Commission on Health Care Facilities

in the 21st Century

90 Church Street • New York, New York 10007

www.nyhealthcarecommission.org

 

FINAL REPORT

of the

COMMISSION ON HEALTH CARE

FACILITIES IN THE 21ST CENTURY

December 2006

A Plan to Stabilize

and Strengthen

New York’s

Health Care System

FINAL REPORT

of the

COMMISSION ON HEALTH CARE

FACILITIES IN THE 21ST CENTURY

December 2006

A Plan to Stabilize

and Strengthen

New York’s

Health Care System

Case 7:07-cv-03432-CS-MDF Document 28-3 Filed 04/15/2008 Page 1 of 120
COMMISSION ON HEALTH CARE FACILITIES IN THE 21st CENTURY 

Chair

Stephen Berger 

Vice Chair

Robert Hinckley 

Statewide Members 

Leo Brideau 

Craig Duncan 

Robert Gaffney 

Rosa Gil, DSW 

Howard Howlett, Jr. 

Darlene Kerr 

Ruben King-Shaw, Jr. 

Mark Kissinger 

Patrick Lee 

Kristin Proud 

Neil Roberts 

Teresa Santiago 

Buford Sears 

Albert J. Simone, Ph.D. 

Bishop Joseph Sullivan 

Peter Velez 

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Regional Members 

Central Region: 

Stephen Albertalli 

Susan Crossett 

Jeffery Davis 

Bonnie DeVinney 

Patrick Mannion 

Herbert Marshall 

Hudson Valley: 

Robert Doar 

R. Abel Garraghan 

William Mooney, Sr. 

Arthur Weintraub 

Lelia Wood-Smith 

Long Island: 

Patricia Acampora 

Bert Brodsky 

Richard Guardino, Jr. 

Kim Kubasek 

Donna M. O’Brien 

John O’Connell 

New York City: 

Martin Begun 

John F. Haggerty 

Andrew Sichenze 

Jerry Weber 

Northern: 

Peter Capobianco 

Dorothy Harris 

Arthur Spiegel 

Western: 

Paul Boylan 

Carol Cassell 

Judge Joseph Mattina 

Heidi Nauleau 

Sister Mary Ann Schimscheiner 

Henry Sloma 

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Commission Staff 

David Sandman, Ph.D. 

Executive Director 

Mark Ustin 

Deputy Director and General Counsel 

Senior Policy Analysts: 

Vincent Fitts 

Hilton Marcus 

Barbara McRedmond 

Janette A. Simms 

Special Assistants: 

Shirley Chen 

Shavon Foskey 

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 TABLE OF CONTENTS 

Prologue .......................................................................................................................................... 1 

Executive Summary........................................................................................................................ 4 

I. Dynamism of New York’s Health Care System........................................................................ 19 

Catching Up to Change............................................................................................................. 19 

Hospital and Nursing Home Closures....................................................................................... 20 

II. Instability of the System........................................................................................................... 29 

Hospital System Fiscal Instability ............................................................................................ 29 

Nursing Home System Fiscal Instability .................................................................................. 35 

III. Excess Capacity ...................................................................................................................... 48 

New York State Has Too Many Hospital Beds ........................................................................ 48 

Regions of New York State Have Too Many Nursing Home Beds ......................................... 51 

New York State Has Too Few Home- and Community-Based Alternatives to Nursing Homes

................................................................................................................................................... 54 

What’s Wrong With Excess Capacity?..................................................................................... 54 

Excess Capacity Jeopardizes Quality of Care........................................................................... 55 

Excess Capacity Promotes Unnecessary Utilization of Services.............................................. 56 

Excess Capacity Duplicates Services and Hinders Collaboration ............................................ 56 

Excess Capacity Threatens Safety Net Services....................................................................... 57 

Excess Capacity Increases Costs .............................................................................................. 57

IV. Adapting to and Managing Change ........................................................................................ 58 

Framework for Solutions – Producing Maximum Efficiencies ................................................ 59 

Benefits of Closure and Consolidation ..................................................................................... 59 

Impact of Closures: What Does The Evidence Say? ................................................................ 60 

V. Commission Process and Methodology................................................................................... 64 

Commission Approach.............................................................................................................. 65 

Commission Structure............................................................................................................... 65 

Regional Definitions and Representation ................................................................................. 65 

Regional Advisory Committees................................................................................................ 67 

Local Input and Community Outreach ..................................................................................... 67 

Analytic Framework ................................................................................................................. 68 

Absorption and Access Analysis (AAA) .................................................................................. 70 

Voluntary Rightsizing Efforts................................................................................................... 71 

VI. Policy Recommendations ....................................................................................................... 73 

A. Reimbursement and Medicaid ............................................................................................. 73 

B. The Uninsured...................................................................................................................... 75 

C. Developing Primary Care Infrastructure.............................................................................. 77 

D. Developing Hybrid Delivery Models................................................................................... 79 

E. State University of New York (SUNY) Hospitals ............................................................... 80 

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F. Healthcare Workforce Development .................................................................................... 81 

G. Information Technology ...................................................................................................... 82 

H. County Nursing Homes........................................................................................................ 83 

I. Niche Providers ..................................................................................................................... 84 

J. Roadmap for the Future: Continuation of the Commission’s Work ..................................... 85 

VII. Recommendations for Facility Rightsizing and Reconfiguration ......................................... 86 

Preface to Recommendations.................................................................................................... 86 

Central Region - Acute Care Recommendations...................................................................... 91 

Recommendation 1 - Crouse Hospital (Onondaga County) and University Hospital, SUNY 

Upstate Health Science Center (Onondaga County)............................................................. 91 

Recommendation 2 - Auburn Hospital (Cayuga County)..................................................... 94 

Recommendation 3 - St. Joseph’s Hospital (Chemung County) and Arnot Ogden Medical 

Center (Chemung County).................................................................................................... 96 

Recommendation 4 - Albert Lindley Lee Hospital (Oswego County) ................................. 99 

Central Region - Long Term Care Recommendations ........................................................... 101 

