One of Westchester’s largest industries—healthcare—is undergoing major changes. While the Affordable Care Act gets all the headlines today, the tectonic shift in the business comes from market forces that have been building strength for many years. They are changing who signs your doctor’s paycheck, where you get your blood pressure measured, how long you stay in the hospital, even whether or not your treatment was “successful.” New players are staking out claims in the market, hospitals are becoming insurance companies, and doctors are banding together to apply the Walmart business model to your healthcare needs.
“This is the biggest change the healthcare system has seen in 50 years,” according to Steven Safyer, CEO of Montefiore Medical Center. He isn’t talking about the Affordable Care Act, either. Safyer is referring to the shifting economics that led the Bronx-based behemoth to buy bankrupt hospitals in New Rochelle and Mount Vernon, start its own insurance company, purchase a 90-acre office complex in Tarrytown to handle back-office functions, open the first of probably several urgent-care facilities in Yonkers, and team up with Westchester-based WESTMED Medical Center to build an outpatient center in Riverdale.
Safyer’s observations about the sea change in Westchester’s healthcare industry aren’t unique. “I’m going to guess that within 18 months, just about every community hospital in the County will have an affiliation with one of the hospitals in New York City,” says Hudson Valley Hospital Center CEO John Federspiel. “Everybody I’ve talked to has signed multiple non-exclusive confidentiality agreements.”
WESTMED founder and CEO Simeon Schwartz takes it a step further. “Half of the hospitals in the County will close,” he declares. “Westchester’s population is not growing. As the number of hospital admissions continues to go down, you’ll have twice the number of hospital beds you need.”
Hospital mergers (or closures) aren’t the only significant changes. Medical group practices like WESTMED, Mount Kisco Medical Group, and Scarsdale Medical Group are taking over an ever-increasing share of the care in the County by hiring hundreds of doctors, building and equipping dozens of clinics and other facilities throughout the County, and providing outpatient services previously done on an inpatient basis at the County’s hospitals. “Between us and Mount Kisco Medical Group,” says Schwartz, “I believe we take care of a significant part of the patient population in the County. We are moving from a hospital-centric to an ambulatory-centric model of medicine.”
When an industry the size of healthcare in Westchester gets shaken up, a lot of people are affected. The County is home to eight community hospital acute-care mini-networks and one tertiary-care facility (Westchester Medical Center) at the moment. Together with specialty hospitals like the Blythedale Children’s Hospital and Burke Rehabilitation Center, they generate about $2.6 billion in revenue. If nationwide ratios hold true, the County’s healthcare industry is worth nearly $9 billion annually—that’s a lot of aspirin. A total of 57,000 jobs, or just over 14 percent of all the jobs in Westchester, are in healthcare facilities.
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What’s driving all this change? Northern Westchester Hospital CEO Joel Seligman says it starts on the macro level: The US spends nearly twice as high a percentage of its GDP on healthcare as the rest of the developed world—without better results. “Costs are out of control,” he says. “The fact that we’re bankrupting industry, the government, and the taxpayer, is driving the agenda right now.”
That force works its way down to your family doctor. “Fundamentally, there is a lot of demand to reduce costs and improve quality,” explains Kevin Dahill, president of the Northern Metropolitan Hospital Association. “The pressure is not just on the hospitals. It’s being felt by any healthcare provider: physicians, physician groups, nursing homes, home healthcare agencies.” The result? “Whenever you have that kind of pressure, competitive forces accelerate. It’s hospital versus hospital, physicians versus hospital, nursing homes versus home-care agencies—everyone is trying to find where they can maintain viability.”
Those pressures favor some providers while punishing others. Hospitals have heavy fixed costs; large, sometimes outdated, and always expensive facilities to support; and legal requirements to provide service to everyone who asks for it—regardless of their ability or willingness to pay. Federspiel points out that Hudson Valley Hospital Center’s 2012 tax return showed $15.6 million in uncompensated care for the year. “We are about a $165 million operation, so when you think about that much going into uncompensated care, it’s extraordinary.” How many for-profit businesses could stand to write off nearly 9.5 percent of their gross revenue as bad debts?
