Hospital merger is all systems go
Kingston and Benedictine hospitals, both located in midtown Kingston, are on track for their planned merger.
The effort got a boost with the announcement from the state Department of Health (DOH) and the state Dormitory Authority that the new consolidated entity would receive $47.6 million in state funding.
The grant was the largest of those announced in late September by the DOH in connection with changes mandated by The Commission on Health Care Facilities in the 21st Century (known as the Berger Commission), which at the beginning of the year suggested numerous consolidations and closings to reform the state”™s hospital system. The total amount awarded in grants was $362.3 million for 23 hospitals and seven nursing homes.
In the wake of the news, the two hospital CEOs, Thomas Dee at Benedictine and Michael Kaminski at Kingston, spoke before a packed audience at the Ulster County Chamber of Commerce”™s Sept. 27 breakfast at the Holiday Inn in Kingston about the challenges faced by both institutions and other benchmarks of progress in the merger effort, which has been ongoing for the past eight months. Among the attendees were Assemblyman Kevin Cahill, D-Kingston, and his staff and Lance Matteson, president of the Ulster County Development Corp., who praised the hospital leadership for its vision and success in forwarding the consolidation plan, which by any measure is challenging, given the fact Benedictine is a Catholic institution and Kingston is secular. The breakfast was sponsored by Rondout Savings Bank.
Two previous attempts to merge foundered on the contentious issue of reproductive health services, which as a faith-based organization, Benedictine does not allow, creating concerns among pro-lifers that the availability of abortions and sterilizations would be compromised. But this time around, the directive to consolidate came from the state, which required the hospitals either to merge or have one of the facilities close down. (The commission, after submitting its recommendations at the beginning of this year, has been dissolved and authority for overseeing the consolidation is now vested in the DOH.)Â The commission also mandated that reproductive services, currently offered at Kingston Hospital, continue to be available in the new merged entity, offered in a facility proximate to (but not in) Kingston Hospital.
In his presentation, Dee outlined the big picture of challenges faced by hospitals in New York and by the two Kingston facilities specifically. “Though New York state”™s quality of health care is one of the best in the world, the system is broken financially,” he said, noting that since 1983, 70 hospitals and 63 nursing homes have closed. Collectively, hospitals in the state have experienced eight straight years of operating losses, putting New York second to last in the U.S. in terms of financial performance of hospitals.
A major reason for this is that New York has the highest Medicaid costs and largest number of uninsured, Dee said. In contrast to the below-break-even profit margins of the hospitals, insurance companies in New York have the highest profit margins in the nation. The imbalance stems from deregulation in the late 1990s, which has allowed insurance companies “to make excessive profits,” he noted.
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In contrast with hospitals in Utah, which have 11.5 percent profit margins, the highest in the nation, New York hospitals have profit margins of 1 percent. “You need a margin of 3 percent to survive,” Dee said. When the Berger Commission came out with its directive, it froze all state grants until the 81 affected hospitals delivered a plan. That has put the two Kingston hospitals in financial limbo, which have so far spent $1 million on the proposed consolidation. “This was a stick approach,” said Dee.
Adding to the challenge was the poor track record of mergers between Catholic and secular hospitals, few of which have worked, Dee said. Yet he noted a consolidation between the two facilities makes eminent sense, given the “medical arms race” both have engaged in as they match each other”™s services. The competition has failed to stem the loss of about $40 million of potential revenue a year resulting from almost a third of Ulster County residents seeking medical treatment at hospitals outside the county. Consolidation would enable the hospitals to eliminate duplicate services and invest in new equipment and expertise as a single entity and to expand and strengthen offerings, thereby helping to check the outmigration of customers and bring more dollars back to the community, Dee said.
One competitive disadvantage is that the two Kingston hospitals are reimbursed by the federal government for Medicaid at much lower rates than other hospitals in the Hudson Valley, he noted. “Our competition is getting 25 percent higher reimbursement amounts than Ulster County,” resulting in a loss of $10 million to the county”™s hospitals. “It”™s not fair,” Dee said, noting that the reimbursement formula is based on a system of classification tied to a region”™s income, called the Metropolitan Statistical Area. “Assemblyman Cahill and U.S. congressmen Maurice Hinchey, John Hall, and Charles Rangel are trying to change this. We may have hope.” (See sidebar.)
Dee noted the state has earmarked $550 million to fund the changes the hospitals are required to make under the Berger Commission recommendations, which falls short of the $2.5 billion of the total cost. But he said the $47.6 million awarded to the Kingston effort demonstrated that “we”™re going down the right road.”