Recommendation 1 - Van Duyn Home and Hospital (Onondaga County) and Community 

General Hospital's Skilled Nursing Facility (Onondaga County)....................................... 101 

Recommendation 2 - Mercy of Northern New York (Jefferson County)........................... 103 

Recommendation 3 - Willow Point (Broome County) ....................................................... 105 

Recommendation 4 - Lakeside Nursing Home (Tompkins County) .................................. 106 

Recommendation 5 - United Helpers, Canton (St. Lawrence County)............................... 107 

Hudson Valley Region Acute Care Recommendations.......................................................... 109 

Recommendations 1 - Kingston Hospital (Ulster County) and Benedictine Hospital (Ulster 

County) ............................................................................................................................... 109 

Recommendation 2 - Sound Shore Medical Center (Westchester County) and Mt. Vernon 

Hospital (Westchester County)........................................................................................... 111 

Recommendation 3 - Orange Regional Medical Center (Orange County)......................... 114 

Recommendation 4 - Community Hospital at Dobbs Ferry (Westchester County) ........... 115 

Recommendation 5 - Westchester Medical Center (Westchester County)......................... 118 

Hudson Valley Region Long-Term Care Recommendations ................................................. 121 

Recommendation 1 - The Valley View Center for Nursing Care and Rehab (Orange) ..... 121 

Recommendation 2 - Andrus-on-Hudson (Westchester).................................................... 122 

Recommendation 3 - Taylor Care Center (Westchester).................................................... 124 

Recommendation 4 - Achieve Rehabilitation (Sullivan).................................................... 125 

Recommendation 5 - Sky View Rehabilitation and Health Care Center (Westchester)..... 126 

Long Island Region Acute Care Recommendations............................................................... 128 

Recommendation 1 - Eastern Long Island Hospital (Suffolk County), Southampton Hospital 

(Suffolk County), Peconic Medical Center (Formerly Central Suffolk) (Suffolk County), 

Brookhaven Memorial Medical Center (Suffolk County), and University Hospital at Stony 

Brook (Suffolk County) ...................................................................................................... 128

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Recommendation 2 - University Hospital at Stony Brook (Suffolk County)..................... 132 

Recommendation 3 - St. Charles Hospital (Suffolk County) and J.T. Mather Memorial 

Hospital (Suffolk County) .................................................................................................. 134 

Recommendation 4 - Nassau University Medical Center (Nassau County)....................... 137 

Recommendation 5 - Long Beach Medical Center (Nassau County)................................. 140 

Long Island Region Long-Term Care Recommendations...................................................... 143 

Recommendation 1 - A. Holly Patterson Extended Care Facility (Nassau County) .......... 143 

Recommendation 2 - Cold Spring Hills Center for Nursing and Rehabilitation (Nassau 

County) ............................................................................................................................... 145 

Recommendation 3 - Brunswick Hospital Center, Inc. (Suffolk County).......................... 146 

New York City Region Acute Care Recommendations ......................................................... 149 

Recommendation 1 - New York Methodist Hospital (Kings County) and New York 

Community Hospital of Brooklyn (Kings County) ............................................................ 149 

Recommendation 2 - Victory Memorial Hospital (Kings County) .................................... 151 

Recommendation 3 - Peninsula Hospital Center (Queens County) and St. John's Episcopal 

Hospital South Shore (Queens County).............................................................................. 153 

Recommendation 4 - Queens Hospital Center (Queens County) ....................................... 156 

Recommendation 5 - Parkway Hospital (Queens County)................................................. 157 

Recommendation 6 - New York Westchester Square Medical Center (Bronx County) .... 159 

Recommendation 7 - Cabrini Medical Center (New York County)................................... 160 

Recommendation 8 - Beth Israel Medical Center - Petrie Campus (New York County)... 164 

Recommendation 9 - North General Hospital (New York County) ................................... 164 

Recommendation 10 - St. Vincent’s Midtown Hospital (New York County) and St. 

Vincent's Manhattan (New York County) .......................................................................... 167 

Recommendation 11 - New York Downtown Hospital (New York County)..................... 170 

Recommendation 12 - Manhattan Eye Ear and Throat Hospital (New York County)....... 174 

New York City Long-Term Care Recommendations ............................................................. 176 

Recommendation 1 - Split Rock Rehabilitation and Health Care Center (Bronx)............. 176 

Northern Region Acute Care Recommendations.................................................................... 180 

Recommendation 1 - Bellevue Woman’s Hospital (Schenectady County)........................ 180 

Recommendation 2 - St. Clare’s Hospital (Schenectady County) and Ellis Hospital 

(Schenectady County)......................................................................................................... 182 

Northern Region Long-Term Care Recommendations........................................................... 186 

Recommendation 1 - Ann Lee Infirmary and Albany County Home (Albany) ................. 186 

Recommendation 2 - The Avenue and The Dutch Manor (Schenectady County) ............. 187 

Recommendation 3 - Glendale Home (Schenectady County) ............................................ 189 

Western Region Acute Care Recommendations..................................................................... 191 

Recommendation 1 - Millard Fillmore Hospital – Gates Circle (Erie County).................. 191 

Recommendation 2 - St. Joseph Hospital of Cheektowaga, New York (Erie County) ...... 193 

Recommendation 3 - DeGraff Memorial Hospital (Niagara County) ................................ 194 

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Recommendation 4 - Sheehan Memorial Hospital (Erie County)...................................... 195 

Recommendation 5 - Erie County Medical Center/Erie County Medical Center Corporation 

(Erie County) and Buffalo General Hospital/Kaleida Health (Erie County)...................... 198 

Recommendation 6 - Lockport Memorial Hospital (Niagara County) and Inter-Community 

Memorial Hospital at Newfane (Niagara County).............................................................. 203 

Recommendation 7 - Bertrand Chaffee Hospital (Erie County), TLC Health Network - Lake 

Shore Hospital (Chautauqua County), TLC Health Network - Tri-County Memorial 

Hospital (Cattaraugus County), Brooks Memorial Hospital (Chautauqua County) and 

Westfield Memorial Hospital (Chautauqua County) .......................................................... 205 

