May 17, 2018 Reading Time: 3 minutes
Restrictions on for-profit investment in New York hospitals have for decades severely limited capital flows. (Sansit)

A little-known fact about New York state is that it has virtually no for-profit community hospitals. Thanks to laws in place since the mid-1960s, the Empire State effectively bans hospital ownership by corporations and discourages private investment. National rankings that track the ratio of for-profit hospitals place it among the last US states, along with Hawaii, Minnesota, and Vermont. In contrast, Florida stands out with 51.4 percent of hospitals for profit.

The Empire Center’s health-policy director, Bill Hammond, explores this topic in a recent report: “Profit Potential: Revisiting New York’s Restrictive Hospital Ownership Laws.” He finds that although for-profit investment would not be enough to solve all health-care shortcomings in New York, the profit incentive would definitely improve the system and outweigh perceived risks.

Not-for-profit facilities make up 86.5 percent of hospitals in New York. The rest are government-owned, so the latter’s lower efficiency does not significantly impact New York’s overall performance. “The state’s not-for-profits, averaging 2.44 stars [out of 5], would still rank 49th on their own,” the report says, citing the Hospital Compare ranking.

New York is home to three of the 20 most prominent hospitals in the country, according to the 2017-2018 US News & World Report. However, the average rates reveal that low quality, high costs, and economic segregation prevails in most of the state’s health services.

Further, New York’s not-for-profit hospitals struggle more with raising funds and meeting expenses than similar facilities across the country. Some already carry heavy debts and are in urgent need of reforms. In fact, New York hospitals have the oldest facilities in the country, since the average age of plant—the approximate age of a hospital’s fixed assets—is 15.9 years, 22 percent more than the national norm.

Hammond rules out demographic conditions as a determining factor. Florida’s population is only slightly higher than New York’s, and both states have similar shares of low-income and illegal-immigrant populations. But 30 percent of Florida’s hospitals are top-rated, compared with just 5.84 percent of New York’s, according to the Leapfrog Hospital Safety Grade.

As an inefficiency benchmark, the average length of stay in New York hospitals is 6.9 days, two days more than in Florida. The national average is 5.5 days.

Hammond also notes that nonprofit hospitals are tax exempt and therefore do not generate direct fiscal revenues. He estimated that the annual exemptions in New York total to around $1 billion in lost federal taxes and a similar amount in state and local taxes. Non-profits are also exempt from municipal, county, and property taxes. In New York, this translates to $826 million annually. “The impact on individual communities could be significant,” Hammond notes.

There are many ways in which allowing for-profit investment would upgrade New York’s health-care system. It would increase competition and incentivize the renewal of facilities thanks to the inflow of capital. A peer-reviewed study from 2014 indicates that for-profit hospitals usually improve their financial situation without altering the care quality or the mix of people they assist. They even provide more revenue to local and state governments.

But the key takeaway from Hammond’s report is that health policies that discriminate against corporate ownership have not produced superior results. New York lawmakers should re-examine them in the vein of reform projects presented by Governor Cuomo and Senator Hannon. The state could even start with baby steps by allowing a limited number of for-profit hospitals based on requisites that promote a smooth and careful transition. The reforms would ideally consider broader deregulation in the long run, such as waiving the “certificate of need” laws that limit the construction of facilities.

There is no way to know beforehand how interested investors are in entering the New York hospital market, but considering that the private sector is thriving in related areas such as clinics and nursing homes, for-profit investment is bound to arrive eventually. Opening hospitals’ doors to for-profit capital will not improve the system overnight. Nevertheless, it will certainly draw the attention of entrepreneurs who are looking for opportunities to invest and innovate in the health-care industry.

Paz Gómez

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