Would For-Profit Hospital Ownership Improve Quality, Costs in NY?

New York maintains strict ownership laws that have essentially eliminated for-profit hospital ownership in the state. However, a new report shows that the non-profit hospital model in New York has not led to improved care quality or decreased healthcare costs.

“Overall, this report finds no evidence that ownership restrictions have produced a public benefit in terms of the quality, cost or accessibility of hospital care,” Bill Hammond, the Empire Center’s Director of Health Policy, wrote in the report.

“To the contrary, New York’s hospitals are characterized by lower quality scores, higher spending and more economic segregation than their national peers. This suggests that restricting ownership has not been an effective regulatory approach.”

The non-profit, non-partisan New York-based think tank found that the state’s hospitals, which are 88 percent non-profit and 14 percent government-owned, averaged a CMS Hospital Compare star rating of 2.32 out of five stars as of December 2017, ranking in the 50th percentile of all states.

Per capital hospital spending in the state also averaged $3,633 in 2014, which was 18 percent higher than the national average at the time and 14th highest among the states.

The evidence suggests that restrictive hospital ownership laws have not promoted high-quality, cost-effective care, and allowing for-profit hospitals to operate in New York could resolve some of these quality and cost issues.

New York does allow for-profit hospitals to operate in the state. However, provider organization owners must submit to mandatory background checks and have no shares of the organization owned by a corporation. Organization leaders must also provide advanced notice and receive approval of stock sales.

These restrictive for-profit ownership rules from the 1960s have challenged for-profit hospital development in the state. For-profit nursing home, physician practice, and medical group organizations exist, but the higher level of capital needed to buy and run a hospital has prevented individuals from taking on a for-profit hospital in the state.

As a result, New York does not contain any for-profit hospitals, making it a national outlier, the report showed. For-profit hospitals account for 28 percent of all hospitals in the country, while the rest are non-profit (53 percent) or government-owned (20 percent).

Governor Andrew Cuomo, State Senate Health Chairman Kemp Hannon (R-Nassau County), and other stakeholders have been pushing state policymakers to promote for-profit hospital ownership. However, attempts to expand hospital ownership types were neither taken up by the state’s Assembly, nor made into law.

Critics of the proposals raised concerns that allowing for additional for-profit hospitals would lower care quality, increase healthcare costs, and discourage hospitals from treating low-income and uninsured populations.

But the Empire Center’s analysis of non-profit hospital performance showed that these issues are already occurring under the non-profit hospital model.

Not only did New York hospitals underperform on the CMS Hospital Compare website, but the state ranked poorly on safety scores published by Consumer Reports magazine. New York hospitals ranked 47th out of 50 states, with an average score of 47.2 out of 100 points.

Their score was below the national average of 53.9 points for non-profit hospitals, 51.1 points for public hospitals, and 50 points for for-profit hospitals.

New York also ended June 2016 with the highest hospital readmissions rate, according to Consumer Reports. The state had an average readmission rate of almost 16 percent, while the national average was 15.3 percent.

Additionally, the Empire Center found that New York hospitals did not provide more uncompensated care compared to hospitals in other states.

Government-owned hospitals provide the greatest level of uncompensated care in the country, and New York’s public hospitals follow this trend.

However, the state’s non-profit hospitals delivered less uncompensated care compared to their peers, the report stated. Uncompensated care provided by New York’s non-profit hospitals totaled 1.9 percent of patient revenue in 2015, according to CMS hospital cost reports.

In comparison, uncompensated care amounted to 2.9 percent of patient revenue at both non- and for-profit hospitals nationwide.

While care quality suffered, healthcare costs also increased. In the decade leading up to 2014, the state’s per capita hospital spending increased by 44 percent, faster than per capita spending on prescription drugs and non-durable products (41 percent) or on physician and clinical care (36 percent).

The excessive cost of living in the state may explain a portion of the increased hospital spending. But the analysis uncovered that New York hospitals also showed signs of inefficiency. New York’s average length of stay in 2014 was 6.9 days, about 1.5 days longer than the national average at the time.

The non-profit and government-owned hospitals also fared poorly on other financial metrics. The aggregate operating margin in the state was negative 10 percent, placing New York in the 49th percentile.

“Authorizing for-profit ownership would potentially give hospital leaders facing these situations a broader menu of options,” the report suggested. “It would open the door to previously untapped sources of capital and—if and when an institution chooses to become for-profit—provide additional tax revenues for state and local government.”

This hypothesis has worked for other non-profit hospitals. A 2014 JAMA study found that hospitals converting to for-profit hospital ownership improved their financial position without significantly changing their care quality or share of low-income and minority groups treated.

“Ownership reform that produced similar results for New York—an improvement in the financial status of converting hospitals without any harm to quality or access—would be a positive for the state,” Hammond wrote.