The New York Times - October 6, 1986
M.A. Farber

Daniel T. McGowan, the head of the New York City Health Systems Agency, which will recommend the action, would not identify the five hospitals because the negotiations are still confidential, but he said two were in Brooklyn, two in Queens and one in the Bronx. "We are still negotiating with four hospitals in Manhattan that should close or merge with stronger institutions."

All told, he said, the agency's staff will propose this month a reduction of 4,500 to 5,000 acute-care hospital beds and 500 pediatric beds in private and public hospitals in all five boroughs, ranging from "community-type hospitals to large teaching institutions."

The closings and consolidations - which the health agency can negotiate, or the state can order - will be wrenching to the institutions, their staffs and their neighborhoods. But they are part of a sweeping attempt to make the city's private and public hospitals less expensive and more efficient as New York enters a revolution in hospital care as profound as that wrought by the advent of Medicare and Medicaid, the Federal health insurance for the elderly and for the poor, 20 years ago.

The revolution is sought not so much by the hospitals, but by Federal and state regulators, patients, employers and medical entrepreneurs - by what Dr. Robert G. Newman, the president of Beth Israel Hospital, calls "the demands of the outside world."

It comes at a time when an examination of New York City hospitals finds that, having succeeded in providing quality medical care to far more of the population than ever before, they are operating under increasing strain.

Many of their doctors are fatigued and frustrated. There is a chronic shortage of nurses. Public and private hospitals suffer from antiquated physical plants, periodic shortages of supplies and, increasingly, empty beds. New diseases such as acquired immune deficiency syndrome add more strain, while the capacity to cope with older problems such as mental illness is overwhelmed. The hospitals are applauded for providing the most technologically advanced treatment in the world and criticized for cold and impersonal care.

According to the regulators and the regulated, the coming revolution promises a shakeout in which the survivors will be those hospitals that can adapt to a new world of intense competition, close government direction, shifting demographics, new technology and increasingly sophisticated patients who demand a say in how and where they are treated.

"We're on a very rapid roller coaster," said Dr. David Axelrod, the State Health Commissioner. Pressures of Changes In Care Patterns Patterns of care established a generation or more ago in the city are already changing in ways that are exerting economic and emotional pressure on hospital administrators, who are looking at empty beds, and on doctors, who see an erosion of their traditional way of doing business and who feel trapped in red tape.

The new patterns, reflecting those elsewhere in the country, include a shortening of hospital stays, the providing of relatively inexpensive care on an outpatient basis for surgery and other procedures that in the past required hospitalization, and the growth of group health maintenance organizations, or H.M.O.'s, that enable their members to make less use of hospitals.

Next month the state is expected to approve the first Medicaid and Medicare payments for a half-dozen independent surgery centers in the city that perform operations, such as hernia repairs, that once would have required hospitalization. At present, Medicaid and Medicare will reimburse the doctors for their own services, but not for the costs of their centers.

Earlier this year, the state certified profit-making H.M.O.'s in New York. Four are now doing business in New York City, and applications are pending in Albany for certification of another eight such H.M.O.'s in the city.

In addition, six distinguished teaching hospitals in the city - all of them private, nonprofit institutions - have signed an agreement with one of the nation's largest for-profit operators of H.M.O. plans, Maxicare.

The agreement calls for attending physicians who have associated themselves with Maxicare to send patients, especially those requiring extensive care, to these hospitals. For the physicians, affiliation with Maxicare opens to them the H.M.O.'s thousands of members, who pay monthly premiums that cover virtually all health care.

"We joined with Maxicare because that's the wave of the future, the 21st Century," said Barry R. Freedman, director of Mount Sinai Hospital. "If Sinai doesn't participate, those patients will go elsewhere."

The other hospitals are Beth Israel and Columbia Presbyterian, both in Manhattan; Montefiore, in the Bronx; Long Island-Jewish Hillside, in Queens, and Maimonides, in Brooklyn. Competition Spurred By Lower Occupancy For years, the private hospitals, now numbering 77, which provide most of the care to the 60,000 New Yorkers who enter a hospital each day, had an average occupancy rate of nearly 90 percent; 9 out of 10 beds were being used each day. In the last two years, that rate has fallen to 81.9 percent.

In the 16 municipally owned and operated hospitals, the occupancy rate has dropped to 80 percent, from a high of 84 percent in 1984.

The immediate effect has been to set off a "market share" war that goes well beyond the hospitals' primitive attempts in the past to attract patients through word of mouth and through their staffs of attending physicians.

