N.Y. hospitals consider their collective fate

After some 18 months of negotiations with the federal government, New York state has received permission from regulators to implement a vast revamping of its healthcare delivery system in a bid to lower Medicaid costs. Now the state is at the starting point of a complex overhaul that involves hospitals, insurers, doctors and patients. Among the goals: cutting unnecessary hospital admissions for Medicaid by 25% after five years.

The hospital industry estimates that once the reform process is implemented, there will be a 5% overall drop in hospital admissions. With lower demand, hospitals inevitably must downsize.

The state is hoping that hospitals will collaborate in deciding which institutions must slim down—a very different tactic than previous state-led efforts that forced providers to close, merge or downsize.

Few players in the state's healthcare system, however, are eager to put themselves on the chopping block.

To entice the healthcare industry to participate in the reform process, formally known as Delivery System Reform Incentive Payment program, or DSRIP, the state has a very large carrot: $6.4 billion in federal Medicaid money available to providers who meet very complex performance targets. On Tuesday, the state released a 250-page application for teams of healthcare groups to apply for a chunk of the funds.

It's the largest amount of healthcare funding ever made available as a lump sum—a powerful incentive for players to collaborate. But it may not be enough.

"We have been talking forever about the need to move away from the acute-care system," said Stephen Berger, chairman of Odyssey Investment Partners, speaking at Wednesday's Crain's healthcare summit. "But no one has offered their institution up for closing."

Mr. Berger is the former chair of a state panel that had the legislative power to close hospitals, known as the Berger commission. He later chaired another task force asked by the state to address Brooklyn's ailing hospitals. An offshoot of the state's Medicaid reform efforts, called the Medicaid Redesign Team, the Brooklyn Work Group assembled in 2011 declared that Brooklyn had too many hospital beds.

"DSRIP is the carrot, and it's a big one, but without a mandate it will not be enough," Mr. Berger said.

Hospital and union representatives speaking after Mr. Berger seemed to reflect his fears.

"1199 will fight the wholesale closing of hospitals without a plan to provide comparable jobs" for affected workers, said Kevin Finnegan, political director for 1199 SEIU Healthcare Workers East, which represents 275,000 healthcare workers in the state.

Kathleen Shure, senior vice president at the Greater New York Hospital Association, said, "Hospitals aren't going away," but conceded that "there will be fewer beds. We will still have sick patients. If we are going to be successful, we have to have a stable workforce and it has to fairly compensated."

Asking large systems to cooperate is a daunting task, made more urgent by the short timelines. Applications are due in December, giving systems about three months to apply—which many providers argue is not enough time. And to get the funds, systems need to show they are successfully meeting their goals.

"This is not about effort. This is not about reimbursement of cost," said state Medicaid director Jason Helgerson, who is leading the state's Medicaid reform efforts. "If you do not perform, you do not get paid."

If the reforms are successful, improvements achieved for Medicaid patients, including better primary care, less waste and lower costs, will filter out to the entire health ecosystem. But many similar attempts at reform have failed.

"This is extraordinarily complex," said Jeffrey Kraut, senior vice president for strategy at the North Shore-LIJ Health System. "This is the Holy Grail of what we've been trying to do for 90 years."​

"Hospitals consider their collective fate" originally appeared in Crain's New York Business.