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Commentary By Steven Malanga

NY's Bloated Hospitals

Even as the '08 presidential candidates stress the need to reform health care, New York state is leading the way—backward.

A year after the landmark Berger Commission report called for modest cuts in New York's excess hospital capacity, the state has lost ground.

Thanks to years of unwise government intervention, New York has long had one of the nation's most expensive state health-care systems. Starting in the early '80s, it began a misguided effort to control costs by fixing the price of every procedure performed at every hospital in the state. But that "reform" also tried to help to help financially troubled hospitals, as well as those with excess capacity, by letting them charge higher rates—in other words, it rewarded hospitals with failed management at the expense of successful ones. So the system grew even more bloated and expensive.

All this government involvement also encouraged hospitals and their workers to become political players—lobbying for ever-greater government subsidies and extra spending on public programs like Medicaid, and against reform efforts that might slow the relentless rise in costs.

As a result, the state pays for about half of all spending on personal health care in New York; other states pay an average of about 40 percent. One big culprit is the state's Medicaid program, which spends more than twice the per-capita national average.

To rein in health-care costs, then-Gov. George Pataki and the leaders of the state Legislature set up the bipartisan Berger Commission back in 2003, naming investment banker Stephen Berger (a Manhattan Democrat) as its head. Its goal: recommend ways to shrink the system and make it more efficient.

Late last year, the Berger report came out—calling for, among other things, a modest state push to downsize the hospital and nursing-home industries by eliminating about 20 percent of excess capacity. When Gov. Spitzer endorsed the commission's recommendations early this year, the state finally seemed on the path to reform.

But not so fast. Several hospitals have gone to court to block closing orders, and only a few small institutions have actually seen their doors shut.

Meantime, the major commission-ordered consolidations and mergers haven't happened. For instance, after two Elmira hospitals, St. Joseph's and Arnot Ogden Medical Center, claimed that they couldn't reach a merger, the state let them remain separate.

At the same time, even though the state has a hospital-bed surplus, some hospitals have actually been expanding to take advantage of other institutions' potential closings. Thus, far from shrinking, New York's hospital industry actually grew this year by nearly 6,000 jobs, or 1.8 percent—the seventh straight year that hospital employment has risen in the state.

The most recent Medicaid-spending data (from 2006) show that New York continued to hike spending, even as 22 other states were actually lowering outlays. New York now spends about 128 percent more on Medicaid, per capita, than the average state does. With 6 percent of the US population, the Empire State now accounts for 15 percent of nationwide Medicaid spending on hospitals and 19 percent of spending on home health care.

To entice New York to spend less, the Bush administration has dangled $1.5 billion in federal aid, tied to the state's meeting spending-reduction goals. That carrot was one reason why state officials accepted the Berger Commission's recommendations.

But the feds have tried this approach before, unsuccessfully. In 1999, the Clinton administration handed over hundreds of millions of dollars to cushion the blow of New York legislation designed to shrink the health-care industry. Much of the money was to fund the retraining of workers who might lose jobs because of reform. But the state got rid of so few jobs that most of the aid sat unused—and eventually went to hospitals as bonus operating subsidies.

It's no wonder, then, that New York's health-care professionals are dragging their feet on the latest reform efforts. Experience has taught them that resistance pays off—as taxpayers keep getting soaked.

Steven Malanga is a senior editor at City Journal.

This piece originally appeared in New York Post

This piece originally appeared in New York Post