A Hospital Dies in Manhattan—Are More to Come?

When St. Vincent's Hospital Manhattan announced midweek that it would be closing, the news wasn't especially surprising, but it was still a sad day for hospital leaders everywhere.

The hospital has been struggling for years. With no buyers on the horizon, $700 million in debt and in default on its Chapter 11 restructuring plan, the 160-year-old hospital made the inevitable decision to close.

Being in the heart of New York's Greenwich Village and given its long history of providing charity care to the city's most vulnerable population, St. Vincent's board of directors simply couldn't wait for healthcare reform to kick in to see whether that might save its sinking ship.

To be sure, many of St. Vincent's problems over the past couple of decades have been self-inflicted. Bad management in the past had put the hospital in a hole that it couldn't climb out of. But its ultimate failure can't be pinned solely on management.

Its payer mix had been declining rapidly in recent years, as paying patients avoided the island's hospital of last resort. Its small size relative to its competition didn't help, nor did the rash of highly-paid consultants who have run the hospital in place of permanent leadership for years.

Its ultimate failure should be considered a failure of all of us to collectively deal with the endemic problems of medical centers like St. Vincent's all over the country. Until recently, hospitals have rarely closed. They're kept alive, propped up by all manner of stopgap, Band-Aid solutions by politicians who rightly feel that their constituents might blame them if the hospital were to close. And indeed, our elected officials do bear some of the blame for the fact that Medicare and Medicaid don't fully pay for the cost of care.

Cross-subsidization, which many hospitals rely on to cover the cost of treating the uninsured or patients with government payers, is on the wane, which is why I don't hold much hope for the healthcare reform law to change the fate of hospitals similar to St. Vincent's.

Indeed, Massachusetts' experiment in dealing with the uninsured hasn't helped hospitals with their cross-subsidization problems. While many more people are insured, Massachusetts' Medicaid has ratcheted back its payments per patient, meaning the pool of money to treat patients hasn't gotten bigger while the pool of patients has.

That means hospital survival is still a zero-sum game. So we're left with at least two lessons from the St. Vincent's failure, neither of which is particularly heartening for struggling hospitals of last resort nationwide. The government giveth with one hand, and taketh away with the other.

Struggling hospitals can't really take much heart from the decline in the uninsured that will result from healthcare reform legislation. They must transition to the new system over the next four years, over which time the majority of the legislation's provisions will kick in. But they don't expect a windfall in revenue from the new legislation, and they shouldn't.

Look at the bill closely and you'll see there isn't much, if any, new money in the system. It's just spent differently.

Those that want to survive will still need to subsidize the money they lose on the indigent population with commercial payers, and that model appears broken. Perhaps the only way many hospitals can survive that fit the mold of St. Vincent's is to reduce their cost of care. That's very difficult to do, especially for standalone hospital systems like St. Vincent's.

I fear we're looking at the prospect of many more St. Vincent-like implosions over the coming years, only they won't get the press. The uninsured will have insurance, but where will they go?