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Kaleida cool to merger plan Area's largest hospital system prepares for changes as ECMC faces an uncertain future

The Giambra administration, business leaders and some control board members think ECMC should merge with another hospital system.

One problem: Kaleida Health, the likely candidate, is cool to the idea.

Among other things, Kaleida's executives say Erie County Medical Center's labor costs are too high to take on.

But if the ripple effects of the county's financial problems force changes at the county medical center, Kaleida is prepared to assume some of its key services, including the regional trauma center.

"If the county wants a different solution to ECMC, we stand ready to be a part of it," said James R. Kaskie, president and chief operating officer.

That assessment came this week in wide-ranging interviews with Kaleida officials about the future of the huge hospital system and any potential arrangement with ECMC.

Buffalo's hospital market is chaotic these days, and it's not clear what it will look like a year or two from now.

ECMC has depended on an annual subsidy -- it was $19 million this year -- from the county. But in the midst of the county's budget crisis, Giambra has recommended slashing the subsidy and encouraging the hospital to merge.

The new management at the medical center says the institution can survive. But it would require gradually decreasing the subsidy as planned when the county last year spun off ECMC into a separate public corporation. The county also would need to renegotiate contracts with public employees to reduce the cost of fringe benefits and work rules at ECMC.

At most hospitals, about half the revenue goes to cover employee salaries and benefits. At ECMC, payroll consumes about 72 percent of revenues.

Meanwhile, all the hospital systems in the region, including the Catholic Health System, are jockeying for position while a recently formed state hospital-closing commission does its work.

The use of hospitals has declined, leaving cities with an oversupply of costly buildings with low occupancy and expensive, duplicated services.

On average, patients use 55 percent of the licensed hospital beds -- this includes staffed and mothballed beds -- in Western New York, according to state data. Optimal occupancy is considered 80 percent to 85 percent.

"Regardless of how things work out, the community will be best served if we reduce the number of hospital beds," said Bruce Boissonnault, president of the Niagara Health Quality Coalition.

"The real competition is between Buffalo and Rochester or Cleveland or Pittsburgh," he said. "If our hospitals run at 50 percent, we won't have the capacity to put the best people and equipment at the bedside."

> Preparing for changes

Michael Young, chief executive officer of ECMC, maintains the medical center deserves to remain open.

He said ECMC has seen increased business in recent years at Kaleida's expense and provides key regional services, such as the trauma and burn centers, and AIDS and emergency psychiatric care.

Without an ECMC, it's not clear whether other hospitals would pick up all those services, or how much it would cost and how long it would take to replicate them. Young described Kaleida as financially weak, making it a questionable merger partner.

"Our hospital is busy. We're doing well in quality measures. We are winning the game," he said.

Kaleida's leaders acknowledge that the region's largest provider of hospital care lost a staggering $125 million in its first five years of existence and almost went out of business. But they say the organization, which formed in 1998, has turned around.

It reported a $7.5 million profit for 2004, although four of its five hospitals -- Women and Children's, Millard Fillmore, Buffalo General and DeGraff Memorial -- lost money. Only Millard Fillmore Suburban in Amherst reported a surplus.

The organization is on track to make about $10 million this year, said Kaskie, who will become chief executive officer in January, replacing William McGuire.

Kaskie and McGuire also said overall patient admissions increased for the first time in 2004 by a small amount and are increasing again in 2005.

"On a relative basis, we are on sound footing," Kaskie said, responding to critics who cite such problems as Kaleida's large unfunded pension fund liability and large amount of debt.

"Are we as robust as we would like to be? No. But we are doing better, and the trends are good," he said.

The two executives weighed in on a host of other issues:

Kaleida's priority in the next few years will be the retention and recruitment of physicians, a challenge at hospitals across the region. Insurers must increase reimbursement to physicians and allow them to share in the payment arrangements at hospitals that are based on quality improvements, they said.

If they were advising the state commission, they would recommend that ECMC close and that Kaleida and the Catholic Health System each be required to close a facility.

"The biggest challenge to closing a facility is that the doctors leave, but the debt on the building -- like a mortgage on a home -- stays and must be paid," said McGuire. "If everyone was affected, it might mitigate against the out-migration of doctors and get Buffalo to a right-sized hospital community."

Kaleida could take over ECMC's adult trauma services, but it would take time and effort to build the institutional culture and physician relationships found at an experienced trauma center, officials said. Kaleida is planning to seek permission from the state to build a helipad by Buffalo General Hospital on High Street, a sign that it is putting together the pieces for a trauma center in case of changes at ECMC.

Unless a super-wealthy donor offers tens of millions of dollars for a new pediatric hospital, the debate over moving Women and Children's Hospital from Bryant Street is over. The hospital's annual losses have declined to a more manageable level, McGuire and Kaskie said, and a consultant is studying the best mix of services, physicians and building configuration for the future.

However, both executives repeated an often-cited criticism of Buffalo's health care system, saying there is not enough business here to adequately support two neonatal intensive care units -- theirs and the one in the Catholic Health System.

Kaleida has taken 637 beds out of service in recent years and is planning to raze large portions of its hospital sites, especially at Millard Fillmore.

A $65 million expansion of Millard Fillmore Suburban is expected to start in the spring. The organization also is planning a $21 million project to replace the equipment at all six of its heart catheterization labs at Buffalo General and Millard Fillmore Gates Circle hospitals, and to buy equipment for three additional rooms devoted to heart-related procedures at the two hospitals.

> 'Stay flexible'

How does the investment square with past suggestions that Millard Fillmore Gates Circle might be the best candidate for closure?

Kaskie said the project mainly involves equipment, not major building changes, and responds to an upsurge in business at the city hospital.

"We need to stay focused on our key strategies despite all the noise around us," he said. "The thing to do is to maximize your options and stay flexible."


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