When COVID-19 swept through the Rockaway peninsula last spring, St. John’s Episcopal Hospital was alone to weather the storm. Those who live nearby suffer disproportionately from conditions like diabetes, obesity, and hypertension that make people more vulnerable to severe cases of COVID-19, and St. John’s has been the sole medical center serving the isolated beach community since Peninsula Hospital closed in 2012. After the pandemic hit, St. John’s quickly tripled its ICU capacity but was still pushed to its limits as the virus overwhelmed Queens.
“There would literally be 10 to 15 people on stretchers outside in the parking lot, and we basically had to go outside and pick the sickest patients to bring in and treat,” recalled Dr. Teddy Lee, director of the Emergency Department at St. John’s. Lee and his exhausted but determined colleagues were featured in a mini-documentary by the New York Times that looked “Inside One of New York’s Deadliest Zip Codes.”
While the spotlight was on St. John’s pandemic heroics, the hospital was quietly dealing with another crisis behind the scenes. As a safety-net hospital that primarily serves low-income patients, the hospital routinely operates at a loss, relying on subsidies from the state. After Governor Andrew Cuomo’s administration hired consulting firm ToneyKorf Partners in 2019 to develop a plan to make St. John’s financially viable, hospital leaders started to shave $24 million off its annual budget—mostly by laying off managerial staff and cutting support services.
But apparently, it wasn’t enough.
Last month, ToneyKorf consultants presented hospital leaders with three grim options, all of which would shrink St. John’s to a fraction of its former size. Under one proposal, the 257-bed medical center would be stripped down to a 15-bed “micro-hospital” with an emergency room attached.
“Having that kind of model defeats the purpose of trying to serve this community,” said Lee. “Depending on where you live in the Rockaways, it could take over an hour to get to [Mount Sinai] South Nassau or Jamaica or Flushing [hospitals].”
The situation at St. John’s is not unusual. The state Health Department routinely seeks to close, shrink, or merge safety-net hospitals that are losing money, which often reduces the capacity for patients. These strategies are left over from a Pataki-era task force on hospitals known as the Berger Commission, whose policies have contributed to the loss of 20,000 hospital beds across the state over the last 20 years. The result is an uneven distribution of the remaining beds, with about 1.5 per 1,000 people in Queens, compared with 6.4 beds per 1,000 residents of Manhattan. During the pandemic, Queens has experienced more than twice as many COVID-19 deaths as Manhattan.
Given the health disparities the pandemic highlighted, New Yorkers are not ready to give up the safety-net hospitals that played such a pivotal role during the crisis. Following a swift outcry from local politicians and community members, the Health Department said it would put plans to shrink St. John’s on hold, at least for a year.
Other plans to eliminate inpatient care at Kingsbrook Jewish Medical Center in Crown Heights and to close Montefiore Mount Vernon were likewise postponed because of the ever-present need for beds during the pandemic. Staff, community members, and other stakeholders have since demanded they remain open indefinitely.
Gothamist/WNYC spoke to the leaders of five private safety net institutions across the city about their current financial situation: One Brooklyn Health System, the Brooklyn Hospital Center, and Maimonides Medical Center in Brooklyn; SBH Health System in the Bronx; and St. Johns in Queens.
They say there needs to be a broad change in how health care is funded in order to avoid putting hospitals in this position in the future.
A Permanent Disadvantage
Like other New York medical centers, safety-net institutions have incurred higher costs during the pandemic and lost revenue as patients have avoided routine medical care. But they lack the financial cushion of major health systems such as Mount Sinai or NYU Langone.
Federal funds have, to varying degrees, helped cover their coronavirus-related shortfalls, but some are still in worse shape than they were before. Maimonides posted $14.8 million in losses in the first nine months of 2020, even after federal relief arrived. But the hospital was anticipating losses no matter what—it reported a negative balance of $4.8 million during the same period the previous year. Safety-net hospital leaders are hopeful that patient visits will eventually return to pre-pandemic levels, but say they will still face the same precarity they did before.
