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Gianelli: Storm rising at public hospitals

Photo Credit: TMS illustration by M. Ryder

Arthur A. Gianelli is president and chief executive of NuHealth, which is based in East Meadow.


Last month, I oversaw the heartbreaking layoff of 175 employees who worked for NuHealth, the public benefit corporation that runs the Nassau University Medical Center, the A. Holly Patterson Extended Care Facility and four primary-care sites.

It shouldn't have come to that. In 2009 and 2010, NuHealth was profitable for the first time. We have improved our inpatient and outpatient services, installed an electronic medical record system and built a state-of-the-art emergency room. We've won accolades for achievements in care delivery, earning the 2011 Excellence in Patient Safety Award and top patient-care rankings from Health Grades Inc., an independent health-care rating company, and from U.S. News and World Report.

The employees I had to let go made these successes possible. Yet our achievements were overwhelmed by two developments. The state comptroller has raised our annual pension contribution costs by $25 million since 2009. And the federal government will reduce our supplemental Medicaid payments by $15 million each year from 2012 forward.

These dynamics will worsen. Public pension costs in New York will rise higher, approaching a wildly uncompetitive 25 percent of total employee salary expenses by 2014. The state and federal governments will continue to face budgetary pressure to reduce hospital reimbursements. And the Affordable Care Act will redirect future Medicaid supplemental payments away from hospitals to expand insurance coverage.

Additionally, federal and state health-reform efforts are demanding that hospitals make significant new investments to enhance primary care, reduce unnecessary admissions, and coordinate the management of clinically challenging patient populations.

After a comprehensive analysis, the state is proactively addressing a health-care crisis in Brooklyn, where many nonprofit safety-net hospitals that provide care to Medicaid beneficiaries and the uninsured are barely solvent. Public hospitals will be next if steps aren't taken now.

Public hospitals in New York cannot simultaneously manage dramatically rising public pension costs, declining reimbursements from public payers, and the demands for investment driven by health reform. New York State should either provide public hospitals the resources to meet these challenges or give them the flexibility necessary to reduce costs while still providing high quality care.

Albany should recognize that public hospitals are not governmental subdivisions: We cannot raise taxes or fees, and we operate in a competitive health-care marketplace. This is a distinction the state can use to treat public hospitals differently in the public pension system. Relief could come in several forms that would not compromise the fund: capping contributions at levels consistent with those seen at competing hospitals, forgiving amortized pension contributions, or authorizing enhancements in Medicaid reimbursements that recognize pension-contribution increases as state-mandated costs.

Alternatively, the state can relieve the public hospitals of statutory constraints that increase their costs without adding any value. Beyond the state's extraordinarily expensive public pension system, one need only look at the burdensome requirements to hire staff through civil service, or even to be organized as public benefit corporations.

Alternative organizational models would make it easier for public hospitals to enter into joint ventures with other hospitals, physician groups or even for-profit investors, as well as engage in efforts at clinical or financial integration to improve quality, reduce costs and competitively contract with commercial insurers. Such approaches are being successfully implemented in the rest of the country.

The layoffs at NuHealth were the leading edge of a storm -- but it's a storm whose full onset can be prevented. First we must realize that it is unreasonable to expect public hospitals to take care of vulnerable, complex and poorly paying patient populations -- in a period of declining public funding and accelerating health reform imperatives -- without either relief from state mandates or the organizational flexibility to reduce expenses without sacrificing care.


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