Recommendation 8 - Mount St. Mary’s Hospital and Health Center (Niagara County) and 

Niagar Falls Memorial Medical Center (Niagara County) ................................................. 209 

Western Region Long-Term Care Recommendations............................................................ 212 

Recommendation 1 - Mount View Health Facility (Niagara County)................................ 212 

Recommendation 2 - Nazareth Nursing Home and Mercy Hospital Skilled Nursing Facility 

(Erie County) ...................................................................................................................... 213 

Recommendation 3 - Williamsville Suburban, LLC (Erie County) ................................... 216 

Recommendation 4 - DeGraff Memorial Hospital Skilled Nursing Facility (Niagara County) 

and Millard Fillmore Gates Circle Skilled Nursing Facility (Erie County)........................ 217 

VIII. Financing............................................................................................................................ 219 

Potential Benefits and Reinvestment Opportunities for Providers ......................................... 220 

Potential Savings for Payors ................................................................................................... 221 

Total Benefits and Savings: .................................................................................................... 225 

Potential Costs: General Principles........................................................................................ 225

Potential Cost Categories: Closure, Construction & Affiliation............................................ 226 

Funding: Principles for Investment......................................................................................... 230 

APPENDICES 

Appendix 1 - Regional Advisory Committee Members 

Appendix 2 - Regional Advisory Committee Reports 

 Central 

 Hudson Valley 

 Long Island 

 New York City 

 Northern 

Western 

Appendix 3 - Briefing on Acute Care Reimbursement 

Appendix 4 - Briefing on Long-term Care Reimbursement 

Appendix 5 - Data 

 Analytic Maps 

 Analytic Framework Data 

 Absorption and Access Analysis 

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LIST OF FIGURES

Figure 1: Hospital Operating Margins, New York State and United States, 1996-2004.............. 30 

Figure 2: Hospital Operating Margins by Region, 2004............................................................... 31 

Figure 3: Nursing Homes with Operating Losses, 1997-2004 ..................................................... 35 

Figure 4. Distribution of Uninsured by Race/Ethnicity for New York State, Nonelderly, 2002-

2003............................................................................................................................................... 37 

Figure 5: Estimated Number of Assisted Living Facilities in the United States, 1995-2000....... 39 

Figure 6: New York State and National Hospital Length of Stay, 1994-2004............................. 42 

Figure 7: New York State Hospital Length of Stay by Region, 2004 .......................................... 43 

Figure 8: New York State Nursing Homes Average Length of Stay, 1996-2003 ........................ 44 

Figure 9: Percentage of Nursing Home Residents able to Independently Perform Activities of 

Daily Living.................................................................................................................................. 45 

Figure 10. Hospital Licensed and Available Bed Occupancy Rates, 1994 to 2004 ..................... 49 

Figure 11. Hospital Licensed Bed Occupancy Rates by Region, 2004 ........................................ 50 

Figure 12. Hospital Available Bed Occupancy Rates by Region, 2004 ....................................... 50 

Figure 13. Nursing Home Licensed Bed Occupancy Rates, 1994 to 2004................................... 51 

Figure 14. Nursing Home Licensed Bed Occupancy Rates by Region, 2003 (Adjusted for partial 

years)............................................................................................................................................. 52 

Figure 15. New York State Counties with LTC Resource Shift Opportunities............................ 53 

Figure 16. Commission Regions................................................................................................... 66 

LIST OF TABLES

Table 1. New York State Hospital Closures since 1983............................................................... 21 

Table 2. New York State Nursing Home Closures since 1983..................................................... 23 

Table 3. Nursing Home Sponsorship............................................................................................ 28

Table 4. Statewide Ranking of Hospitals with Limited Access to Capital................................... 33 

Table 5. New York State Hospital Medians Compared to Rating Agency Medians.................... 34 

Table 6. Uninsured in New York City and New York State, Nonelderly, 2002-2003 ................. 37 

Table 7. Number of Medicaid Waiver Clients in Residential Settings......................................... 40 

Table 8. Employment and Wages of Registered Nurses by State, May 2005 .............................. 46 

Table 9. Nursing Home Staff Turnover, 2002 .............................................................................. 46 

Table 10. Beds Per 1,000 Population – Selected States................................................................ 48 

Table 11. Public Hearings by Region ........................................................................................... 68 

Table 12. Commission Framework Criteria Metric...................................................................... 69 

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1

PROLOGUE 

 The Commission on Health Care Facilities in the 21st Century was created to review and 

strengthen New York State’s acute and long term care delivery systems. Systems, by definition, 

are comprised of multiple parts that form a unified whole. Such definition does not apply to New 

York’s health care industry where we confront a fragmented patchwork of health care resources. 

Some areas of our state have excess health care resources while others have shortages. We have 

widespread and unnecessary duplication of services. We have too much institution-focused care 

and not enough home and community based options. We have too few primary care resources to 

keep people well and out of the hospital. We spend extravagantly on health care and yet still 

leave too many without adequate access to the health care they need. We have yet to come to 

grips with changes in medicine that render parts of a massive bricks-and-mortar infrastructure 

obsolete. 

 Our hospitals and nursing homes, as described in this report, are in dangerously unstable 

condition. Years of chronic losses and growing numbers of empty beds have led some hospitals 

to close their doors and others are on the brink of collapse. Even the relatively “successful” 

hospitals that manage to break-even or eke out a modestly positive margin do not have sufficient 

resources to reinvest and maintain the high-quality, modern health care that New Yorkers 

deserve. A growing percentage of nursing homes are losing money from operations. It is not in 

the best interests of patients to rely on health care providers in such financial straits, and closures 

due to market forces alone threaten ongoing access to quality care, especially for the State’s most 

vulnerable residents. 

