The Berger Commission report will change New York’s health care system and create an environment ripe with opportunities for restructuring professionals to assist boards and management teams in the following areas:
Strategy: Evaluate M&A and combination opportunities
Financial: Refinancing hospital indebtedness
Operational: Reconfiguring hospital operations and reducing costs
Legal: Litigate the breadth of the automatic-stay provisions and the question of the propriety of the “delegation of powers” to the Berger Commission.
Declining reimbursement rates, under-utilization of acute-care facilities and under-capitalization have presented many challenges for New York’s state hospital and long-term care facilities over the past two decades. Acute-care facilities are no longer used for extensive stays when rehabilitation centers and at-home care options are just as effective. Significant losses over an extended period of time and increasing numbers of empty beds have led some hospitals to close, while others are operating under great stress. New York state hospitals are among the lowest-performing facilities in the country. Most have negative operating margins compared to the U.S. average of 4-5 percent. Many of the hospitals are using outdated equipment and facilities due to the lack of available capital, which is a byproduct of the state not allowing for-profit ownership of hospitals. Equity financing provides nearly half of all capital investment in hospitals across the nation, but only 20 percent in New York.
With the New York state health care system crumbling under the pressure of these changes, the governor and the state legislature created a commission, led by Stephen Berger, to evaluate the quality and cost of care in the acute and long-term care environments, and to provide recommendations on reducing inefficiencies and improving patient care.
The Berger Commission delivered its report to the governor in late November 2006. The governor and the legislature accepted the recommendations made in the report, which became law on Jan. 1, 2007. The key recommendations of the commission are as follows:
- Closure of nine hospitals
- Reconfiguration and/or combination of 48 facilities
- Reduction of 4,200 acute-care beds (7.5 percent of staffed beds)
- Reduction of 3,068 long-term care beds (2.6 percent of current population)
More than 6,000 FTEs, including management, will be affected by these closure recommendations.
The commission expects that these actions will provide approximately $15 billion in savings to the New York health care system over the next 10 years. Approximately $8 billion of this is estimated for payors, including $5.7 billion for Medicare and Medicaid. These savings will be realized through better utilization of staffing, greater efficiency and avoided capital investment.
New York’s Medicaid program is under a great deal of scrutiny from Governor Spitzer, Attorney General Cuomo and county governments. The total cost of the Medicaid program has doubled in the last decade to $45 billion. The state and local politicians may be seeking additional methods to reduce Medicaid spending beyond the expected savings of $250 million annually as a result of the Berger recommendations.
Providers will realize the balance of the savings, $7 billion, as their operations are stabilized. The Berger Commission recognizes that savings can’t be recognized without considerable costs associated with closures and new construction. New York state and the federal government have earmarked $1.0 billion and $1.5 billion, respectively, to fund efforts to close, downsize or reconfigure hospitals and nursing homes in New York state.
The Berger Commission has outlined many steps to improve New York’s health care system. The activity associated with implementing the commission’s recommendations will provide many opportunities for restructuring professionals.