City Journal Winter 2014

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Winter 2014
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New Book From Steven Malanga:
Shakedown: The Continuing Conspiracy Against the American Taxpayer

The Immigration Solution: A Better Plan Than Today's
by Steven Malanga, Heather Mac Donald, Victor Davis Hanson
The Immigration Solution.

The New New Left: How American Politics Works Today
by Steven Malanga
The New New Left: How American Politics Works Today

Eye on the News

Steven Malanga
New York’s Hospital Challenge
The city’s health-care institutions are in crisis, but Bill de Blasio seems more interested in protest than leadership.
15 October 2013

Democratic New York City mayoral candidate Bill de Blasio made news recently when the New York Times reported that he had supported Nicaragua’s Marxist ruling Sandinista party some 25 years ago and was twice arrested at protests against U.S. foreign policy. Today, as a New York City elected official, de Blasio can still occasionally be found on the protest barricades. In July, for instance, the city’s public advocate was arrested at a Manhattan rally against the impending closure of two Brooklyn hospitals. Police cuffed de Blasio after he and other demonstrators refused to clear the entrance to the offices of the chancellor of the State University of New York, which operates one of the facilities slated for closure. “Hell no, we won’t go,” the protestors chanted.

De Blasio may be nostalgic for the revolutionary fervor of his youth, but if he’s elected mayor, he’ll have to do more than chant to deal with the thorny financial issues facing city health-care institutions. Some of New York’s private nonprofit hospitals suffer from high vacancy rates and a lack of private investment—thanks to state restrictions on hospital financing—while years of state and local subsidies have made them woefully inefficient. Meanwhile, budget subsidies for the city-owned Health and Hospitals Corporation, which operates 11 public hospitals and dozens of smaller facilities, ballooned during the Bloomberg years and now weigh down the city’s budget, especially as pension and health-insurance costs for HHC’s workers have exploded.

To those who follow the politics of health-care institutions in New York, much of this is old news. For years, city hospitals have resisted reform and relied on their political clout to forestall change. Protests of the kind that de Blasio took part in this past July, engineered by the powerful hospital workers union, Local 1199 (which endorsed him for mayor), have often persuaded state officials to maintain taxpayer subsidies for local institutions rather than face community wrath at their closure. Two years ago, anticipating another series of clashes with hospital interests, Governor Andrew Cuomo formed a group to study the problems of Brooklyn’s hospitals, which were running deep deficits and losing patients to better-funded and better-operated Manhattan institutions. The group, chaired by former Port Authority executive director Stephen Berger, reported a familiar catalog of problems. It faulted some hospital boards for setting unrealistic goals and failing to hold managers accountable for their performance. It found salaries and benefits for unionized workers out of line with the financial condition of some institutions. Hospitals in Brooklyn also offered costly care, the report concluded, including unusually long and expensive hospitalizations. The hospitals were inefficient financially in part because patients often sought emergency-room care when they didn’t need immediate attention. Even patients who had been directed to local doctors or outpatient clinics used emergency rooms “based on convenience,” the report said.

To avert a new crisis, Berger’s group recommended consolidating and merging some Brooklyn institutions, where the hospital vacancy rate averaged 30 percent. It also suggested ending the state’s rules banning for-profit investment in hospitals, so that institutions would have an easier time raising capital, and recommended offering state aid to hospitals only in exchange for cost savings that might offset the state’s support. And the report urged more oversight of troubled facilities whose costs and treatments far exceeded industry averages.

As with past reports urging similar reforms, the recommendations met political resistance, and few were enacted. But the crisis that the Berger report foresaw has now arrived: several hospitals face financial ruin. Under these circumstances, a city official looking to get Brooklyn’s hospitals on a sustainable fiscal footing might have a valuable role to play. He might step up and help negotiate a workable series of mergers and consolidations among the various political factions standing in the way of reforms, for instance. But de Blasio’s approach has been to focus on the public purse, demanding subsidies and, when they don’t materialize, getting himself arrested. He’s also sued the state on procedural grounds to delay the closings, while urging the governor to bail out the institutions with a pot of money that might become available from savings in the state’s Medicaid program. Governor Cuomo has balked at any extensive state-sponsored rescue, though, in part because key members of his administration agree that some consolidation is necessary and inevitable.

Brooklyn’s hospitals won’t be the only source of health-care headaches for the next mayor. De Blasio might find it even more difficult tussling with the money problems at HHC. From 1999 through 2002, annual subsidies to HHC averaged about $250 million. Since then, the numbers have skyrocketed, thanks to increases in city Medicaid payments to HHC and matching federal dollars. A Citizens Budget Commission study estimates the city’s total subsidy at more than $900 million annually, in addition to a similar amount from the federal government. The city’s increases have been fueled in part by tax revenue surpluses built up prior to 2008. These have since disappeared, thanks to the economic downturn that followed the financial crisis. Now HHC is looking at lots of red ink. It spends $8 billion annually, about $1 billion more than its revenues, grants, and government aid. HHC may also lose some of its federal Medicaid money as the Affordable Care Act kicks in, because the federal government intends to reduce subsidies for emergency-room care provided by hospitals in poorer areas. To deal with its budget mess, HHC has already laid off some 2,500 workers, but it will face further pressures to downsize.

Along with other important city budget issues, HHC’s problems haven’t garnered much attention in the mayor’s race. De Blasio has focused instead on expanding city services, touting his half-billion-dollar plan to add preschool to the public education system with a tax on the wealthy. His rival, Republican Joe Lhota, has suggested that he could find $500 million in budget savings to add the new preschool classes without raising taxes—though those savings, if they exist, will probably have to go to balancing the city’s budget, not expanding services.

The challenges facing the city’s health-care institutions are part of a larger dynamic that will play out for the next mayor, as years of rising personnel costs combined with only modest increases in tax collections will force tough decisions on city hall. The next mayor won’t be able to rely on the surpluses left over from Wall Street’s go-go years to bail out the budget, as Mayor Bloomberg did. Instead, he’ll need a strategy to get hospitals to reduce staffing, cut employee-benefits costs, and close some facilities—while still delivering adequate care to New Yorkers.

It’s a tall order and will require leadership. You can’t do it from the protest lines.

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