the West Coast and parts of the Southwest, New York long has been resistant to managed care. "The HMOs hate us because in New York we do things differently than they did in other cities, (where HMOs) lost 50% of hospital beds because they caved in to managed care. It's only 3% in New York," says David Skinner, M.D., chief executive officer and vice chairman of New York Presbyterian Hospital.
The city's intransigence is getting a boost from New York Presbyterian, which was created through the Dec. 31, 1997, merger of New York Hospital and Columbia-Presbyterian Medical Center. The union was the result of two years of power negotiating between the executives who would become its heads of state -- Skinner and William Speck, M.D., president and chief operating officer.
Bruce Gordon, an analyst at Moody's rating service, thinks the merger ultimately will succeed. "The merger had some hiccups early on because of disparate corporate cultures between the hospitals," he says. "But Skinner and Speck both seem to have good business and clinical sense. The medical staff should be pleased that two of their own are at the top."
Skinner has a vision for the behemoth: "We will not take capitated risk. Let our rivals try that -- less competition that way. We want to leapfrog over HMOs and go to direct contracting with employers."
The 1,700 physician members of Columbia Cornell Care, a managed-care organization created from the faculties at both campuses, are in accord. Polled recently, only 8% of network members said they would participate in capitated risk contracts. The survey didn't specifically address direct contracting, and both Skinner and Speck are vague about how they plan to work with employers to bypass HMOs. Myron Weisfeldt, M.D., chairman of the department of medicine, notes that 10% of New York Presbyterian's doctors have opted out of managed-care plans in the past three months.
At the heart of Skinner's vision are the two venerated academic medical centers, which between them have 347 years of experience in training doctors. Perhaps the adage "opposites attract" best explains the marriage of New York Hospital, an imposing Gothic East River presence in one of Manhattan's poshest neighborhoods, and Columbia-Presbyterian, a sprawling brick-and-mortar presence in a polyglot working-class neighborhood overlooking the Hudson River.
The merged medical center has 28 hospitals, 2,170 beds, 12,400 employees and 900,000 outpatient visits annually. It projects 1998 revenues of $1.5 billion and holds 22% of the city's market share.
The parent company that oversees New York Presbyterian, its affiliated hospitals, and other providers in Brooklyn, Queens, upstate New York and New Jersey is expected to eventually generate between $3 billion and $4 billion in annual revenues. Although its patient volume is flat, 1% to 2% annual growth comes from its suburban affiliates. The organization also expects to lower costs by $60 million over five years. It's ahead of schedule, having lopped $35 million off the budget in two years.
Still, redundancies that become obvious after a merger can send shockwaves through hospitals. Sid Paulson, COO of Intermountain Health Care, an integrated delivery system headquartered in Salt Lake City, navigated the slippery slope of merging medical staffs at Latter Day Saints and Cottonwood hospitals in Salt Lake City in 1995. "We had two excellent cardiovascular departments," he says. "The HMOs told us that they have to deliver value to their shareholders and keep costs down. So we had to cut excess in the medical staff by two surgeons. When you have to drape your arm around those two guys and say they're not on the HMO panel anymore, you create lots of heartburn for everyone."
Skinner claims that won't happen at New York Presbyterian. In fact, he says the hospital will need more than its current 6,217 affiliated physicians if it gains market share.
He was so certain of his path that before the hospitals merged, he nipped in the bud concerns about downsizing. "I brought all chiefs of service, two by two, like Noah's Ark, into my office and told them to relax," Skinner says. "Their jobs were secure."
So far there have been no staff cuts, only some attrition. The merged organization also has added new departments, including a pain center developed by both anesthesia departments and a laser center created by the two dermatology services.
While Skinner and Speck might seem overly optimistic, each has a successful hospital turnaround under his belt. During the 1980s both hospitals were in dire financial straits, saddled with antiquated administrative and physical infrastructures and recurring accusations of poor-quality care. In 1987 New York Hospital recruited Skinner, a thoracic surgeon who chaired the University of Chicago Hospitals' surgery department, to stop its tailspin. He did.
