New York: state-controlled hospitals, possible $50,000 malpractice surcharge on doctors

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The New York State health department has plans: to control the cost of hospital care, and to rescue the state’s malpractice insurance carriers.

In 2006, the “Berger Commission” (the Commission on Health Care Facilities in the 21st Century) decided that certain hospitals must close and others must merge, backing up its decrees with threats to withhold a certificate of operation.

The Berger Commission was appointed by Gov. Pataki to fix problems that began in the early 1980s, when New York tried to control costs by fixing the price of every procedure performed by every hospital in the state. Rates varied, as the state awarded higher rates to financially troubled hospitals. Hospitals and workers joined together in a powerful political alliance to lobby for increased state subsidies. As a result, New York now pays for about half of all personal health care, compared to 40 percent on average in other states, writes Steven Malanga (City Journal 12/20/07).

The Commission called for the elimination of about 20 percent of excess hospital and nursing-home capacity. Few closures have happened, as hospitals have gone to court to block them, but other hospitals have expanded to take advantage of the potential closure of others. So far, mergers have also failed to occur.

The most recent Medicaid spending data (from 2006) shows that New York continues to hike spending, even as 22 other states have lowered outlays. With 6 percent of the U.S. population, New York accounts for 15 percent of nationwide Medicaid spending on hospitals, and 19 percent of spending on home health care (ibid.).

The Commission basically appears to believe that competition between free and private entities is bad and needs to be eliminated, as by creating a system with fewer, government-controlled entities, writes Dr. Lawrence Huntoon of New York.

If successful, the formation of a new nonprofit entity from Kaleida Health and Erie County Medical Center, including the University of Buffalo and a new heart and vascular center, would control 40 percent of the regional hospital market and create the region’s largest nongovernment employer. It would likely result in a strike, as workers would no longer be public employees and are expected to resist the elimination of retiree health benefits for new hires. Such benefits are considered an unsustainable burden.

The “arranged marriage between competitors” is stalled, partly for want of $250 million from a state facing a $4.3 billion budget deficit (Henry L. Davis, Buffalo News 12/5/07 and 12/29/07).

Gov. Eliot Spitzer plans to help solve the problem by awarding $106 million this year for advancing adoption of electronic health records (EHRs), which are the “key to [his] healthcare agenda” (Joseph Conn, www.modernhealthcare.com 1/11/08)

Dr. Huntoon notes that merged and consolidated hospitals would need to convert to a single EHR system in order to function. As the Berger Commission can set whatever conditions it likes for hospitals’ continued operation, a state-mandated EHR may not be far in the future.

The stated rationale for EHRs is to improve quality and efficiency while reducing costs and errors. As Spitzer states, “our best tool [for making care affordable] is to change reimbursement rates….[W]e must start paying for the right care in the right setting at the right price” (Conn, ibid.).

Even as physicians’ revenues plummet, they face a 14 percent increase in professional liability insurance premiums. And to offset the debt that has been incurred by insurance carriers, state insurance superintendent Eric Dinallo may impose, over several years, a cumulative $50,000 surcharge on every physician, and/or a $230,000 surcharge on every physician in the state-regulated high-risk Medical Malpractice Insurance Plan.

“The deficit has to go somewhere eventually, unless we turn lead into gold or print money,” Dinallo said (E.B. Solomont, New York Sun 12/26/07). The fee might be “required by law to guarantee the solvency of the state’s medical malpractice insurers” (New York Sun 12/27/07).

A Brooklyn brain surgeon now pays $267,000 a year in professional liability insurance premiums, and a Queens obstetrician, $180,490.

Dr. Huntoon predicts that such a surcharge would drive many physicians out of business, lowering expenditures by making fewer physicians available to treat patients. The rate increase alone has caused a number of practices to close. In July, 215 New York obstetrician/gynecologists stopped delivering babies. New York has about 2,000 practicing obstetricians (ibid.).

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  • Howard Long

    I go bare and have unreachable assets. I’ve given
    no hospital care for many years, referring those patients I can’t keep well enough to avoid that source of infections, neglect and penury.

    Of course I can accept no third party payment,
    partly to liberate me in from the problems described for NY, but more to escape dictates not best for patients.

    How can I support specialists who cannot do likewise?

  • Gale Oleson

    I have always wondered why, when there is a crisis in a medically related industry and things go to pot, only the doctors are asked to bear the brunt of costs. In this case if the insurance industry is falling on it’s face, why aren’t heads rolling and pay cuts taking place for what is obviously an acctuarial (sp?) failure on the part of the insurance executives.
    If my office begins to fail due to lack of adequate revenue I am just a poor business man…no body seems to blame “the system” and have others structure a surcharge on other parts of the healthcare system to bail ME out.
    I doubt that if Doctors formed corporations and paid themselves a million dollars a year (cheap by insurance company CEO standards) and then declared that all of our corporations are going bankrupt, that we would be able to put a surcharge on insurance companies to bring our corporations back into profitability. Most businesses, especially insurance companies, would scream at being expected to bail out another industries inadequecies!!!
    Years ago I was a member of a PHO arrangment. When the CEO announced that the doctors would need to take a 10% cut in payments I called and asked if he was intending to match our cut. “Of course not” was the reply. Needless to say I did not take the cut either…I dropped out immediately extending and backing up my “vote” of discontent. Until doctors start holding the business men accountable to an “I’ll take my cut if you’ll take yours” standard they will continue to see us as the naive worker bees to their leadership class, deserving nothing more than they decide to give us. On the other hand if we allow them to make claims that their business is failing due to someone else making to much money, we suggest that capitalism is failing them. Actually in this case the lawyers extracting too much money would seem to be the problem…where are they in the formula for surcharges? Or are politicians, like bullies in the school yard, just looking to pick on the nearest weakest for stealing the lunch money?

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