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November 22, 2004

Hospitals cost New York too much, Governor's panel finds

New York State's hospital system is too big and too expensive, but there are opportunities to reduce costs while improving patient care significantly, an advisory group appointed by Governor Pataki has concluded.

"In New York, we spend far more on health care than other states, without achieving dramatically better health outcomes for New Yorkers," the Health Care Reform Working Group wrote (emphasis in original). Businesses, government and individuals in New York spend nearly $34 billion a year — more than any other state — on hospitals. The second-highest state, California, spends $25.7 billion, despite being home to 15 million more residents.

"Over the years, attempts have been made to justify this situation. Not one of them has been very convincing. It's time to face reality," the working group said. "We need to trim the fat from New York's healthcare system and reinvest the savings to modernize and improve the system."

Governor Pataki appointed the panel in 2003 to make recommendations on improving the state's Medicaid program while restraining its highest-in-the-nation costs. It is chaired by Stephen Berger, chairman of Odyssey Investment Partners in New York City and a former high-ranking state official.

The working group said major problems facing New York's hospital system include overcapacity, and inadequate efforts to measure and improve quality of care.

"Excess capacity is expensive to maintain and yields no good result," it said. It urged Governor Pataki and the Legislature to reduce hospital capacity, and develop alternative models for hospitals to ensure access to quality care.

Because most health-insurance plans insulate patients from costs, consumers demand too much supply of medical technology, the report said.

Elliott A. Shaw Jr., The Business Council's director of government affairs, said that finding supports the council's arguments in favor of expanding market incentives in health-care financing. The Legislature should allow managed-care plans to sell consumer-driven insurance policies, he said.

The current oversupply of hospital beds is driven partly by the "perpetuation of inefficiencies at weaker, unneeded hospitals," the working group said.

"The experience in New York State too often has been that financially weak hospitals are 'bailed out' by public subsidy, usually in response to intense community pressure," it said. "Hospitals that should close, or at least be greatly reduced in size, are kept open at considerable expense to the taxpayer and to the detriment of efficiency in the health care system."

The report cited successful examples of hospitals, including St. Mary's in Rochester and Amsterdam Memorial, that have closed inpatient or emergency services but maintained outpatient and other forms of care.

The working group recommended several steps to improve the quality of care in New York's hospitals, including revising Medicaid payments to reward high quality and penalize hospital errors.

"In many cases, medical errors in hospitals can actually generate higher reimbursement," the report said.

The working group recommended that New York State join the Leapfrog Group, an organization that helps employers use their purchasing power to improve health-care quality and value. The Business Council has made a similar recommendation to Governor Pataki.

It also suggested greater use of technology to improve quality of care, and expansion of already enacted demonstration projects in disease management for chronic illnesses such as diabetes and asthma.

"Traditionally in New York, our choices in healthcare reform have been framed as a limited either/or option: either stay the course, or implement drastic benefit cuts," the report said. "We believe this simplistic analysis, while politically useful to many groups, is fundamentally flawed."

"We can contain costs while preserving and even enhancing access to quality health care for the State's citizens," it said.

Members of the working group also include Herman Badillo, former chairman of the City University of New York; Joseph H. Holland, former state housing commissioner; Jeffrey Kraham, Broome County executive; Jeffrey A. Sachs, president of Reaching Up; and Kathryn Wylde, president/CEO of the Partnership for New York City.

The working group's report is available here. A previous report, focusing on long-term care and prescription drugs, is available here.