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The U.S. health care system is on life support, losing billions of dollars and in need of change. One state that typifies the dire situation is New York. The Commission on Health Care Facilities in the 21st Century — a non-partisan panel created by Governor George Pataki and the New York State Legislature to undertake an independent review of health care capacity and resources in New York State — made sweeping proposals to fix the system on Nov. 28.The proposal, which took 18 months to research and publish, suggests merging some hospitals in the state, converting others to a different use and closing money-losing, underused facilities.
Several of these hospitals scheduled for closing, however, will not go down without a fight. Westchester Square Medical Center followed Cabrini Medical Center's lead and filed a lawsuit on Jan. 3 to block the state's attempt to close the facilities. As a result, a Supreme Court judge issued a temporary reprieve Jan. 3 that for now blocks the state from closing Westchester Square Medical Center. The injunction gives Weschester Square until the end of the month.
Cabrini, meanwhile, filed a lawsuit of its own last week. Cabrini's suit argued that the commission deprived the 115-year-old Catholic hospital of its constitutional due process rights by recommending the closure. At the same time, two facilities outside the New York City area such as a community hospital in Dobbs Ferry, N.Y. sued last month on the grounds that the commission secretly deliberated, in violation of the state open-meetings law. St. Joseph's Hospital in upstate New York sued on the same argument. The fallout from these changes to the closure of these New York City hospital would be tremendous: a loss of 4,200 jobs in the city and 7,000 in the state. On the flip side, the panel says the restructuring would save Medicaid around $249 million a year, or $2.5 billion over 10 years, and provide an annual savings to Medicare of around $322 million, or $3.2 billion over 10 years.
TOUGH PILL TO SWALLOW The state panel has suggested that at least nine hospitals and four nursing homes either merge or downsize in the state. In the city, the panel recommends shutting down five hospitals (see chart). If the governor and lawmakers don't reject the report in its entirety by Dec. 31, the panel's recommendations become law and will take effect on Jan. 1. The choices seem agonizing:
Cabrini located in New York's Gramercy Park neighborhood, for instance, has fallen on tough times as its surgical occupancy rate has fallen to 23% from 70% between 1994 and 2004. Cabrini sits in an area nicknamed "bedpan alley", where New York University, Beth Israel Medical Center, NYU Hospital for Joint Diseases and Bellevue Hospital Center are within a 10-minute walk. Cabrini has made attempts to rejigger its mission by closing its surgical floor and sharpening its focus on geriatric care by opening an assisted-living facility across the street from its hospital. Despite these moves, the hospital still reported it lost $10 million in 2005. WHEREIN LIES THE VALUE For the city, the closures could provide buying opportunities for real estate investment trusts and developers. Some of these facilities that have been proposed for closing, especially the ones in Manhattan, are in desirable neighborhoods that would attract competitive prices. Take, for example, St. Vincent Midtown Hospital, which is located in the Clinton section of Manhattan, also known as Hell's Kitchen. The neighborhood has become a hotbed for luxury condo development. An opportunistic REIT—for the right price—could sweep up the St. Vincent location for yet another condo development or rental property. The state report says that the sale of St. Vincent Midtown Hospital would generate about $90 million. The mid-block site also contains nearly 200,000 square feet of unused air rights. The proceeds from this sale could be used to payoff existing hospital debt. Manhattan's Lenox Hill Hospital has already followed through with that strategy putting its annex building on East 63rd Street up for sale. GET REJIGGY WITH IT... Alternatively, health care REITs may also want to take a serious look at these New York City hospital locations, should they become available. There's been a steady pace of investors focusing on real estate serving senior citizens lately.
Although it hasn't been a proven formula in the five boroughs yet, these struggling hospitals may be good candidates for acquisition by healthcare REITs and refocused to provide assisted living options in the city.—Gerald Magpily
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