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St. Vincent’s Is the Lehman Brothers of Hospitals

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The intensive care unit.  

Pataki, who had come into office preaching the ministry of the free market, performed a stunning turnabout. He summoned a team of investigators to probe the operations of every hospital in the state and offer legally binding proposals for a systemwide makeover. In 2006, the Commission on Health Care Facilities in the 21st Century—more commonly known as the Berger Commission, after its investment-banker chairman, Stephen Berger—issued its report. “The Commission reaches a stark and basic conclusion,” the executive summary read. “Our state’s healthcare system is broken and in need of fundamental repairs.”

The core of the problem, the commission held, was that the supply of hospital beds in New York far outstripped demand for them. That oversupply—a legacy of the days before drugs and technology made it possible to treat many serious illnesses on an outpatient basis—drove hospitals to begin fighting with one another to fill their empty beds, admitting patients who should have been treated in cheaper outpatient settings, keeping them in hospitals longer than necessary, and ordering an overabundance of expensive tests and procedures. “There was a keeping-up-with-the-Joneses mentality that led to a medical arms race,” says David Sandman, the commission’s executive director. “If the place across the street has a cardiac-catheterization lab, I have to have one, too, or I’ll lose that business.” The city’s hospitals were sinking into an even deeper financial hole.

As a remedy, the commission recommended eliminating 4,200 hospital beds statewide. Nine hospitals would be closed; 48 others would be called on to downsize or consolidate with neighboring institutions. There was a political uproar. “Nobody likes seeing a hospital close,” says Stanley Brezenoff, the president and CEO of Continuum and a former deputy mayor in the Koch administration. “In a lot of communities, the hospital is an anchor. There’s a feeling of decline when it’s gone.”

The commission gave extensive thought to what to do with St. Vincent’s, but eventually opted to leave it functioning as it was. (One St. Vincent’s leader speculates that closing the pride of New York’s Catholic hospital system might have led to such a furor that the rest of the commission’s work would have been undermined.) Perhaps shuttering nearby Cabrini and St. Vincent’s Midtown, and downsizing New York Downtown, in the financial district, would drive those hospitals’ stranded patients to St. Vincent’s. “You had to wait and see how the outcomes played out over time,” Sandman says. “It was a little like a game of dominoes.”

As recently as the nineties, St. Vincent’s was a relatively financially healthy concern. More than any hospital in New York, it was a haven for AIDS patients, developing considerable expertise in their care. This was a reflection both of its location, a few blocks from Stonewall, and of its historical mission, which had long been geared toward public health. (It was established in 1849 by an order of nuns called the Sisters of Charity, responding to a cholera epidemic.) For a decade or so, AIDS was good business as well as good public service. Then as now, providers were paid best for complex, procedure-intensive inpatient treatment, and until the development of protease inhibitors, AIDS patients logged a lot of time in the hospital. St. Vincent’s finances were also boosted by a respected and profitable psychiatric and substance-abuse program. By the late nineties, the hospital had built up a comfortable reserve estimated at $200 million.

Then, in 1998, with most of New York’s major hospitals in the process of agglomerating into multi-hospital systems, St. Vincent’s hired consultants at Ernst & Young to help it explore the possibility of expansion. It came to envision a Catholic health-care empire, bringing it together with six church-sponsored hospitals in Brooklyn, Queens, and Staten Island, as well numerous nursing homes and home-health-care agencies. Ernst & Young reported that the Catholic hospitals would lose $100 million annually by 2002 if they tried to go it alone, but would produce annual profits of $25 million to $30 million by uniting and taking advantage of a range of synergies. Purchasing and billing would be consolidated; the larger patient base would give the system clout to negotiate better reimbursement rates from insurers; and, most important, the outer-borough community hospitals would send their patients to the Village flagship for high-paying specialty care in areas like cancer and cardiology. “Merging was the magic bullet,” says one former St. Vincent’s executive. “The board got caught up in the romance of the idea, and there wasn’t any real due diligence.” As the date of the merger approached, the Times reported that the new hospital system was searching for “a chief executive whose résumé suggests a Jack Welch.”

Instead, St. Vincent’s hired a man named David Campbell, who arrived in New York after resigning from Detroit Medical Center, where he oversaw $100 million in losses. The consolidation experiment proved, in short order, to be a disaster. In 2000, the first full year of the merged system, St. Mary’s, in the Bedford-Stuyvesant neighborhood of Brooklyn, spent $27 million more on patient services than it collected; by 2005, its losses were up to $71 million. Other hospitals in the system, like St. Joseph’s in Flushing and Mary Immaculate in Jamaica, were similar money pits. “It’s not that they were badly run,” says a St. Vincent’s manager from that time. “It was just the basic problem of hospitals in poor neighborhoods.” In the past, the state would have stepped in to subsidize the cost of serving predominantly low-income patients, but in the era of free markets, much of the additional burden had to be absorbed by St. Vincent’s. At the same time, the successful conversion of AIDS into a chronic condition, treated on an outpatient basis, left huge numbers of empty beds in the Village.


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