Perhaps New York’s most daunting challenge is demographic. The city’s large populations of elderly and low-income residents and illegal immigrants tend to live in neighborhoods with few private physicians and receive little primary care. People in those groups are more likely to arrive at the hospital with chronic, undertreated conditions like diabetes and hypertension accompanying their more urgent ailments. These same patients suffer from substantial rates of mental illness and substance abuse, which makes treating them more complicated and expensive. They often come into the hospital through emergency rooms, which are required by law to treat anyone regardless of ability to pay and where the cost of care is much higher than it is in other settings. New York hospital patients tend to stay in the hospital longer than others; the city’s average of 6.6 days per hospital stay is more than a day longer than the national average (older people can’t be sent home to walk-ups until they’re capable, non-English speakers require translators to provide discharge instructions, and so on). Insurers pay a flat fee, and often dictate the length of stay, for a particular diagnosis. If a patient stays longer than that, the cost is on the hospital. The New York State Department of Health estimates that hospitals statewide would save $3.4 billion annually by reducing lengths of stay to national standards.
Although the Obama health-care plan is expected to extend medical insurance to about half of the 1.4 million New York residents who are currently without it, the city will still remain home to a disproportionately large population of people who lack health coverage. Joel Perlman, the chief financial officer of Montefiore Medical Center, the dominant hospital in the Bronx, says that at Montefiore, 80 percent of the cost of treating the uninsured is absorbed by the hospital. In any event, whatever boost in coverage the Obama plan provides for hospitals will be largely offset by cuts to Medicare that are slated to pay for half the cost of the new program. And the law’s explicit exclusion of illegal immigrants from its benefits means that the city’s hospitals—rather than the state or federal government—will bear the burden of providing uncompensated service for hundreds of thousands of people. “Undocumented individuals get sick,” says Raske. “They show up at hospitals, which, for a variety of moral and legal reasons, take care of them. If an institution is in a location with a lot of undocumented people, as half the hospitals in New York are, it is highly vulnerable.”
The revenue side of the equation is equally unforgiving. Even as New York hospitals’ costs exceed national norms, their sources of income are being diminished. Hospitals receive income from four main payers: Medicaid (the state-run program that provides coverage to low-income residents), Medicare (the federal program that insures the elderly and disabled), private insurance (provided mostly by employers), and direct payment from patients (either those who are uninsured or those whose insurance plans require them to pay for part of the cost of care). According to United Hospital Fund, close to one third of non-elderly New Yorkers were enrolled in Medicaid in 2008—a rate of public-insurance coverage that is more than 75 percent higher than that of the country as a whole. Those 2.3 million Medicaid recipients use a disproportionate amount of hospital services, making up 39 percent of the city’s hospital patients, but the hospital industry complains that since 2007 the New York State Legislature has cut Medicaid funding nine times, at a cost of $900 million to local hospitals.
Medicaid is notorious for underpaying hospitals for their services. It typically reimburses about half the cost of an ER visit in the city. At one top-tier New York hospital, Medicaid covers 92 percent of the cost of treating patients with cranial bleeding, 81 percent of the cost of joint replacement, and 64 percent of the cost of a high-risk childbirth. “That’s how it goes,” says the chief operating officer of a small community hospital in the Bronx. “We’re asked to do a dollar’s work for 70 cents.”
Another 30 percent of New York’s hospital patients, meanwhile, are covered by Medicare. “Medicare used to be a good payer,” says Montefiore’s Joel Perlman. “But at this point, we do well to break even on those patients.” According to MedPAC, a congressional agency that analyzes data on Medicare, payments to hospitals by Medicare for inpatient services have steadily eroded since 1997, when the Balanced Budget Act was implemented, from a high of 18 percent above hospital cost to an average underpayment of 4.7 percent in 2008. All told, New York hospitals can expect to lose money on more than seven in ten people who come through the door.