Those entities that can control costs do much better—just ask Schwartz. WESTMED now has roughly 260 doctors, 900 other employees, and four centers in Westchester. Proprietary software and centralized management systems squeeze costs while making care delivery more efficient. “At WESTMED,” he explains, “if a woman has an abnormal mammogram in the morning, we can get her an appointment with a quality breast surgeon the same day, a biopsy by five o’clock, and the results by noon the next day.” All of that care, from imaging to the lab work, is done in-house—which means revenue isn’t shared with other institutions.
WESTMED and Mount Kisco Medical Group aren’t the only healthcare providers putting competitive pressure on the market. Nearly every major New York medical system is scrambling for a piece of the action in the County, too, as is Connecticut-based Yale New Haven Health System, which operates Greenwich Hospital and a growing group of physicians in Westchester. County residents have always gone south for major medical procedures (tertiary and quaternary care) and many New York City medical systems have affiliation agreements with Westchester community hospitals, sponsor or own group physician practices in the County, or have specialized facilities like NewYork-Presbyterian’s psychiatric hospital in White Plains.
Now, though, they’re stepping up their game. In one of the more aggressive moves, Memorial Sloan-Kettering Cancer Center is building a $142 million, 114,000-square-foot cancer treatment center on Westchester Avenue in Harrison. When the facility opens next year, it will provide outpatient services that Westchester’s community hospitals say will duplicate those they already offer, a plea the state health authorities rejected when they approved the new facility. (For its part, Memorial Sloan-Kettering obviously rejects the notion, as well. A spokesperson says, “The cancer center in Harrison will make it more convenient for patients in Westchester to access cancer care, due to the increasing needs and the aging population.”)
Columbia University Medical Center takes a more traditional approach to shaping its presence in Westchester, at least so far. On the primary and secondary care level, it operates several ColumbiaDoctors locations throughout the County, and plans to expand its primary care reach with the acquisition of Northstar Medical Group’s eight Westchester locations in February. Many ColumbiaDoctors’ physicians both work as part of their system and operate their own practices. COO Mark McDougle explains, “People will know by the sign on the door that the physicians are Columbia doctors. In Westchester, there are a large number of practices with whom we have a relationship largely because many of them went to the College of Physicians and Surgeons here at Columbia or trained at NewYork-Presbyterian.” Columbia has practices in cardiology, orthopedics, OB/GYN, internal medicine, and rehab facilities in Westchester.
What it doesn’t have is a hospital, nor does it want one, according to McDougle. “We want to treat patients in environments that best fit what they need,” he says. “There are hospitals that only want patients to come to their facility in Manhattan. That is not what we do. When we talk to doctors about affiliating, we want them to take care of their patients in the community.”
Of course, Columbia has a long, long relationship with the NewYork-Presbyterian system, which also has affiliations with Lawrence Hospital and White Plains Hospital Center—and may well be looking for a deeper, stronger relationship with them or other community hospitals in the County. In a rapidly shifting market like this, it’s sometimes tough to tell the players without a scorecard or seeing whose name is on the confidentiality agreements.
Montefiore may have the deepest penetration. Even before buying the hospitals in New Rochelle and Mount Vernon (as well as a nursing home), the system had a presence in Westchester for at least 25 years. According to Safyer, “We had 2,500 employees in Westchester before the Sound Shore purchase. A lot of them are clinical, but a lot are back-of-the-house.” Montefiore functions located in the County include IT, a care-management organization, and finance. Safyer adds, “We just purchased 90 acres in Tarrytown that will house finance and other back-office functions, and we’re in 15 or 16 clinical sites.” Montefiore owns many of the physician group offices scattered throughout Westchester, has some affiliated independent physicians in the County, plus a strong relationship with WESTMED. “We are working with them on a new unit in Riverdale. We also provide sub-specialists for areas they don’t do.” WESTMED leases its New Rochelle site from Montefiore.
Safyer makes no bones about what Montefiore hopes to accomplish. “The goal for us in Westchester is scale, like everyone else, but it’s focused on changing the way healthcare is provided. In New Rochelle and Mount Vernon, there are 200,000 people there and in the surrounding communities. We want to bring 100,000 of them into one of our pre-paid agreements.”
How? “We hope to build on the prepayment or capitation model, which is a shift from the traditional fee-for-service model,” Safyer explains. There are many variations, but capitation is a system in which the provider receives prepayment of a flat fee for the total care of the patient rather than for the individual services delivered. If they stay well, the provider does better because they don’t spend as much to provide care. Medicare, Medicaid, and insurance companies fund such systems. Montefiore set up a subsidiary licensed as an insurance company to manage the risk prepaid care entails. While other insurance companies market the plans to employers, Montefiore receives most of the premium.