“There is no question the system needs to evolve,” said Kenneth Gibbs, president and CEO of Maimonides. “The pandemic has revealed the disparities in health outcomes that are a result of this system.”
Under the current system, health care providers get paid less for serving poor people than they do for serving middle class or wealthy people. About 45% of New York City residents are on Medicaid, the public health insurance program for low-income patients. Hospitals generally lose money by serving those New Yorkers because Medicaid—which is state-run—only pays about 73 cents for every dollar of care provided. The gap between what Medicaid and commercial insurance pay is significant. To put it in perspective, Medicare—the federal insurance program for people older than 65—pays hospitals more than Medicaid, but still only about half of what they get from commercial insurance.
Instead of raising Medicaid rates in light of the pandemic, Governor Andrew Cuomo lowered them by 1.5% last year.
A hospital with a healthy ‘payer mix’ can offset Medicaid losses by serving a significant number of people with commercial insurance. But this system creates a permanent disadvantage for safety-net hospitals, which, by definition, serve disproportionate numbers of people who are on Medicaid or uninsured.
Instead of raising Medicaid rates in light of the pandemic, Governor Andrew Cuomo lowered them by 1.5% last year. His upcoming budget seeks to cut $600 million in health care spending, in part by lowering rates by another 1%. It also includes other cuts that affect safety-net hospitals. For instance, his budget trims $99 million from the state’s Vital Access Provider Assurance Program, which directly subsidizes distressed hospitals.
Cuts in the executive budget were meant to help offset a projected $15 billion budget shortfall. It’s unclear how federal aid from the recently passed stimulus bill will affect deliberations over the budget, which must be agreed upon by Cuomo and legislators by April 1st.
In a statement, the Health Department said, "The State remains committed to its long-term strategy of strongly supporting safety net hospitals while working with those hospitals and the communities in which they are located to increase access and improve quality through transformation initiatives...In total, State and federal operating support for safety-net hospitals has roughly doubled since 2019 and is expected to reach nearly $1 billion in the State's next fiscal year."
Gibbs says he recognizes that raising Medicaid rates is not that easy. Even before the pandemic, Cuomo tried to control spending on the program, which has ballooned to more than $80 billion. The price tag is split between the state, federal and local governments, and Medicaid accounts for about 14% of Cuomo’s $192 billion executive budget for fiscal year 2022.
To make up for low Medicaid rates, the state provides some safety-net hospitals with supplemental funding. St. John’s got $60 million last year. But these subsidies put a hospital’s fate entirely in the hands of the administration.
“We’re so tired of this nonsense,” said Dr. David Perlstein, president and CEO of SBH Health System, which operates St. Barnabas Hospital. “We’re so tired of this question mark and of not being taken seriously.”
Perlstein says the administration has “done right by us over the years” by helping plug losses. “But these are episodic funding opportunities,” Perlstein said. “I believe that the time is right for a real model change.”
LaRay Brown, president and CEO of One Brooklyn Health System, expressed a similar sentiment. One Brooklyn—which encompasses Interfaith, Kingsbrook Jewish, and Brookdale University medical centers—was created as part of a state-funded restructuring plan designed to shore up the struggling hospitals’ finances. The Health Department originally pushed Northwell Health, the largest private health system in New York, to adopt one or all of the hospitals. But after assessing their finances, Northwell recommended they form their own network instead.
Brown says she’s optimistic that the changes being implemented through One Brooklyn—including the planned conversion of Kingsbrook from a hospital into a series of outpatient clinics—will have a positive impact. “But I do not believe we will be fully financially independent or viable, given where we are in terms of our location and who we serve in terms of the payer mix,” Brown said. “Policies have to change.”
Brown did not say when Kingsbrook will finally close its inpatient beds, nor did she comment on recent protests against the hospital’s conversion into a “medical village.” But she said the other hospitals in the network have enough beds to serve the community under normal, non-COVID circumstances.
Beds are not everything, though. Safety net hospitals also often have to get by with less staff and other resources than wealthier hospitals—a reality that puts their patients at a disadvantage during the pandemic.
