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April 7, 2010
St. Vincent’s hospital in Greenwich Village, Manhattan, is closing due to mounting debt and New York State cuts in funding. St. Vincent’s is the last tertiary care catholic hospital in the city. How can a business entity with surplus demand go out of business due to lack of revenue? The answer lies in the low payment rates.
St. Vincent’s has been an important source of care for the area. It treated the wave of AIDS patients in the 1980’s, for example. Lately, it has become a magnet for the uninsured or poorly insured Medicaid population.
Hospitals survive by cost shifting the losses from the uninsured, Medicare, and Medicaid patients to the private insurance pool. That is why private insurance hospital bills are so exorbitant. The surrounding hospitals in Manhattan were siphoning off the lucrative private insurance patients and the higher mix surgical cases (e.g. coronary cases, orthopedic and spine, etc).
Bruce Nudell, PhD, healthcare analyst at UBS commented, “Medicare believes in applying financial pressure to hospitals so that they will manage their input costs. Overall Medicare margins in hospitals tend to be negative. In 2006 and 2007, for instance, overall Medicare margins in fee for service hospitals were between -5% and -6%…Unlike Medicare margins, which are currently negative, the payment to cost ratio for commercially insured inpatients is currently positive by around 32%”
The bigger story to this closure is that St. Vincent’s will likely be just the first of many across the country. Unemployment has caused a surge in the uninsured and Medicaid patients, while at the same time state revenues are down forcing budget cuts. In Miami, proposals were made to close two of the Jackson Memorial hospitals. In New York, other than St. Vincent’s, layoffs are pending in the public hospitals. In San Francisco, the prestigious UCSF medical center is running a deficit of more than $200 Million, although no plans to close UCSF have been announced.
Critics of the new health insurance reform law argue that it will further stress the system with Medicare cuts and expansions of the Medicaid population. More than a dozen State Attorneys Generals have recently filed lawsuits challenging the constitutionality of the federal government requiring states to spend more without providing federal funding.
For a thorough discussion of the looming problem in Florida, The HCC interviewed Dr. William O’Neill, Dean of Clinical Affairs at the University of Miami medical center.