Why closing hospitals and cutting staff won’t save NYC’s public hospital system

The devastating Medicaid and Medicare cuts that could be imposed as a result of the Trump-Republican tax plan might mean the end of New York City’s public hospitals as we know them. But even without these brutal actions, the system is already in serious jeopardy.

One key element of the Affordable Care Act is the expected decline of special revenues for institutions like New York City Health + Hospitals (NYCHH) that serve a “disproportionate” number of Medicaid and uninsured people. In 2017 such revenues account for one third of NYCHH’s $7.8 billion operating expense. Because the Affordable Care Act anticipated many fewer uninsured, it authorized a gradual reduction in these supplemental payments to the state. That reduction, coupled with a state-determined allocation formula that disadvantages NYCHH, will mean sharp funding cuts to NYCHH.

Yet the public hospital burden of caring for the uninsured has not diminished. Public hospitals remain the primary source of care for more than half a million uninsured New Yorkers. Our recent study, requested by the New York State Nurses Association, found that one quarter of the adults seen in NYCHH’s clinics are uninsured – little changed since 2014 despite a 70 percent decline in the number of uninsured New York City residents. On the inpatient side, the number of uninsured patients increased in the last year.

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Why haven’t New York City’s public hospitals benefitted from the ACA’s health insurance expansion? In short, because the private hospitals have increasingly shed their share of the uninsured and underinsured. NYCHH hospitals provide one sixth of New York City’s total hospital discharges, but account for half of all uninsured inpatient discharges and 80 percent of all uninsured hospital clinic visits. NYCHH’s share of services to the uninsured has risen sharply since 2010, while the private hospital share of services has declined. Also, NYCHH provides the bulk of high-cost Level 1 trauma capacity in New York City, relieving private hospitals of that expense.

It’s not just caring for the uninsured that’s creating the financial headache. Equally key is the liability caused by inadequate payments for psychiatric and substance abuse services. Sixty percent of New Yorkers with schizophrenia were hospitalized at a public hospital, and NYCHH cares for nearly half of all inpatients suffering from opioid addiction.

NYCHH’s deficit is not an expense problem. It’s a revenue issue. Yet NYCHH testimony before the New York City Council Health Committee this spring and the Mayor’s Blue-Ribbon Commission Report are both premised on the mistaken belief that health care costs at NYCHH are much higher than at private hospitals in the city. The unstated premise is that public hospitals (like the common perception of government services) are less efficient, costlier and of lower quality than private sector service providers.

The facts tell a different story. NYCHH costs for treating patients are comparable to or lower than those of private hospitals. As a group, NYCHH hospitals are among the lower-cost New York City hospitals. The majority have payroll expenses per adjusted discharge (a widely used standard) in the bottom half of New York City hospital costs. They are not costlier, they just bear more of the costs.

Nor is the quality of care inferior to that provided by private hospitals, particularly the large academic medical centers. For example, surveys by the Leapfrog Group found that NYCHH hospitals as a group provide higher than average quality. According to the November 2016 Leapfrog report, the only hospitals to receive a grade of “A” or “B” in New York City were five NYCHH institutions.

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The very existence of NYCHH enables the large private hospital networks to operate with huge surpluses. In 2016, the five major private systems reported net operating revenues, or profits, totaling $877 million, one-third greater than the year before. These “nonprofit” entities have recorded significant operating surpluses while enjoying substantial tax exemption benefits and excessive state and federal charity care payments not proportionate to the amount of charity care currently provided. Meanwhile, they pay scandalously high compensation to scores of executives, with over 100 hospital executives compensated more than $1 million annually.

The City of New York gives the private hospitals sizable real property, income and sales tax exemptions. City real property tax exemptions totaled $669 million in fiscal year 2017, up by 34 percent from fiscal year 2011. In addition, the big five private hospital systems save over $70 million annually by being able to issue tax-exempt bonds through the Dormitory Authority of the State of New York.

NYCHH needs to change – to adapt to a more coordinated, community-focused health care world – but its fiscal problems cannot be fixed by closing hospitals, laying off staff and cutting services. Nor can the solution be increased reliance on, and payments to, the costlier and less responsive private hospital system. The private sector is making money (and lots of it) while the public sector falls ever deeper into financial distress. The burden of caring for the neediest and most vulnerable must be more equitably distributed.

Barbara Caress and James Parrott are long-time New York City-based public policy analysts. Barbara Caress is an adjunct professor at the Zicklin School of Business, Baruch College, CUNY and Sarah Lawrence College. James Parrott is director of economic and fiscal policy at the New School’s Center for New York City Affairs.