He said that the proposed Benedictine-Kingston merger is viewed by the DOH as a poster child for future consolidations of nonsectarian and sectarian hospitals in the state. A series of public hearings and meetings have been held between the hospitals”™ 40 board members and dozens of clinicians and physicians, state and local officials, and representatives from both pro-life and pro-choice groups to determine how to handle the manifold issues, in particular the sensitive ones of reproductive services.
“The community has been fully represented in the planning process,” said Michael Kaminsky, CEO at Kingston Hospital, who followed Dee with a presentation focused on the details of the consolidation.
Kaminsky said a not-for-profit corporation called Health Alliance Planning Inc. is being formed to represent the new entity and would initially function as a “passive parent,” providing guidance for the process, including the fulfillment of the separate missions of Benedictine and Kingston hospitals, which would remain distinct, their separate campuses intact. The parent corporations would become active once the planned facility for reproductive services, which would be run separately from the consolidated entity, has been constructed.
The current proposal calls for a 4,000-square-foot building to be erected in the Kingston Hospital parking lot, which is off the street and would be connected to the hospital by a covered walkway. The center, to be called the Foxhall Ambulatory Surgery Center, would provide for foot and eye operations and other procedures besides abortions and sterilizations. This would help ensure the financial viability of the center, since from 1,500 to 2,000 procedures would be performed annually, compared with just 150 to 200 abortions and sterilizations a year, and also guard against the isolation of reproductive services, which would make it vulnerable as a target of antiabortion groups. Of the state money, $4.1 million will be used to pay for the construction of the center. The center”™s revenue stream would be reported separately from the consolidated facility.
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Kaminsky said other departments would be consolidated, with Benedictine functioning as a special-services hospital, home to the oncology, orthopedics, behavioral health and other departments and with Kingston Hospital functioning as an acute general-care facility, home to the combined emergency services department. “Obviously, a robust transportation system between the two hospitals will have to be established for the patients and staff,” said Kaminsky.
The total cost will be about $75 million. Kaminsky said five models of consolidation were proposed, ranging from $45 million for maintaining separate services to $300 million for building an entirely new consolidated hospital. Margaretteville Memorial Hospital, which also belongs to the system, will remain separate, as is required under its designation as a critical-access hospital serving a rural area.
“This will provide us with the opportunity to improve and expand our services and attract new specialists,” Kaminsky said. High-risk obstetrics and a new trauma center are among the planned expanded-service offerings. The hospitals”™ staffs will be combined and there wouldn”™t be any layoffs, said the CEOs. “This will be an opportunity for us to have more employees,” said Kaminsky. Dee said that a stronger facility and an expected improvement in the Medicaid reimbursement rates would also help the facilities offer higher salaries and improve the current turnover rate, which is 15 percent to 18 percent annually.
The two hospitals are among the largest employers in the county, with 2,000 employees and 300 physicians. They treat 200,000 patients annually and pay out $12 million in sales tax and $60 million for hospital supplies.
Still to be determined is who will be the new CEO of the Health Alliance Planning Board, an unanswered question that prompted some good-natured jousting between the two hospital executives.  Â
Hinchey would up Medicaid payments
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Benedictine and Kingston hospitals receive approximately 25 percent less in federal reimbursements for Medicaid than neighboring hospitals in Dutchess and Orange counties. The reason is that the Kingston facilities are classified in a federal Metropolitan Statistical Area (MSA) rated 107 percent of the national average for Ulster County, compared with a rating of 131 percent in Dutchess and Orange counties, which is equivalent to the 107 rate in New York City. The MSA is tied to wages and other cost-of-living factors, with more expensive areas getting higher reimbursements.
How Dutchess and Orange got lumped into the NYC MSA ratings is a convoluted story involving a lot of horse-trading among federal politicians. To correct the inequity, over the summer U.S. Rep. Maurice Hinchey, D-Hurley, included provisions in new legislation passed by the House Ways and Means Committee called the Children”™s Health and Medicare Protection Act, to increase the reimbursements paid by Medicaid to Benedictine, Kingston and one other hospital, St. Luke”™s-Cornwall, which is located in Orange County. Under the new law, Kingston and Benedictine hospitals would have their rating increased to 131 percent, as would St. Luke”™s-Cornwall, which is currently at a MSA of 127 percent. The legislation would also extend the current 131 percent MSA rating for hospitals in Dutchess and Orange counties by two years, which otherwise would expire this fall.
The legislation is expected to be vetoed by President George Bush. Jeff Lieberson, press person for Hinchey”™s office, said the provisions are now included in a separate Medicaid bill, which has passed the House and will go the Senate by the end of this year.
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