The financial situation at the Brooklyn Hospital Center got bad enough that the hospital issued layoff notices to 42 nurses in October, just as the city’s second coronavirus wave was starting up. Under pressure from the New York State Nurses Association, the hospital rescinded the notices, instead offering incentives for early retirement and temporarily reducing staff through attrition. Nurses who remained said they were stretched thin, putting patients at risk.
Since becoming president and CEO of the hospital in 2015, Gary Terrinoni has been working to improve its long-term financial outlook. But he says he won’t cede control by joining a larger network or accepting direct state support. Instead, he’s leveraging the hospital’s location in Downtown Brooklyn, where he sold real estate to fund a shiny physician building that opened last March.
“We feel good that we can provide a better environment for the patients we’ve been dealing with for years, but this also will allow us to attract more professionals with all these high rises going up in our area,” Terrinoni said.
Of course, not all hospitals are in a position to lure wealthier patients.
Leveling the Playing Field
While NYC hospital leaders all said Medicaid rates need to rise, some also expressed support for a complete overhaul of the health payment system to make it more equitable. Single-payer health care, for instance, would essentially eliminate commercial insurance and create a government health plan for everyone—thereby putting hospitals serving rich and poor patients on equal footing. Sen. Bernie Sanders has proposed a national version of single-payer, known as Medicare for All, and it’s been introduced in the state legislature as the New York Health Act.
“If it were up to me, we would have a national system, and health care would be a right for everyone and not something you buy,” said Reverend Lawrence Provenzano, president and chair of the board of St. John’s Episcopal Hospital. “But that’s just me being a hardcore religious person.”
The New York Health Act specifies that the government plan it creates would pay rates that are “reasonable” to cover hospital costs—although critics argue that if government-funded insurance pays too little now, there’s nothing to stop it from starving the health system under a single-payer model. The New York Health Act has gained sponsors as the state legislature has grown more progressive in recent years, but it continues to face an uphill battle.
Dr. Mitchell Katz, president and CEO of NYC Health + Hospitals, the city’s public hospital system, has been a prominent advocate of the New York Health Act. But some supporters are skeptical that single-payer could work at the state level and only endorse it nationally. President Joe Biden still opposes it.
“I don’t think we can do it as a state,” said Perlstein, CEO of SBH Health. “We can’t print our own money yet.”
Hospital leaders pointed to other potential funding models, such as Maryland’s All-Payer Model, in which the state regulates rates and hospitals get paid the same amount by Medicare, Medicaid, and commercial plans.
Health equity advocates say taxing the ultra-wealthy could raise money for Medicaid—but it’s something Cuomo has resisted. Advocates are pushing for the state to at least exclude some safety-net hospitals from the 1% rate cut.
“If you take 1% of Mount Sinai’s Medicaid money and 1% of Elmhurst’s Medicaid money, there’s no fairness at all in that,” Assemblyman Richard Gottfried said at the state legislature’s hearing on the health budget in February. “You’re doing nothing to Mount Sinai, but you are devastating Elmhurst.”
In fact, Elmhurst, which is part of NYC Health + Hospitals, would face additional cuts under Cuomo’s proposed budget. The governor is seeking to cut public hospitals out of the Indigent Care Pool, a funding stream that helps cover the cost of providing services to patients who can’t pay.
Although NYC Health + Hospitals has historically faced financial hardship, it’s been a bright spot among safety-net hospitals during the pandemic. The 11-hospital system reported $353 million more in patient-care revenue in 2020 than in 2019. That was due, in part, to patients being sicker during the pandemic, but also the “continued success of our revenue improvement initiatives,” according to a report that Katz filed with the Board of Directors in January. A spokesperson for the network declined to elaborate.
Katz said in his February report that he is “advocating fiercely against budget cuts that would weaken our stability.”
Safety-net hospital leaders say they hope the pandemic will do more than spark a conversation about health care disparities; they hope it will lead to action.
“It’s an opportunity,” Perlstein said. “We are at an inflection point in our society where I think people will be open to change.”