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Capital NY: The Private Option, & Other Health Issues in the New Session

By Laura Nahmias, Capital NY, January 8

ALBANY—Richard Gottfried, who has been an assemblyman since 1970, makes predictions each year about the health care agenda in New York State.

As he freely admits, his guesses are often wrong.

“Every year, something we thought was nothing turns out to be the dominant topic of discussion,” Gottfried said.

Last year, the big issue turned out to be medical marijuana, which Gottfried, the head of the Assembly health committee since 1987, had been pushing for for decades.

This year, both Gottfried and the Senate health committee chairman, Long Island Republican Kemp Hannon, think the health agenda will be dominated by the need to secure additional investment in hospitals.

An $8 billion Medicaid waiver approved last year disappointed hospitals because it included no money to repair or build brick-and-mortar facilities and health infrastructure. A state-funded capital construction program added on as a patch in the state budget to offset that hole in the waiver is a start, but it’s just $1.2 billion, spread over seven years, and there are a lot of institutions in competition for a piece of it, Hannon said.

Hannon said the added construction money was vitally needed, but that “three times as much was requested as was made available.”

The state is limited in its conventional options for addressing that demand, Hannon said, and will have to consider new approaches.

“We will have to see whether private equity has the potential for meeting that extra request,” he said.

The question of whether to allow private equity investment in hospitals has become an Albany perennial.

In 2005, Governor George Pataki appointed a commission to find ways to save the health care system’s crumbling finances. In 2006, the commission, led by investment banker Stephen Berger, made dozens of recommendations, including closing many New York hospitals. But the commission also suggested allowing more private funding to make up for dwindling state and federal investment in hospitals.

Governor Andrew Cuomo periodically revives the idea, which has made its way into each of his budgets, only to be taken out during negotiations with the Assembly, where Democrats, and Gottfried in particular, are opposed to the idea.

It would, on its face, represent a fundamental shift in state health policy, which doesn’t allow for-profit hospitals.

Gottfried explained that the Cuomo administration has held several discussions with him and private equity stakeholders to explore how they can bring in money from private sources without handing control over to profit-motivated entities.

“There was one meeting a couple of weeks ago that the governor’s office invited me to, along with several other people in the private equity field, to try to toss ideas around,” Gottfried told me.

The private equity founders would give the state “the capital resources to invest in new equipment, to invest in electronic health record systems, in renovating facilities, et cetera. I think the meeting was partly set up to pitch ideas to me.”

But this year may be different— Gottfried says he has discussed with the Cuomo Administration a possibility that he found, if not plausible, then at least not totally odious.

“One variation on that concept that I have been at least asking people about is whether there are ways to bring in private equity capital that don’t involve putting the equity investors in control over the institution,” he said. “I don’t know whether I would support private equity capital if it was divorced from control, but it is to me at least a different issue that may well offer reasonable prospects.”

At the meeting several weeks ago, that was just one of the ideas on the table.

“Certainly nobody on any of the various sides of the table, came away saying, ‘Yes, I agree to that,’” Gottfried said. “It was entirely ‘let’s all keep thinking and talking.’ It may well be that nothing will come of it that the Assembly will be receptive to, but we’ll see.”

Gottfried’s willingness to even explore the idea is a major change, and speaks to the level of the need of hospitals across the state, who are finding payments to doctors slashed, and their delivery systems upended. In the past several years, there’s been a rash of mergers among hospitals, a pre-emptive defense against a system in which larger hospitals with more patients will have a compounded advantage over smaller ones.

That conversation about private equity investment will play out against the backdrop of the state’s Medicaid reforms, a transformation funded by the $8 billion federal waiver. It’s a completely new system that requires hospitals to pair up with each other and share data to help improve their most difficult patients’ health outcomes. If they do well, they’ll receive the Medicaid funding that, 20 years ago, they would have gotten no matter what. And if they don’t succeed, the federal government has threatened to slash payments to New York’s hospitals—not just for the ones that fail to meet targets, but for everyone.

Among the other issues that health policy officials said could come to the fore this year are:

▶ a bill mandating nurse staffing ratios in hospitals and health care facilities.

▶ delays in state implementation of a demonstration project funded by the federal Centers for Medicare and Medicaid Services that transitions behavioral health and dual eligible Medicare and Medicaid patients in New York City and the surrounding counties into managed care. These are among the most expensive patients in the Medicaid population.

▶ technical changes to the medical marijuana bill passed by Governor Cuomo last year that would broaden a program that was narrowed at the last minute by Cuomo’s office in negotiations.

▶ demands by insurers for greater premium increases, who say the state Department of Financial Services limited them to single-digit increases last year, despite rising health care costs, for political reasons.

▶ a new e-prescription system physicians will be required to use by April of 2015. Health officials say there may be kinks in this system early on that could create headaches for providers, patients and insurers.

▶ additional changes sought by lawmakers to heroin addiction treatment legislation passed last year to address a worsening heroin problem statewide. Those changes include pressing for more insurance coverage for more outpatient drug rehabilitation therapies.

This article appeared in the January edition of Capital magazine.