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New York's oversized and costly hospital industry is on the verge of a knock-down, drag-out fight over its future.

The recently passed state budget establishes a hospital-closing commission in the next month or so that will attempt to function like the federal panels that choose military bases for closure.

Its goal is enormous: to reduce health care costs and improve quality of care. Its timeline is short.

By Dec. 1, 2006, the commission will recommend facilities to close or other changes to health services in communities. Gov. George E. Pataki and state legislators will have the rest of that month to accept or reject the proposals in their entirety.

When it gets to Western New York, the commission will find a community that knows many of the problems confronting its hospitals from past attempts to solve them.

Fifty-four percent of the licensed hospital beds in the region sit empty, yet only one significant hospital closure has occurred in recent years. The oversupply of hospitals encourages unnecessary admissions that drive up costs and undermine quality.

Hospitals and doctors have competed in a medical arms race, duplicating expensive specialties. The spending has left hospitals in weak financial shape and with some programs that don't have the large numbers of patients desired to build the skills of surgical teams.

Millard Fillmore Hospital and Erie County Medical Center get mentioned as candidates for closure. But closing either facility will require money to pay off their huge debts. Many other hospitals are in a similar predicament.

Buffalo's hospitals, working with the University at Buffalo medical school, for the most part have been unable to create true centers of excellence in key specialties. That makes it more difficult to recruit physicians and leads many patients to seek care in other cities.

"We have multiple hospital systems providing duplicative services. We should foster that competition only if it benefits the community and leads to true excellence in those services," said Dr. Michael Cropp, chief executive officer of Independent Health.

The commission is a better-late-than-never response to a changing health system.

New York has 247 hospitals with 63,500 beds and an average occupancy rate of 60 percent, according to the Health Department.

Many hospitals also admit patients more often and keep them longer than hospitals elsewhere in the nation even though there is no evidence that patients here are sicker or the outcomes of their care better.

Optimal occupancy is considered 80 percent to 85 percent, meaning dozens of hospitals could conceivably close.

"Having too many hospitals not only costs money, it hurts quality," said Bruce Boissonnault, president of the Niagara Health Quality Coalition, a business-supported group that publishes health-care quality reports.

History has lesson

If the history of attempts to do something about too many hospitals here offers any lessons, the commission will face a difficult, unpredictable and political process.

The Catholic Health System elicited bitter reactions that still linger when it moved to end acute care at Our Lady of Victory Hospital in Lackawanna seven years ago.

Even more controversial was the battle in 2002 over Kaleida Health's unsuccessful plan to move Women and Children's Hospital. A large crowd of marchers, supported by the influential health care union, Service Employees International Union Local 1199, protested in Niagara Square.

"The real positive news is the state's willingness to talk about what sort of health system we should evolve into, and that's a conversation that could continue for five to 10 years," said James R. Tallon Jr., president of the United Hospital Fund, a Manhattan health policy group.

Hospitals in Erie County staff far fewer beds but continue to operate poorly used buildings that are expensive to keep open.

Kaleida Health took 634 unused beds out of service in recent years, mainly at Women and Children's, Millard Fillmore and Buffalo General hospitals. That saved money.

But greater savings are gained when a hospital closes.

"I'm willing to participate in any planning process and discuss any of my facilities," said William McGuire, Kaleida's chief executive officer.

McGuire declines to talk specifically about what Kaleida Health hospital might be considered a candidate for closure, but Millard Fillmore has been mentioned for years.

It has 189 beds, down from 400 a few years ago. Average occupancy is 62 percent, meaning beds are often empty.

Debt is obstacle

As with many hospitals, one of the primary obstacles to closing the building is its debt of about $80 million.

Expect McGuire and other industry officials to lobby for funds to pay off facility debts, just like homeowners who must make good on mortgages.

"Debt relief will have to be part of the discussion," said Assembly Majority Leader Paul Tokasz, D-Cheektowaga.

The commission's work, with local input, will likely go beyond closing hospitals to examining how medical services are organized in communities.

The focus on beds misses a larger issue -- duplication of services in such areas as heart surgery, neonatal intensive care, kidney transplants and high-tech devices, according to McGuire and others. Kaleida Health competes with Catholic Health System hospitals or ECMC in these areas for a limited number of patients and funds.

"As hospitals, we've built kingdoms, and the community pays a price for this," McGuire said.

He roughly estimates that $100 million a year is wasted in the Buffalo area on identical high-end medical services.

Hospitals should collaborate in certain specialties or divvy up some business to create a handful of centers of excellence, he said.

Which one to close

If a hospital must close, McGuire argues that the commission should give a serious look to Erie County Medical Center.

That option may prove difficult because the county last year used ECMC to borrow $101 million when it converted the hospital into a more independent public benefit corporation.

ECMC, which got $19 million in a direct public subsidy from the county this year, offers unique services, including a regional trauma center and a 24-hour psychiatric emergency program. In years past, the county also has loaned the hospital money for daily operations.

Another hospital might be willing to assume those key programs. But that debt would weigh heavily on any closure decision, said Michael Young, ECMC's chief executive officer.

To shutter the hospital would require repayment of the debt and about $65 million in other costs, such as contractual obligations, Young said.

"If the annual subsidy stays at $19 million, it's cheaper to keep the place open," he said.

Meanwhile, officials at the Catholic Health System don't see a need now to close one of their hospitals, even though some have low occupancy rates.

The hospital network made a tough decision when it converted Our Lady of Victory Hospital to other uses, they argue, and empty bed space can be used for other services or saved in case of surges in patients.

They also say that hospitals with good management will downsize as needed.

"You don't need a commission to tell you what to change. Part of the discipline of leadership is knowing your operation and modifying it," said Joseph McDonald, chief executive officer.


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