NYU Langone moves in on the competition

NYU Langone Medical Center's agreement to affiliate with one of the last freestanding hospitals on Long Island is part of a much broader strategic plan that will allow it to grow and stave off competition locally.

The health system hopes its partnership with Winthrop-University Hospital will discourage Long Island commuters who already visit NYU Langone doctors when they are in the city from turning to other health systems when they return home to the suburbs. Chief among those suburban competitors is Northwell Health, the $8.7 billion health system that calls Long Island home.

"In the way in which the health care delivery system is evolving, we need to be able to take care of patients where they work and where they live," said Rick Donoghue, senior vice president for strategy and business development at NYU Langone Medical Center.

In New York, and nationwide, health systems are scaling up and grabbing market share in order to better deal with the major regulatory changes reshaping the industry. Health care consolidation has accelerated since the passage of Obamacare in 2010, which ushered in an era of reforms that go well beyond the push to get more people insured.

In 2015, there were 112 hospital mergers in the U.S., up 18% from the previous year. New York ranked sixth nationally for the highest number of hospital mergers and acquisitions from 2012 to 2015, according to a recent study by the Manhattan Institute. Hospital mergers and acquisitions spiked in 2014, with nine deals announced that year, up from three in 2013 and one in 2012. The number dipped slightly to seven in 2015.

As consolidation continues in New York, NYU Langone is one of five health systems that's likely to dominate the market here. NYU Langone is competing for patients with other leading health systems, including Northwell Health, New York- Presbyterian, Montefiore Health System and Mount Sinai Health System. "They're going to be competing in each other's backyards," said Dr. David Friend, managing director and chief transformation officer of the Center for Health Care Excellence and Innovation at consulting firm BDO. "The drive to get big, do it fast and acquire the good assets before the competition does is happening all over the country, and, clearly, it's happening in New York."

If the state approves the affiliation agreement, the NYU Langone-Winthrop alliance could blossom into a full-fledged merger within five years. NYU Langone provides the capital to improve Winthrop's infrastructure: Its overcrowded emergency room needs expanding, and it requires more operating rooms. The partnership is intended to lead to an integrated health system on Long Island.

The fight for market share has led New York's health systems to expand beyond their traditional borders. Until recently, for instance, Northwell Health was called North Shore-LIJ, a relic of the 1997 merger between Long Island Jewish Medical Center and North Shore Health System. Northwell eliminated any geographical references when it rebranded at the start of 2016.

Winthrop doesn't need a life raft, unlike some smaller hospitals that have been swallowed up by bigger, wealthier health systems. Recognized for its quality in various specialties, Winthrop is profitable on its own, having made $29.4 million on $1.27 billion in operating revenue in fiscal 2015. NYU Langone, meanwhile, earned $229 million on total operating revenue of $2.6 billion in fiscal 2015.

Both Winthrop and NYU Langone have developed extensive physician networks on Long Island, but NYU Langone lacks an inpatient hub there that can help it compete with Northwell Health.

NYU Langone, once scarred by a failed merger with Mount Sinai that took a decade to disentangle, appears to have overcome its long-standing apprehension about hospital partnerships. The health system absorbed Lutheran Medical Center in Brooklyn earlier this year.

In what can seem like a zero-sum game, health care providers in New York are also sometimes vying for the same strategic partnerships. Winthrop was one of 10 hospitals in the Long Island Health Network, a coalition that collectively negotiates with payers in order to boost members' bargaining power. Winthrop confirmed it will be leaving the network, which includes Brookhaven Memorial Hospital Medical Center in Patchogue, John T. Mather Memorial Hospital in Port Jefferson, and South Nassau Communities Hospital in Oceanside.

Winthrop will also have to dissolve its affiliation with South Nassau Communities Hospital, another independent facility.

New York's five leading health systems differ in their strategies. NYU Langone has expanded primarily through outpatient care. "Back in 2008, we were principally located in three locations," said Donoghue.

At that time, NYU Langone's presence was concentrated on the East Side of Manhattan at its main campus and cancer center, on East 34th Street, and its Hospital for Joint Diseases, on East 17th Street and Second Avenue. Since then, NYU Langone has steadily acquired physician practices and opened more than 150 locations in Manhattan, Brooklyn, Queens and Long Island. On Long Island, it already employs about 250 doctors in 40 offices.

"We see inpatient care as a declining element of the delivery system," Donoghue said, referring to state and federal efforts to cut hospital beds and shift health care to less costly settings.

Northwell has been far more aggressive in its efforts to adapt to changes in health care by creating a comprehensive, integrated health care system. Driving the industry-wide changes in part are value-based payments that pay providers for the quality and not the quantity of their care. That means controlling more aspects of a person's health care rather than relying on the sickest patients to fill hospital beds. Gaining that control can require a sizable investment in new technology and infrastructure, as well as the scale to absorb financial risk.

"In order to provide value-based care, you need scale. That's what's driving most of this behavior," said Friend, the consultant at BDO.

Hospitals are also sharing resources and referrals through affiliation agreements that don't involve outright mergers, and they're bulking up their outpatient centers and physician practices, and even launching insurance companies.

Northwell, for example, started an insurance plan, CareConnect, in 2013, and has partnered with a chain of rapidly growing urgent-care centers. Northwell has corralled 16 hospitals into its network so far. While it started on Long Island, the majority of its patients now hail from New York City, a spokesman for Northwell said.

When Winthrop decided to find a partner, it didn't reach out to Northwell, despite its proximity, out of concern that Winthrop could be reduced to a "glorified emergency room," Winthrop spokesman J. Edmund Keating said. "That was a main consideration for any partner because then you reduce services. Not always, but very often that's what happens."

Under its affiliation agreement with NYU Langone, Winthrop will maintain its leadership team and the two hospitals will share some board members. "I think NYU Langone recognizes that Winthrop stands as a truly unique health care institution on Long Island—a major academic and research hospital that delivers high-quality care in an extremely personal and compassionate environment," said John Collins, Winthrop's president and chief executive, in a statement.

Health care providers frequently tout their ability to create economies of scale, improve quality and minimize the duplication of services when they join forces. But the Manhattan Institute study found that's not always true. It found that Northwell's expansion did not lead to significant gains in health care quality compared with the rest of the state's hospitals. Some studies have also found that consolidation has led to higher costs for payers.

Nonetheless, Winthrop and NYU Langone say their partnership will allow them to better coordinate patient care.

"We quickly realized that an affiliation would allow our institutions to enhance the range and quality of services offered to the residents of Long Island, as well as grow key ambulatory services and the physician network across the region, with Winthrop as the primary inpatient hospital," said Dr. Robert Grossman, dean and chief executive of NYU Langone Medical Center, in a statement.

Donoghue said Winthrop's decision to seek a partnership demonstrates that even independent providers that are doing well are struggling to adapt to health system changes by themselves.

"Without the investments necessary to do this," Donoghue said, "small places can't do it on their own."

"http://www.crainsnewyork.com/article/20161002/HEALTH_CARE/161009993/nyu-langones-latest-affiliation-with-winthrop-university-hospital" originally appeared in Crain's New York Business.