11/04/2010 02:22 pm ET | Updated May 25, 2011

Healing New York's Hospitals

Many of us who toil to improve our health system focus on shortages of primary care and underinvestment in prevention and public health initiatives as the core solutions to rising health costs and less-than-desired health outcomes among our population. For example, a report from Trust for America's Health found that an investment of $10 per person per year in proven community-based programs to improve healthy eating, increase physical activity, and prevent smoking could save more than $16 billion annually nationally within five years.

While strengthening prevention and primary care, we still need to ensure that we have strong, functional hospitals to provide effective, efficient, and timely care when we do get sick, or get into an accident, or have a baby. Hospitals are a core part of our health care system and contribute tremendously to the health of the population and to the research and training needs of both our state and our country.

The recent cover story in New York Magazine, "Something is Killing Our Hospitals," should give us all pause about the future of our hospital system. Unfortunately, the difficult financial times faced by hospitals in New York will continue for some time. Medicaid and Medicare account for nearly two-thirds of hospital revenues in New York State, but as the budget crisis grows worse over the next few years, State government will see little choice but to constrain Medicaid reimbursement rates. Additionally, the Federal government likely will continue to tighten Medicare reimbursement rates and will initiate a range of other reforms which will challenge hospitals to make difficult changes to avoid even deeper cuts.

What is the solution to this challenge? The State government needs to take as long a view as possible to the hospital expenditure crisis. Our hospitals cannot change their size or priorities overnight and if they get more cash starved they will have an even more difficult time investing in change. I hope a new administration thinks about a challenge fund to support structural changes in our hospital system.

What are some viable structural changes that might help? One possibility is further consolidation and "right sizing." In 2005, New York took the dramatic step of appointing a binding commission -- the Berger Commission -- to develop a plan to restructure, consolidate, and close some hospitals across the state. The commission was successful, but should be considered a first step. A second round for such a commission to do rational planning may be a good idea, or some other strategy to get the same result is needed.

A second long-term strategy is for our hospitals to begin to think in terms of population health -- keeping people in their communities healthy -- rather than just focusing on fixing the dire health problems of people who end up in the hospital. Hospitals could play expanded roles in primary care, prevention and disease management. Some of our leading hospitals have begun to show how hospitals can organize outpatient services so they manage the health needs of a population rather than act as "repair shops" for people whose health gets compromised.

One CEO of a premier private hospital in the city recently told me that the reach of a hospital should be judged by the magnitude of its effort to improve the health of the population it serves, and not simply its number of inpatient beds. Another hospital leader emphasized to me that the only way of really attacking the high expenditures for hospital care is for major hospitals to somehow work more "upstream" to manage disease and primary care problems, so that if and when people need hospital care, they are not in such compromised medical conditions as they often are now.

The federal health reform law may encourage these types of population health perspectives at hospitals. The idea of "Accountable Care Organizations" is to pay one provider or health organization an upfront payment to take care of a population of people for some period of time. The Accountable Care Organization that receives the upfront payment would then organize a system of providers that could deliver coordinated primary care, diagnostic care, specialty care, and inpatient care needed by the population it is responsible for. Of course, such an organization would have great incentives to keep people healthy or to take care of people's needs upstream rather than downstream.

This is just one type of restructuring that is on the horizon. The important goal should be that we look for a long-term solution to our hospital financial health challenge rather than taking the easier route of just cutting reimbursement rates across the board.