In the decade he has been CEO of New York Hospital, Skinner has used a combination of impressive clinical, financial and leadership skills to achieve the opening of a new inpatient pavilion, a new strategic research plan and a new curriculum for medical students.
The uptowners in 1993 hired Speck, a pediatric researcher at University Hospitals of Cleveland, to improve patient care and eliminate a $50 million operating budget deficit. He did.
Having performed their magic once, Skinner and Speck now must do it again -- on a grander scale. They face a legislative review this year of a New York state surcharge assessed in 1996 on all non-Medicare payers for indigent care and the house staff that delivers it. Designed to help New York's academic medical centers struggling with the negative impact of managed care, the surcharge is ultimately paid by employers. In New York City it's 25.09%, compared with 11.96% for nearby Long Island and 9.05% for northern suburbs.
Compounding the problem of funding indigent care are state and city efforts to mandate managed care for 1.2 million Medicaid recipients. Medicaid represents 19% of the city's nonelderly residents and $2.8 billion in revenues. Although HCFA is going slow with the Medicaid rollout, it will eventually affect New York Presbyterian.
For now, the merger is fueling cross-town synergy for physicians. Expanded pediatric cardiac surgery services and a liver transplant program launched in 1998 already are attracting new patients and revenues. Columbia-Presbyterian has a large heart transplant program, a National Institutes of Health-designated comprehensive cancer center and a Level 1 pediatric trauma center. New York Hospital has one of the country's busiest burn centers, an AIDS center and a Level 1 adult trauma center.
Three other new programs based on specialists' pooled expertise are planned: gamma knife treatment for brain tumors, new and controversial lung reduction surgery, and spine centers. The new programs were developed by physicians at both hospitals and are expected to be operational this year.
But there are genuine concerns about Skinner's and Speck's ability to deal with perilous economic times. Laurel Pickering, managing director of the New York Business Group on Health, a Manhattan-based employer coalition that helps its members purchase healthcare, says of New York Presbyterian: "They seem to have two of everything. They're talking about reduced costs and economies of scale, but I haven't seen it yet."
Pointing out that managed-care penetration is increasing, Pickering notes that while New York City consumers depend heavily on a physician's or hospital's reputation, that may change with NYBGH's release of its first report cards, due early this year, on area providers. Does it matter to NYBGH that physicians are in charge of the hospital? "Not at all," Pickering says.
John Kinney, M.D., professor emeritus at Columbia College of Physicians and Surgeons, Presbyterian's medical school, agrees: "In the present climate, the impact of economic and business decisions is more important than (whether) the people running the hospital are physicians."
In times that cry out for efficiency, New York Presbyterian instead has chosen a building spree. New York Hospital's new $207 million inpatient Greenberg Pavilion is part of a $360 million capital campaign. Columbia-Presbyterian recently spent $1.13 billion adding personnel and building new facilities. The project included its psychiatric institute, diabetes center, storefront clinic, pediatric intensive-care unit, eye clinic, cancer-care center and orthopedic research center.
When asked by the New York Times last October whether HMOs, with their pressure to contain costs, will look suspiciously at the recent expenditures, Skinner replied: "It's unlikely. Both campuses are full-service providers of care and they serve different constituencies."
Some argue that Skinner and Speck have yet to face the really tough battles. While Harry Bush, M.D., a vascular surgeon at New York Presbyterian, believes having physicians at the top ensures more mindfulness of clinical decisions than "pure businesspeople," he's worried about long-term prospects.
"They've done very well with cost-cutting of laundry, clinical labs and supplies with combined purchasing power," he says. "But they haven't faced cuts in the clinical departments yet."
Bush says unified departments operating on both campuses under one chief of service make sense but doubts it will happen. "There are fiefdoms of power at both hospitals," he says. "A vacancy at one hospital doesn't mean they won't fill and unify the department." He adds: "We're all quietly ignoring this because it's a major stumbling block. But the problem will not go away."