Hovering over the instability of our hospital and nursing home providers is a growing 

problem of affordability. New York should be proud of having one of the largest and most 

generous Medicaid programs in the nation. It is a very costly program to maintain, however, and 

its costs are rising at an unsustainable rate. The total cost of the Medicaid program has nearly 

doubled over the last decade to approximately $45 billion per year. Medicaid is a crippling 

budget item for the state and many counties. Upstate counties, which lack broad tax bases but 

have growing Medicaid populations, are particularly struggling under these cost burdens. We 

must regain control over Medicaid costs and spend more wisely to maintain health care services 

without crowding out our ability to finance other important social needs. 

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In fulfilling its mandate, the Commission had to face difficult choices. Decisions to 

reconfigure or close health care institutions are never simple or without controversy. Even when 

a closure will have no adverse impact on health care delivery and makes enormous economic 

sense, history has shown that opposition may arise. Such feelings of institutional loyalty are 

understandable. There are many groups, organizations, and individuals with personal, and often 

financial, interests in local hospitals. The Commission carefully considered community issues in 

its deliberations. The Commission also recognizes that our current predicament is in part a result 

of past failures to make honest and hard choices. We will not get to a better place until we 

confront our problems head-on and take action that is in the best interests of the entire system 

and its patients. An orderly transition that respects the needs of health care workers and 

communities affected by the recommendations in this report is required. 

The work of this Commission is a start, not an end, to the facility rightsizing process. 

Additional opportunities to remove excess capacity exist but cannot be realized absent changes 

in reimbursement, reductions in length-of-stay, broader availability of non-institutional services, 

and removal of other obstacles. The Commission made responsible choices given real-world 

constraints. More can and should be done if circumstances change. 

The recommendations in this report are a step in what must be a broader process to 

reconfigure our health care system. It is beyond the practical scope of a single Commission to 

address or resolve all of the state’s health care issues. Yet, we are impressed by the various 

important agendas that have been presented to the Commission and which must be addressed in 

future initiatives. Structured decisions about health care resource allocations must be continuous 

rather than a one-shot phenomenon. Issues of the uninsured, mental health, and primary care 

development should be at the forefront of an ongoing reform agenda. 

It has been a privilege to examine New York State’s health care system and develop 

immediate and long-term agendas for change. We are grateful to the members of the 

Commission and the regional advisory committees who volunteered their time and talents to this 

important work. The Commission’s staff worked with great dedication and professionalism. The 

Department of Health, Dormitory Authority of the State of New York, Division of the Budget, 

and other agencies provided tremendous support. Our thanks go to the numerous members of the 

public, providers, and organizations that engaged in this process, provided vital information, and 

helped shape our thinking. By working together, we are confident that New York will seize the 

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3

opportunity to build a health care system that is stronger, better, fairer, more affordable and that 

meets the needs of communities. 

Stephen Berger David Sandman, Ph.D. 

Chairman Executive Director 

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EXECUTIVE SUMMARY 

A System in Crisis 

The Commission on Health Care Facilities is a nonpartisan panel established to 

review New York State’s acute and long-term care systems. New York is home to some of 

the world’s finest and most sophisticated hospitals. We have superb nursing homes that 

provide advanced and humane care to our sickest and most frail residents. We have a 

strong and growing foundation of non-institutional care providers. Our health care 

providers employ a skilled and dedicated workforce. The State has a historic commitment 

to ensuring access to care for its most vulnerable citizens and we expend vast sums of 

public resources on health care. Public and private initiatives are underway to further 

improve access, improve quality of care, and produce greater value for the dollars spent 

on health care services. 

Despite these strengths, the Governor and Legislature recognized the need for 

improvements and thus established the Commission. The challenges facing our system 

developed over a long period and cannot be linked to a single time or policy. Similarly, 

these problems will not be solved overnight; solutions will require sustained efforts. 

The Commission reaches a stark and basic conclusion: our state’s health care 

system is broken and in need of fundamental repairs. Today, New York is struggling to 

maintain a 20th century institutional infrastructure in the face of mounting costs, excess 

capacity, and unmet needs for community-based alternatives. Weaknesses in our system 

are readily apparent: 

• Turbulence afflicts our health care providers; facility closures and declarations 

of bankruptcy are too common. Since 1983, 70 hospitals and over 63 nursing 

homes have closed in New York State. Some of our oldest and proudest names 

in health care struggle under the unintended consequences of bankruptcy 

proceedings. Patient access to stable health care services is at risk. 

• Our health care providers are in weak financial condition. For the past eight 

years, the state’s hospitals as a group have lost money. A majority of the 

state’s nursing homes, even some that are fully occupied, operate at a loss. 

Such losses cannot be sustained indefinitely. 

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• Negative or inadequate fiscal margins limit the ability of providers to reinvest 

in their systems, obtain the latest technologies, access capital, and upgrade 

their physical plants. Many of our hospitals and nursing homes are outdated 

and in need of capital improvements. 

• Hospital average lengths of stay have decreased but remain unacceptably and 

unjustifiably long in many parts of the state. 

• Too many New Yorkers – almost one in five nonelderly residents – continue to 

lack health insurance coverage and face barriers to care and worse health 

outcomes as a result. 

• Virtually every region of the state has an unmet need for additional home and 

community-based services. As consumer preferences change and technology 

advances, this gap could widen. 

• Primary care capacity is insufficient, so that some patients go without 

preventive and basic services. Inadequate primary care worsens health care 

status, allows chronic conditions to go unmanaged, and results in back-end 

care that is more costly and less beneficial than front-end services. 

• Our Medicaid program, already the largest and most expensive in the nation, 

is growing at an unsustainable rate. 

• Reimbursement mechanisms distort patterns of service delivery and induce 

facilities to pursue high margin services, sometimes at the expense of more 

essential community needs. The current rate paradigm is encouraging a 

medical arms race for duplicative provision of high-end services and 

discouraging the provision of preventive, primary, and other baseline services. 

Why We Must Act Now 

From crisis arises opportunity. It is not too late to restructure New York’s health 

care delivery system. The time to act, however, is now. Absent intervention, the 

Commission believes that the future of our state’s health care system is bleak. Unless we 

act decisively, further facility closures and bankruptcies are almost certain to occur. 