"You're now seeing a degree of competition here that never existed before," said Morton P. Hyman, chairman of the state's Public Health Council, which certifies new health-care providers.

Irwin M. Birnbaum, a lawyer who helped negotiate the agreement between Maxicare and the six teaching hospitals, said: "The thing that concerns a hospital today is market share. It all comes back to that."

"Five years ago," said Mr. Birnbaum, who retired in June as chief financial officer of Montefiore Hospital in the Bronx, "the hospitals had a lock on the market and employers didn't give a damn what they spent on health care for their workers. Now patients' choices are driven as much by their employers' decisions as by their physicians', no matter how much tender loving care the doctors give."

Dr. Jo Ivey Boufford, the president of the Health and Hospitals Corporation, which operates the municipal hospitals on a $2-billion annual budget, has told the City Council Health Committee that even the city hospitals are considering the establishment of H.M.O.'s.

In an interview last week, Dr. Boufford said she was concerned that the private hospitals, faced with their need for more patients, might seriously compete with the municipal system for its substantial share of patients who qualify for Medicaid insurance.

She said that only one-fifth of the patients at the private hospitals were now covered by Medicaid, compared with more than half in the city hospitals. In a municipal system in which one-fourth of the patients have no insurance at all, and in which the city must meet any deficit, it was very important to keep those covered by Medicaid. "If New York goes the way it's going," she said, "the privates may begin to compete for our Medicaid patients."

There is no simple explanation for the drop in occupancy rates, which nationwide have fallen to 65 percent and lower. Administrators, government officials, academic experts and others cite a variety of factors, from a growing consumerism movement that is demanding improved care at reduced expense, to the upgrading of suburban hospitals, to the financial attraction to doctors of private group practices that now can use highly sophisticated diagnostic and surgical equipment that once only hospitals could afford.

Raymond D. Sweeney, director of health systems management for the State Health Department, estimated that 40 percent of surgical patients and 95 percent of eye-surgery patients could now be treated as outpatients.

Yet hospital admissions have been relatively stable. The drop in occupancy rates comes most of all from a sharp reduction in the length of stay of patients.

At Mount Sinai, for example, where the occupancy rate dropped to 81 percent, from 88 percent, in the last two years, according to Mr. Freedman, admissions slipped only one or two percentage points. The average length of stay, however, declined by as much as 20 percent.

That critical development, in the view of many experts, is the result of changing government policies that are intended to make the hospitals more efficient and to equalize costs to patients as much as to save the public money. Between 80 percent and 85 percent of the income of hospitals in New York is derived from third-party payers, including Medicare, Medicaid, Blue Cross and other insurers.

Last January, in line with a Federal policy of promoting competition while trying to standardize the cost to patients throughout the country, New York State began reimbursing hospitals for elderly Medicare patients on a case basis. In previous years, major insurers paid hospitals a daily rate for a patient, according to the length of stay. The longer a patient was in the hospital, the more the hospital was paid.

Now, for Medicare patients, the hospitals are paid a flat rate based on the type of illness, normally without regard to how long the person is hospitalized. There are fixed rates for 471 disease categories, known as diagnostic related groups, or DRG's.

The effect of this change - which is expected to be extended to Medicaid and all major private insurers - has been to drive down the average length of stay, emptying beds but, in many situations, leaving the hospitals with continuing overhead costs.

While insisting that medical judgment still prevails, hospital administrators have become extremely wary of running up expenses that will exceed a patient's DRG rate.

At Kings County Hospital in Brooklyn, the second largest municipal hospital in the country, the folder for each new patient is given a yellow sticker bearing the number of days the patient should be in the hospital. Since January, it has been the job of about 40 nurses to see that everything is done - X-rays taken, tests given, charts filled - to meet or beat that deadline.

There is vigorous debate, though few facts, on whether hospitals might be sending patients home sicker, as well as quicker. As Ira Clark, the hospital's executive director, observed, "Home - quiet and clean - is not the same for everyone."

Dr. Newman, the president of Beth Israel, said his hospital, too, had a "review mechanism to say what time is reasonable" for patients to leave. "But I have to depend on the doctors," he said. "I don't walk around the hospital like an Angel of Mercy saying, 'you stay, you out.' " 19% Cut in Beds By 1990 The number of medical-surgical beds - the beds that predominate in general-care hospitals - has dropped about 10 percent in New York City since 1980, to about 26,300. But state officials and many in the hospital industry say there are still too many.