Currently, Montefiore covers some 300,000 individuals in prepaid plans that generate about 50 percent of its overall revenue. “That’s a cultural shift,” Safyer points out. “We’re seeking scale, not just because the cost per unit of laundry goes down, but because we want to have more lives under our care.” The larger the patient population, the lower the financial risk.
He adds that Montefiore is interested in expanding beyond the New Rochelle and Mount Vernon borders. “Our vision for Westchester is where we would own or partner with someone else to operate a hub, much like Montefiore is a hub. The two hubs would be related for care you couldn’t do there.”
Those are the strategic plans that give Michael Israel agita. The CEO of the County’s largest medical institution, Westchester Medical Center, asks, “What are the City hospitals looking for? Are they looking to advance healthcare in Westchester County or are they looking to suck patients into the City?” According to Israel, New York hospitals already snag 44 percent of the tertiary- and quaternary-care patients from Westchester while WMC takes care of 56 percent, which is about all the Valhalla institution can handle with its current facility.
WMC has invested $170 million over the last three years in technology, new facilities, and renovation, but Israel and his team recognize that that may not be enough. “We continue to make strategic investments in programs,” he says. “We’re working on a 250,000 to 300,000 square-foot medical office building and ambulatory-care center that will connect University Hospital at Westchester Medical Center and Taylor Pavilion.”
The building will be constructed by a third-party developer, yet to be named. “That way, it won’t use our capital, although it will increase operating costs. Those, however, should be offset by revenue,” he explains.
That’s not the only expansion on the drawing boards at WMC, according to Israel. “In the next 18 months, we will add more beds to the children’s hospital. Our strategic plan for the children’s hospital says we should be somewhere between 175 and 200 beds by the end of this decade.”
Does this presage the establishment of a WMC-centered hospital network in the County? Before Montefiore stepped in, WMC held serious talks with Sound Shore about taking over the New Rochelle and Mount Vernon facilities. “When we got into the numbers,” Israel explains, “we decided it was a commitment we weren’t prepared to make.” Apparently, that ended WMC’s acquisition plans, at least for the time being. “We’re very comfortable with where we sit and our strategy,” Israel says. “We don’t want to compete with the community hospitals—we want to work with them.”
WMC’s strategy is akin, at least in spirit, to a healthcare model under much discussion of late: Accountable Care Organizations, which employ coordinated care strategies among doctors, hospitals, and other providers, with quality of care and cost efficiency tied to shared savings. Whereas Montefiore wants to control the entire care pipeline from walk-in colds-and-bruises centers to major surgery suites, Israel thinks there’s a place for alliances or partnerships that can deliver the same quality and efficiencies of care, though he eschews the ACO label. “We have no plans to be an Accountable Care Organization at the moment because we don’t do primary and secondary care,” he explains. “We’re positioned well to be part of other people’s ACOs, not to be one ourselves.”
The rewards of the arrangement can be substantial. Mount Kisco Medical Group and WESTMED both operate ACOs. WESTMED recently received a million-dollar bonus from UnitedHealthcare as its share of the $2 million in cost savings on patient claims realized by decreasing duplication, more carefully managing prescriptions, and significantly reducing hospital re-admissions of the 13,000 Westchester residents covered by the plan. WESTMED has similar arrangements with Cigna and with the federal Centers for Medicare & Medicaid Services.
Many, if not all, of the County’s healthcare facilities are trying to figure out where they fit in the big picture. “We’re on the cusp of making some major decisions about the future of this hospital,” says Northern Westchester Hospital CEO Joel Seligman. He and his board are trying to gather information about what the community wants, while letting it know what the possibilities are. “There’s a lot at stake here.”
The problem is, as Seligman puts it, “We’re making permanent decisions at a time when we don’t have solid data.” The movement to larger integrated healthcare-delivery systems isn’t reversible, he points out, adding, “It may take 10 or 15 years to unite all these fragmented services, and it’s going to take a lot of bumping and breaking things to get there.”
Schwartz adds, “We’re seeing a once-in-a-generation opportunity for the structural and managerial redesign of our healthcare system. It’s very exciting.”