Moreover, the facilities that close due to market forces alone may be the ones most 

critical to preserving access. 

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Without intervention, our providers will spiral further into debt and be forced to 

make difficult decisions to cut services and lay off workers. Without change, our 

providers will lack the financial stability needed to invest in new technologies and remain 

on the cutting edge of modern health care. Unless we shift course, health care 

expenditures will rise at unsustainable rates, further burden our taxpayers, and cripple our 

ability to devote resources to the full array of public needs including education, housing, 

and transportation. 

Confronting and solving these problems will require difficult, perhaps unpopular, 

decisions and strong leadership from our elected officials and others. There is no other 

responsible choice. We cannot deny reality, bury our heads in the sand, or cling to 

established patterns. We must overcome our reliance on outdated institutions and 

strengthen those that remain. New Yorkers deserve and demand a 21st century health 

system that is more flexible, leaner, stronger and more affordable than the one we have 

today. 

Excess Capacity Weakens Our System 

A fundamental driver of the crisis in our health care delivery system is excess 

capacity. New York State is over-bedded and many hospital beds lie empty on any given 

day. The statewide hospital occupancy rate has fallen from 82.8% of certified beds in 

1983 to 65.3% in 2004, a decrease of 17.5%. On a staffed bed basis, approximately one 

quarter of hospital beds are currently unoccupied. Occupancy rates vary by region and are 

especially low in Western, Northern, and Central regions. Some individual hospitals are 

more than half empty. Certain pockets of the state have too many nursing home beds 

while others have too few. The statewide average nursing home occupancy rate has been 

in decline since 1994 despite a gradually aging population. 

Declining occupancy rates are driven in part by shifts in the venues in which 

health care is provided. Health care services are migrating rapidly out of large 

institutional settings into ambulatory, home and community-based settings. Hospitals face 

increasing competition from niche providers such as ambulatory surgery centers, who 

often provide services that are well reimbursed and deprive hospitals of revenues that 

were historically used to cross-subsidize less profitable services. Similarly, long term care 

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is evolving towards shorter sub-acute stays in nursing homes, increased resident turnover 

in nursing homes, and the provision of long term care in non-institutional settings. 

Excess capacity has negative consequences for our health care system: 

• Quality of Care is Jeopardized: In health care, there is a direct positive 

relationship between volume and quality of care. The more cases or procedures 

performed, the better the outcome. Excess capacity disperses volume and 

expertise, potentially diminishing quality. It is a public health imperative to 

concentrate volumes at fewer institutions and create Centers of Excellence. 

Excess capacity also subsidizes inferior quality by blocking investments in 

equipment and staff. 

• Unnecessary Utilization Occurs: Hospitalizations expand in relation to the 

number of available beds. Supply induces demand and unused capacity creates 

pressure to admit patients solely in order to generate revenue. Similarly, greater 

numbers of expensive tests and procedures are performed when resources like 

imaging machines, diagnostic labs and surgical suites are available and need to 

generate revenue. Areas with excess capacity repeatedly demonstrate higher rates 

of hospital admission and services that cannot be explained by differences in rates 

of illness or age. 

• Duplication Fuels a Medical Arms Race: New York’s hospitals compete for the 

most expensive and sophisticated technologies that produce higher financial 

margins. The result in unnecessary duplication of high-end services like magnetic 

resonance imaging and cardiac catheterization labs and too little integration of 

regional service delivery. Eliminating these redundancies will save money without 

compromising access to care. 

• The Safety Net is Endangered: Low occupancy rates and associated financial 

pressures can lessen hospitals’ commitment to provide care for vulnerable 

populations. As fiscal pressures increase, facilities may feel forced to close or 

shrink their less financially viable services in inner city neighborhoods or rural 

communities. 

• Costs Increase: Excess capacity is expensive. Maintaining a “bricks and mortar” 

based system carries enormous costs. Even empty beds, wards, and buildings that 

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are unused and unstaffed have fixed costs that must be paid and which are spread 

over a diminishing number of patients. Additionally, dollars are diverted from 

other productive uses and reinvestment opportunities are thwarted. 

The Commission Process: Public and Local Participation 

The Commission is a broad-based, nonpartisan panel established by Governor 

Pataki and the New York State Legislature to undertake a rational, independent review of 

health care capacity and resources. It was created to ensure that the regional and local 

supply of hospital and nursing home facilities is best configured to respond to community 

needs for high-quality, affordable and accessible care, with meaningful efficiencies in 

delivery and financing that promote infrastructure stability. 

The Commission was specifically charged with rightsizing institutions. 

Rightsizing includes the possible consolidation, closure, conversion, and restructuring of 

institutions. Over the course of 18 months, the Commission evaluated each hospital and 

nursing home in the state to develop its final recommendations. The Commission’s 

process balanced “science” and “art.” Its deliberations were informed and driven by 

extensive review of objective data and quantitative analysis. However, its deliberations 

were more than a “numbers game” and its final recommendations are not solely the 

product of mathematical algorithms. Public input, understandings of local market 

conditions, professional judgment, and factual information were combined to form the 

basis of the Commission’s work. 

The Commission operated independently of any existing agency or entity. Given 

the size and diversity of New York State, the structure of the Commission had a strong 

focus on regional concerns and issues. The state was formally divided into six regions by 

its enabling statute. In addition to eighteen statewide voting members, the Commission 

had up to six regional members for each of the six regions. The regional members had 

voting authority on matters related solely to their region. 

Furthermore, each of the six regions had Regional Advisory Committee (RAC) 

consisting of up to twelve members. The RACs provided essential community knowledge 

and insights into local conditions. They played vital information-gathering roles by 

fostering discussions with and among local stakeholders. Each of the RACs held 

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extensive meetings with hospital and nursing leaders and representatives from trade 

groups, organized labor, patient advocates, insurers, researchers, and public health 

officials. The final advisory reports of the RACs are included as appendices to this report. 

The Commission and RACs held public hearings across the state to further solicit 

input from a wide array of interested parties including patients and consumers, providers, 

payors, labor, elected officials, and the business community. In total, nineteen hearings 

were held throughout the regions. The Commission heard from hundreds of witnesses 

and reviewed thousands of pages of testimony. 