The State Health Department has set a goal of reducing the current number of general beds by 19 percent by 1990. The New York City Health Systems Agency, the joint Federal and state health-planning group for the city, will recommend how to achieve that goal.

Mr. McGowan, executive director of the health agency, said his staff would propose this month reductions in which, at a minimum, Manhattan will stand to lose 1,750 beds; Brooklyn, 1,300; the Bronx, 650; Queens, 450, and Staten Island, 175.

After public hearings in November, the executive committee of Mr. McGowan's agency will act on submitting the staff report to the State Health Department. The department will in turn submit it to the State Health Review Planning Agency. Within two to three months, according to Mr. Sweeney, the report will come back to the Health Department and receive final approval.

"There's no question we're going to have fewer acute care beds," said Dr. Axelrod, the Health Commissioner.

If these regulatory, financial and other developments have proved unsettling for hospital administrators, they have been no less so for many doctors.

"We're dealing with a time when government has decided to scrutinize everything," said Dr. Herman Ziffer, president of the medical board at St. Luke's-Roosevelt Hospital Center in Manhattan. "It wasn't the managements of the hospitals that dreamed up these changes."

Many doctors complain that they are under tremendous "paper pressure" - to fill out streams of new government- or hospital-mandated forms to assure reimbursement, to match diagnoses neatly with DRG categories, and to justify any hospital stay that might exceed the DRG rate.

"I've practiced at Bellevue Hospital, Harlem Hospital, Columbia, and St. Luke's-Roosevelt," said Dr. Norma Braun, a pulmonary specialist, "and I can tell you that, administratively, the system is now a mess. There are so many bureaucrats - a vice president for everything. And just try get hold of one."

Though some doctors may consider the H.M.O.'s a threat to the income they can realize under the traditional arrangement, in which they are paid for each service they provide, others, mindful of the oversupply of many specialists in New York, see them as an opportunity.

"For primary care physicians, especially the young ones, H.M.O.'s can be a good thing," said Dr. Janet Freedman, the president of the Committee of Interns and Residents, which represents the house staffs in the municipal hospitals. "Some worry that the H.M.O.'s are too corporatelike, that they try to save money by restricting tests on patients or neglecting chronic care cases. But those are suspicions."

She continued, "A lot of new doctors like the idea that the business aspect is taken over for them by the H.M.O., that they don't have to find referrals and that they have good working hours and are on-call less."

Charles Brecher, a professor of public administration at New York University, said that early studies of H.M.O.'s - before they expanded to more than 400 plans enrolling more than 20 million people nationally -"showed that the care they offered was of equal quality for less cost." Marketing Tactics By Hospitals Some New York hospitals have taken a number of marketing and advertising measures that a few years ago would have been wildly alien.

Mount Sinai, in addition to hiring a vice president for marketing this year, commissioned a survey to find out, as Mr. Freedman said, "what makes our patients happy and what makes them unhappy and why they come here."

St. Vincent's Hospital, which hired a marketing director in June, has run advertisements in The New York Times once a week since January, telling the stories of patients and of the doctors who helped them.

Peter W. Ghiorse, the hospital's vice president for external affairs, said he did not know whether the ads had brought in any patients. Two years ago, however, St. Vincent's began "heavy media promotion" of its obstetrics service after marketing research had led the hospital to make such changes as allowing siblings in the delivery room and keeping newborns with their mothers at all times. "Our obstetrics volume since then," he said, "is up 30 percent."

The sensitivity with which hospitals view their "image" in these competitive times was illustrated two weeks ago when, shortly after a reporter's inquiry about the management of St. Luke's-Roosevelt Hospital, the hospital's entire staff received a memorandum from Phyllis Goodman, the institution's associate vice president for communications and public affairs.

Miss Goodman reminded the staff that, to avoid any "can of worms" and "inefficiencies," and to protect the hospital's reputation, all calls regarding the hospital from reporters, "including those who may be personal friends of yours," must be referred to her. "There are no exceptions to this rule," she said.

The stern language of the memorandum is matched in the talk these days of other administrators, including some in the municipal system, who say they feel that the private sector brought on its current troubles by the "profligacies" of the 1970's.

"For years, the privates didn't do enough for the poor of this city," said Mr. Clark, at King County Hospital. "They'd send them to us, sometimes with i.v. poles hanging out the windows of gypsy cabs. Now these hospitals are concerned about market share, like Wall Street robber barons. Well, my heart bleeds chicken soup for them."

Next: The quality of care in New York hospitals.

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