February 21, 2012
Health care reform has hospitals jockeying to protect market share, grow more efficient
By James T. Mulder
Syracuse, N.Y. -- Expect to see increased consolidations among area hospitals, more doctors leave private practice to become employees and health care reform pick up steam despite the controversy surrounding the federal health care reform law.
Those are some of the changes in store for health care in Central New York, experts predict.
More hospitals mergers or affiliations are likely as hospitals prepare for shrinking payments and changes related to health reform.
Upstate Medical University last year acquired Community General Hospital and merged it with University Hospital. The institutions operate as one hospital with two campuses.
Crouse is affiliating with Community Memorial, in Hamilton. Auburn Memorial is considering joining forces with Rochester General Health System. In Utica, St. Elizabeth Medical Center and St. Luke’s Healthcare might merge.
“Clearly, there’s a sense in the health care system there will be fewer dollars going forward,” said Tom Dennison, a Syracuse University professor and health care expert. “To the extent you can bring together providers to generate economies of scale, you will be stronger than if you try to go it on your own.”
Anticipated major changes in the way health care is paid for and delivered also are driving the consolidation trend, he said.
Traditionally, doctors and other providers have been paid a fee for each service they provide. Critics contend the fee-for-service system encourages providers to do more procedures rather than provide efficient, high-quality care.
The federal health care law would change that by creating accountable care organizations — ACOs for short.
An ACO is a network of providers — hospitals, doctors, etc. — that takes responsibility for treating and managing a group of patients. The goal of an ACO is to reduce duplication of services, improve care and save money.
The ACO’s payment would be tied to achieving goals that improve health care and save money. Members of the ACO would divvy up that payment.
Congress included ACOs in the health care law as a way to rein in Medicare spending. That federal program pays for health care for people 65 and older and the disabled. The federal government estimates ACOs could save the Medicare program up to $940 million over four years.
Medicare recently began testing this system with 32 pilot ACOs in 18 states, including one in the New York City area.
Although there are no ACOs in Central New York, hospitals are positioning themselves for this change by buying physician practices.
“That’s one of the strongest trends I’ve noticed in the Syracuse area,” said Deborah White, an analyst with HealthLeaders-InterStudy, a company that monitors health care trends.
Buying practices is one way hospitals can better coordinate care with doctors, she said.
St. Joseph’s Hospital Health Center recently bought North Medical P.C., the largest private primary-care practice in Central New York. It has a staff of more than 450 serving more than 320,000 patients.
Crouse Hospital purchased Internist Associates of Central New York, which has a staff of more than 100 serving about 40,000 patients.
Being employed instead of working in a private practice is becoming an attractive option for a growing number of doctors, she said.
“The physicians are struggling with low reimbursement and high costs, and their practices are under pressure to implement electronic medical records, which can be costly,” White said.
George Chapman, a Syracuse health care consultant who works with physicians, said many of the private practices he works with have not added younger partners in many years.
“Recent med school grads are predisposed to being employed,” Chapman said. “I think the older physicians are convinced they will run their private practice until it dies or they sell it to a hospital.”
He said many doctors are fed up with the business end of running a private practice. Doctors who work for hospitals “...can focus on what needs to be done clinically and leave the financing and accounting to the MBAs in the hospital,” he said.
He expects hospitals to buy more practices.
In the 1990s, hospitals here and across the country went on a medical-practice-buying binge that backfired. Many hospitals lost money and sold the practices. Chapman said he does not expect that to happen again.
“In the 1990s, hospitals were blindly throwing money out at medical groups and not doing their homework,” he said. “The hospitals now are much more discerning before they buy a medical group.”
Syracuse hospitals also have been on a construction spree in recent years, replacing and upgrading older facilities.
St. Joseph’s recently opened an $80 million emergency services building on the north end of its campus that houses an emergency department, a psychiatric emergency program, observation unit and data center. That is part of a $220 million expansion that will include a tower with private patient rooms, intensive care units, new operating rooms and other clinical areas.
Crouse recently built a $50 million surgical center.
Upstate opened a $150 million patient tower in 2009 with more than 200 private rooms and the area’s first children’s hospital.
Many of the moves Central New York hospitals are making are designed to protect and expand their market shares, according to Dennison.
Dennison points to the hospital billboards lining Interstate 690 as evidence of what he calls a “market share war.”
Hospitals operate on thin profit margins and cannot afford to lose market share, he said.
A steady erosion of market share led to big financial losses at Community General. Before it was acquired by Upstate, Community was facing the prospects of closure or bankruptcy. Upstate bought Community because the SUNY teaching hospital was bursting at the seams and needed more beds. The acquisition turned Upstate, long Syracuse’s third-largest hospital, into the area’s biggest hospital.
The U.S. Supreme Court is scheduled to hear a legal challenge to the federal health care reform law in March.
The court will decide whether the so-called “individual mandate” at the heart of the health care law and other aspects of the legislation are constitutional. That mandate would require all Americans to buy health insurance beginning in 2014.
If some or all of the health care reform law were thrown out, health care reform might slow down, but not stop, said James Fossett, a senior fellow at the Rockefeller Institute, the public policy arm of State University of New York.
“The industry has been moving in this general direction for a long time,” Fossett said.
Dennison, of SU, agrees.
Hospitals and health systems need to do many of the things contained in the health care law if they want to improve care and become more efficient, Dennison said.
“We have poorly aligned incentives between physicians and other parts of the health care system and quality issues,” he said. “Organizations that position themselves to provide solid, integrated care — regardless of what happens with the health care reform law —will do better.”
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