Summary of Policy Recommendations 

The Commission’s direct mandate to rightsize and reconfigure facilities was a 

vast and necessary endeavor. Nevertheless, the work of the Commission is only one 

element in a comprehensive reform agenda. No single Commission can address or 

resolve all of the State’s health care issues. The work of this Commission is one step in 

what must be an ongoing and wide-ranging process to modernize and reshape New 

York’s health care system. The Commission makes the following recommendations to 

provide a blueprint for additional work necessary to more fully reconfigure our system: 

• New York should undertake a comprehensive review of reimbursement policy 

and develop new payment systems that support a realignment of health 

services delivery. 

• New York should strive for health coverage that is universal, continuous, 

affordable to individuals and families, and affordable and sustainable for 

society at large. New York should study coverage expansion efforts in other 

states and adopt additional strategies to sustain its recent progress in reducing 

the number of uninsured New Yorkers. While guarding against fraud, New 

York should lower administrative barriers to enrollment to help ensure that all 

uninsured but eligible persons are placed in the appropriate program and make 

it easier for eligible persons to retain coverage. 

• New York should expand primary care capacity, including facilities, 

equipment, information technology and workforce. 

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• New York should develop and test “hybrid” delivery and financing models 

that are less than a hospital and more than a primary care center. 

• New York should undertake a comprehensive analysis of the feasibility and 

advisability of privatizing the State University of New York (SUNY) teaching 

hospitals at Stony Brook, Syracuse, and Brooklyn. 

• New York should cultivate its health care workforce by implementing 

strategies to address persistent shortages in a variety of occupations and to 

educate and retrain workers to prepare them for increasing uses of heath 

technologies in their jobs. Workers displaced by Commission 

recommendations should receive assistance in obtaining employment in other 

healthcare settings. 

• New York should promote the increased use of health information 

technologies and ensure that these systems are able to communicate, using 

open architecture and embracing the principle of interoperability. 

• New York should undertake a comprehensive review of the future role of 

county-owned and operated nursing homes. A clear policy should be 

developed to guide decision-making about county nursing homes and to 

protect indigent residents. 

• New York should develop a mechanism whereby niche providers share in the 

burden of paying for public goods and charity care. New York should also 

consider the possible need for quality-of-care monitoring and reporting in 

non-regulated and private settings. 

• New York should implement an ongoing process to sustain the efforts initiated 

by this Commission. 

Summary of Facility Recommendations 

 Per its statutory obligation, the Commission makes the following 

recommendations to rightsize and reconfigure health care facilities in each region of the 

state. The recommendations apply equitably across all regions. The acute care 

recommendations address 57 hospitals, or one-quarter of all hospitals in the state. The 

acute care recommendations include 48 reconfiguration, affiliation, and conversion 

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schemes, and 9 facility closures. Collectively, the recommendations will reduce inpatient 

capacity by approximately 4,200 beds, or 7 percent of the states’ supply. The long-term 

recommendations for downsizing or closing nursing homes will make highly-targeted 

nursing bed reductions of approximately 3,000, or 2.6 percent of the state’s supply. Twice 

as many nursing homes will be downsized as closed. In addition, the long-term care 

recommendations will create more than 1,000 new non-institutional slots. 

Central: 

• Crouse Hospital and SUNY Upstate Medical Center should be joined under a 

single unified governance structure under the control of an entity other than the 

State University of New York, and the joined facility should be licensed for 

approximately 500 to 600 beds. 

• Auburn Hospital should downsize by approximately 100 beds and discontinue its 

obstetrical services. 

• Arnot Ogden Hospital and St. Joseph’s Hospital should participate in discussions 

supervised by the Commissioner of Health to explore the affiliation of such 

facilities. 

• Albert Lindley Lee Hospital should close all of its 67 beds and convert to an 

outpatient/urgent care center with Article 28 diagnostic and treatment center 

licensure. 

• Van Duyn Home and Hospital and Community General Hospital’s skilled nursing 

facility should be joined under a single unified governance structure under the 

control of Community General Hospital and downsize their combined number of 

beds by approximately 75. 

• Mercy of Northern New York should downsize 76 nursing home beds, add 

assisted living, adult care, and possibly other non-institutional services. 

• Willow Point should downsize by between 83 and 103 nursing home beds, rebuild 

its facility in an appropriate configuration, and add adult day care. 

• Lakeside Nursing Home should close and assisted living, adult day care, and 

possibly other non-institutional services should be added in Tompkins County by 

another sponsor. 

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• United Helpers, Canton should downsize by approximately 64 nursing home beds, 

rebuild its facility, and add assisted living and possibly other non-institutional 

services. 

Hudson Valley:

• Kingston and Benedictine Hospitals should be joined under a single unified 

governance structure, contingent upon Kingston Hospital continuing to provide 

access to reproductive services in a location proximate to the hospital. The joined 

facility should be licensed for approximately 250 to 300 beds. 

• Mt. Vernon Hospital should downsize approximately 32 medical/surgical beds, 

convert approximately 20 additional medical/surgical beds into a transitional care 

unit, convert approximately an additional 24 medical/surgical beds into mentally 

impaired chemical abusers unit. 

• Sound Shore Medical Center should decertify approximately 9 pediatrics and 60 

medical/surgical beds and convert additional medical/surgical and obstetrics beds 

into level III NICU beds and detoxification beds. 

• Contingent upon financing, Orange Regional Medical Center should close its 

existing campuses and consolidate operations at a new, smaller replacement 

facility that is licensed for approximately 350 beds. 

• Community Hospital at Dobbs Ferry should close in an orderly fashion. 

• Westchester Medical Center should evaluate establishing the Children’s Hospital 

as an independent entity and review its clinical service mix to identify 

opportunities for reconfiguration that is non-duplicative of services in community 

hospitals. 

• Valley View Center for Nursing Care and Rehab should downsize by 

approximately 160 nursing home beds and add assisted living, adult day care and 

possibly other non-institutional services. The facility should also convert 50 

nursing home beds to ventilator-dependent and behavioral step-down units. 

