HOSPITALS: NEW YORK FACILITIES USE FEDERAL MONEY TO GROW
New York hospitals -- among the most financially strained inThis is part of the California Healthline Daily Edition, a summary of health policy coverage from major news organizations. Sign up for an email subscription.
the nation -- have been able to complete multi-million-dollar
capital building projects courtesy of a "little known" federal
loan program. WALL STREET JOURNAL reports that not only has the
building spree left state hospitals ill-prepared to deal with the
outpatient focus of managed care, but it may also place hospitals
in danger of defaulting on the loans.
BUILD IT AND THEY WILL COME: The Hospital Mortgage
Insurance Program, sponsored by the Federal Housing Authority
(FHA), was created in 1968 to encourage needed hospital
expansion. Using funding from the program, New York hospitals
"largely ignored" the need for "small, outpatient satellites
where treatment and surgery are done relatively inexpensively"
and built major new inpatient centers. JOURNAL reports that
Columbia-Presbyterian Medical Center, Mount Sinai Medical Center,
The New York Hospital and St. Luke's-Roosevelt Hospital have all
completed major capital projects, sometimes within blocks of one
another. Now, many of the hospitals are "facing debt payments of
millions of dollars a month." The fiscal difficulties faced by
the hospitals could get worse after January 1, when the state
begins deregulating its hospital price-control system that has
kept "many prices artificially high." David Rosen, president of
Queens-based Jamaica Hospital, said, "If I were a government
official, I'd worry about a free fall." Moody's Investors
Service executive Dennis Farrell called the situation "[d]ire."
NEW YORK SPECIAL: JOURNAL reports that New York hospitals
have 64 loans under the Hospital Mortgage Insurance Program. By
comparison, only two facilities in California currently have
outstanding loan and 32 states have no loans at all. Hospitals
in New York currently have $4.2 billion in loans under the
program -- 87% of the total. Four hospitals -- Columbia-
Presbyterian, Mount Sinai, New York Hospital and St. Luke's-
Roosevelt -- are alone responsible for $1.9 billion in debt. In
February, a Government Accounting Office report "criticized" the
program's "tilt toward New York." The report also said changes
in New York's health care market "pose risks that may threaten
the future stability of the program." A June memo from the
Department of Housing and Urban Development, the FHA's parent
agency, said "the changing dynamics of the health care industry
are fraught with risks that could spell financial disaster," and
recommended that the "FHA sell its loan-insurance portfolio and
end the program."
THE LADDER: According to the JOURNAL, hospitals got into
this "jam" through a "nexus of financial need, elaborate state
regulations, politics and the federal loan-insurance program."
"Perversely, the state's price-control system" fed the hospitals'
"borrowing binge." Under the system, hospitals could "jack up"
fees in the early years of the loan and could "rake in more than
they had to pay out." John Radiate, a health care consultant,
said, "It created a distortion. It meant if you were having
trouble making ends meet, then the best solution was to have a
capital project. Here is the ultimate perversity: The bigger
the project, the higher the interest rates and the longer the
mortgage -- the more cash a hospital obtained."
MANAGED CARE BEAST: Former St. Luke's Hospital board chair
Walter Rothschild said, "There's an explanation for why we were
so stupid." Managed care did not "roil the New York market until
the early '90s," and then it changed things so quickly that "none
of us saw it coming," Rothschild said. He added, "We didn't know
that the demand for beds was going to go sailing down. And all
of it used to be reimbursable." JOURNAL notes that "even as the
hospitals landed loans based on buoyant forecasts of revenue
growth, the managed care crunch of the 1990s was ensuring the
ever-fewer inpatients would make ever-shorter hospital visits."
Peter Slocum, a New York health official during the 1980s, said,
"The state could see the building was more than necessary, but
there was no way to roll it back. Politically, it was
SOLUTION: JOURNAL reports that some hospital officials
have called for a "state bailout board, like the Resolution Trust
Corp. ... that would shutter weak hospitals and assume their
debt." Daniel Sisto, president of the Healthcare Association of
New York, said the idea has "some merit." He said, "Institutions
willing to be closed down (could be) retired with more grace than
with a default." Others voiced concern that failure by the state
to act could lead to "a wholesale invasion by for-profit
companies." State officials, however, are opposed to the idea of
a bailout, as is the Greater New York Hospital Association.
GNYHA President Kenneth Raske said, "The transition to a
deregulated hospital system may not be smooth and easy, but it is
workable" (Lagnado, 11/22).