In order to have a chance of balancing their books, then, New York hospitals are forced to rely on the revenues they receive from caring for the profitable 25 percent of patients in the city—those with private insurance. “The biggest factor in the financial condition of a hospital is payer mix,” says Perlman. “It’s all about how much Medicaid activity you provide, how much Medicare activity you provide, and how much commercial insurance you have.” It’s an uphill fight: Only half of non-elderly New Yorkers have private-insurance coverage—compared to 65 percent of non-elderly Americans overall.
Hospitals that can afford to do so compete vigorously for privately insured patients, spending millions of dollars in advertising to promote, in particular, their high-end, high-margin services, such as cancer treatment, cardiology, neurosurgery, and orthopedics. But this competition, fueled by the fact that New York has a number of highly regarded hospitals located in proximity to each other, pits financially strained facilities against one another (if you’re the Mayo Clinic or Johns Hopkins, you don’t worry about losing your patients to a hospital twenty blocks away). With so many hospitals in a limited geographic area, insurers can use the threat of dropping hospitals from their plans to drive down the reimbursement rates they pay. Although the rates negotiated between hospitals and insurance providers are withheld from public scrutiny—even state health and insurance regulators are denied the information—an American Hospital Association survey of providers in New York State indicated that private insurers reimburse hospitals an average of 17 percent above cost; nationwide, the average is 28 percent. (At the same time that New York has the nation’s poorest hospitals, it also has the country’s most lucrative health-insurance business.)
New York hospitals would save $3.4 billion annually by reducing length of stay to national standards.
The averages don’t tell the whole story. The city’s largest and most powerful hospitals, which are crucial to an insurer’s customers, exert their leverage to secure deals that are believed to pay well above the average margin; smaller hospitals, which are often located in low-income neighborhoods, have little choice but to accept the dismal rates dictated by insurers if they want to remain in the insurers’ plans. “When the big players take their cut, there are only scraps left for everyone else,” says the CEO of an outer-borough hospital. “United HealthCare couldn’t care less about having my hospital in their network. They tell me to take it or leave it.”
New York’s hospitals also vie with one another for physicians who attract well-heeled patients with good insurance. “There’s a perception that doctors will bring patient referrals with them when they join a hospital staff,” says John Lavan, the former New York–Presbyterian CFO. “Luring busy doctors who have an attractive payer mix is good for business.” Most doctors belong to small partnerships and are not salaried by the hospitals they staff, but hospitals woo them in other ways, by offering teaching stipends, health and retirement benefits, and choice office space. Medical-school-affiliated institutions like New York–Presbyterian, Mount Sinai, and NYU are said to spend between $10 million and $15 million to recruit leading physicians and researchers to head their clinical departments, but “even community hospitals engage in stiff competition,” Lavan says.
Some hospitals are able to tap the largesse of wealthy donors to help keep them in the black. Weill Cornell Medical College, which is part of the New York–Presbyterian system, was named for former Citigroup chairman Sanford Weill and his wife, who have donated close to a half-billion dollars since 1998; Kenneth Langone, the financier and Home Depot founder, received similar acknowledgment from NYU Langone Medical Center for his gifts of $200 million to the hospital since 1999. Mount Sinai is in the midst of a $1 billion campaign to fund research, recruit doctors, and erect two new buildings. Beyond the academic centers and specialty hospitals like Memorial Sloan-Kettering Cancer Center, however, charitable giving drops off precipitously. Continuum’s hospitals, with a budget of $3 billion, received just over $23 million in donations last year. Outside Manhattan, fund-raising is effectively nonexistent.
It’s possible that Anna, the Queens heart patient, cost so much to care for because she was administered too many tests, too many procedures, and allowed to stay in the hospital too long. That’s improbable, though, given the number of complicating factors in her case. A profile like Anna’s more likely reflects the price paid for years of inadequate primary and preventive care. Certainly, the hospital that cared for her had no financial incentive to pile on high-cost services. Anna lacked private insurance, so her bill was paid by Medicaid. Because of the gravity of her condition, the hospital received Medicaid’s highest rate of payment for her treatment: a total of $16,559. That sounds like a decent payday for six days’ work. But given the $19,254 it cost to get Anna well enough to go home, the hospital lost $2,695 on her care.