• Andrus on Hudson should downsize all 247 nursing home beds and add assisted 

living and possibly other non-institutional services. 

• Taylor Care Center should downsize by approximately 140 nursing home beds. 

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• Achieve Rehabilitation should downsize by approximately 40 nursing home beds. 

• Sky View Rehabilitation and Health care Center should close, downsize, or 

convert pending a review by the Commissioner of Health 

Long Island: 

• Eastern Long Island Hospital, Southampton Hospital, Peconic Medical Center 

should be joined in a single unified governance structure. The new entity should 

develop an affiliation with University Hospital at Stony Brook. Brookhaven 

Hospital should continue joint planning with these hospitals and explore joining 

the new entity. All of these hospitals should implement the bed reconfiguration 

scheme described in the complete recommendation. 

• University Hospital at Stony Brook should be given operational freedom to 

affiliate with other hospitals and create a regional health care delivery system. 

• St. Charles Hospital should downsize 77 medical/surgical beds, convert the 

remaining 37 medical/surgical beds to psychiatric and alcohol detoxification beds, 

and discontinue its emergency department. 

• J.T. Mather Memorial Hospital should convert all 37 of its psychiatric and alcohol 

detoxification beds to medical/surgical beds. 

• Nassau University Medical Center should downsize by 101 beds and revise its 

bed configuration across service lines. 

• Long Beach Medical Center should downsize by approximately 55 beds. 

Contingent on other developments, Long Beach should reconfigure as a smaller 

facility focused on emergency and ambulatory services. 

• A. Holly Patterson should downsize by approximately 589 nursing home beds and 

transfer its subacute services to Nassau University Medical Center. A. Holly 

Patterson should also rebuild a smaller facility on its existing campus and add 

assisted living and possibly other non-institutional services. 

• Cold Spring Hills Center for Nursing and Rehabilitation should downsize by 

approximately 90 nursing home beds an d add a ventilator unit, and evening adult 

program, and a hemo-dialysis center. 

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• Brunswick Hospital Skilled Nursing Facility should close and assisted living and 

possibly other non-institutional services should be added in Suffolk County by 

another sponsor. 

New York City: 

• New York Methodist Hospital and New York Community Hospital of Brooklyn 

should merge into a single entity with two campuses, downsize by an approximate 

total of 100 beds, and expand ambulatory services. 

• Victory Memorial Hospital should close in an orderly fashion and the site should 

be converted to a diagnostic and treatment center and/or a facility offering a 

continuum of long term care services. 

• Peninsula Hospital should downsize by approximately 99 beds and St. John’s 

Episcopal Hospital should downsize by approximately 81 beds. Contingent upon 

financing, the two facilities should merge and rebuild a single facility with 

approximately 400 beds. 

• Queens Hospital Center should add approximately 40 medical/surgical beds. 

• Parkway Hospital should close in an orderly fashion, 

• Westchester Square Medical Center should close in an orderly fashion. 

• Cabrini Medical Center should close in an orderly fashion. 

• Beth Israel Medical Center – Petrie Campus should convert approximately 80 

detoxification beds to 80 psychiatric beds. 

• North General Hospital should enter into a stronger corporate relationship with 

Mount Sinai Medical Center. 

• St. Vincent’s Midtown Hospital should close in an orderly fashion. The 

psychiatric beds and ambulatory services operated by St. Vincent’s Midtown 

should be transferred and operated by St. Vincent’s Manhattan or other sponsors. 

• New York Downtown Hospital should decertify approximately 74 

medical/surgical beds and 4 pediatric beds, discontinue inpatient pediatric 

services, and reorganize its outpatient clinics under new sponsorship. 

• Manhattan Eye Ear and Throat Hospital should downsize all 150 beds. 

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• Split Rock Rehabilitation and Health Care Center should close, downsize or 

convert pending a review by the Commissioner of Health. 

Northern: 

• Bellevue Woman’s Hospital should close in an orderly fashion and its maternity, 

neonatal, eating disorders, and mobile outpatient services should be added to 

another hospital in Schenectady County. 

• St. Clare’s Hospital and Ellis Hospital should be joined under a single unified 

governance structure and the resulting entity should be licensed for 300 to 400 

beds. 

• Ann Lee Infirmary and Albany County Home should merge, downsize by at least 

345 nursing home beds, rebuild a unified facility, and simultaneously add or 

provide financial support for non-institutional services. 

• The Avenue and Dutch manor should merge and downsize by approximately 200 

nursing home beds in a rebuilt Avenue facility and should add assisted living, 

adult day care and possibly other non-institutional services. 

• The Glendale Home should downsize by approximately 192 beds. 

Western: 

• Millard Fillmore Hospital – Gates Circle should close in an orderly fashion. 

• St. Joseph Hospital should close in an orderly fashion. 

• DeGraff Memorial Hospital should downsize all 70 medical/surgical beds. It 

should convert to a long term care facility encompassing its current 80 nursing 

home beds and the 75 nursing home beds currently at Millard Fillmore Hospital -

Gates Circle. 

• Sheehan Memorial Hospital should downsize 69 medical/surgical beds. The 22 

inpatient detoxification beds currently at Erie County Medical Center should be 

added to Sheehan, and Sheehan should add ambulatory care services, methadone 

maintenance, and outpatient psychiatric services. 

• The facilities controlled by Erie County Medical Center Corporation and Kaleida 

Health should be joined under a single unified governance structure under the 

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control of an entity other than Erie County Medical Center Corporation, Kaleida 

Health, or any public benefit corporation. The new entity should have a single 

unified board with powers sufficient to consolidate services into centers of 

excellence. 

• Lockport Memorial Hospital and Inter-Community Memorial Hospital at 

Newfane should engage in a full asset merger and reconfiguration of services. 

• Bertrand Chaffee Hospital should downsize by at least 25 beds, seek designation 

as a critical access hospital, and affiliate with TLC Tri-County and TLC Lake 

Shore. 

• Brooks Memorial Hospital should seek designation as a sole community provider. 

• TLC Tri-County should downsize 28 medical /surgical beds and convert the 

remaining 10 medical/surgical beds to detoxification beds. 

• TLC Lake Shore should downsize all 42 medical/surgical beds and 40 nursing 

home beds and convert to an Article 28 diagnostic and treatment center. At its 

option, Lake Shore should continue to operate approximately 20 psychiatric beds 

or these beds should be added by another local sponsor. 

• Westfield Memorial Hospital should downsize all 32 inpatient beds and convert to 

an Article 28 diagnostic and treatment center. 

• Mount St. Mary’s Hospital and Health Center or its sponsoring entity and Niagara 

Falls Memorial Medical center should participate in discussions supervised by the 

Commissioner of Health to explore the affiliation of such facilities. 

• Mount View Health Facility should downsize all 172 nursing home beds, rebuild a 

new facility on its existing campus, add assisted living, adult day services and 

possibly other non-institutional services. 

• Nazareth Nursing Home should downsize all 125 nursing home beds and convert 

the facility for use in the PACE program at the former Our Lady of Victory 

Hospital. 

• Mercy Hospital Skilled Nursing facility should add 10 beds and transfer all of its 

beds to the former Our Lady of Victory Hospital 

• St. Elizabeth’s Home should covert its adult home beds to an assisted living 

program. 

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• Williamsville Suburban should close.

 

Financing 

 The Commission’s recommendations will benefit New Yorkers and the health care 

system. First, they will promote stability of health care providers thereby ensuring access 

to care and the provision of public goods. Second, they will reduce unnecessary public 

and private spending and produce overall cost savings for all payors. Third, they will 

produce numerous opportunities for reinvestment in the system thereby providing 

substantial financial benefits to providers and the patients served by them. 

System restructuring also provides many savings for payors, both in terms of 

actual reductions in current expenditures and avoided future costs. Such opportunities for 

savings include reductions in inappropriate utilization, avoided capital investment and 

leveraged savings. The total estimated savings for payors is around $806 million annually 

or $8 billion over ten years. This includes an annual savings to Medicaid of around $249 

million, or $2.5 billion over ten years, and an annual savings to Medicare of around $322 

million, or $3.2 billion over ten years. The total estimated benefit to providers is around 

$721 million annually or $7.2 billion over ten years. Together, these calculations yield a 

total benefit to payors and providers of over $1.5 billion annually, or $15 billion over ten 

years. 

The realization of these savings will also entail costs. Broad systemic changes 

must be supported with appropriate resources and investments are required to implement 

these recommendations. Potential costs are associated with closures, new construction, 

and affiliations. Not all of these costs will be borne by the State. It is estimated that 

implementation will entail a total cost of approximately $1.2 billion, including 

approximately $350 million in closure costs, $1.1 billion in construction costs, $11 

million in affiliation planning costs, and $300 million in offsets from the sale of facility 

real property. Almost $606 million of these costs are attributable to two contingent 

projects that the Commissioner will not be required to implement absent available 

funding. 

 Vast and unprecedented sums are available to support the restructuring of New 

York’s health care system and cover costs associated with implementing the 

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Commission’s recommendations. The Health Care Efficiency and Affordability Law for 

New Yorkers (HEAL-NY) allocates $1 billion over four years for capital grant funds to 

finance physical reconfiguration, conversion, downsizing, or closure of hospitals and 

nursing homes. Additionally, the Federal-State Health Reform Partnership (F-SHRP) 

allocates an additional $1.5 billion for similar purposes. 

 Although HEAL-NY and F-SHRP and critical to financing the Commission’s 

recommendations, they are not and should not be the only sources of funding. Indeed, 

public funds should be used in the most prudent possible manner. Insofar as facilities are 

capable of funding their own closure, conversion, affiliation, or rightsizing, they should 

be expected to do so. The Commission believes it to be appropriate that costs will be 

shared among all interested parties. Taxpayer dollars should be used judiciously and 

equitably. 

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I. Dynamism of New York’s Health Care System 

Little remains static in New York’s health care system. Regulatory changes, 

technological and clinical innovations, patient preferences, and varying business models 

contribute to this constant transformation. Rapid and broad scale change is inevitable; it requires 

adaptive strategies. Yet today, New York is struggling to maintain a 20th century institutional 

infrastructure in the face of mounting costs, excess capacity, and unmet need for communitybased alternatives. To strengthen our system, New York must overcome its over-reliance on 

outdated institutions and improve the fiscal stability of its health care providers to guarantee the 

ongoing provision of important safety-net functions, public goods, and world-class quality of 

care. 

Catching Up to Change 

The past decade was a period of especially dramatic change for NY’s health care system 

and its financing mechanisms. Under the regime of New York's Prospective Hospital 

Reimbursement Methodology (NYPHRM), established in 1983, the New York State Department 

of Health set hospital reimbursement rates. Only health maintenance organizations and similar 

managed-care entities were allowed to negotiate fees with hospitals. Essentially, NYPHRM 

established cost-based inpatient rates for Medicaid and Blue Cross. Other private insurance 

companies were required to pay a fixed “mark-up” of 11% above the Blue Cross rate.1

 

The Health Care Reform Act of 1996 (HCRA) replaced NYPHRM. HCRA deregulated 

hospital rate negotiation so that insurers, employers, and other health care payers now directly 

negotiate rates with hospitals. The State continues to establish Medicaid fee-for-service 

reimbursement rates. The federal government sets Medicare rates. 

Under NYPHRM, NY’s hospitals generally experienced modest or break-even financial 

margins. The artificial margins created by NYPHRM were exposed by HCRA. Hospital industry 

leaders have argued that providers were disadvantaged in their ability to thrive in the newly 

competitive environment. According to the Greater New York Hospital Association (GNYHA), 

 

1 Raske, K.E. (2006, February 7). Testimony Of Kenneth E. Raske, President of Greater New York Hospital 

Association on the Executive Budget Proposal for 2006–07 Before the New York State Senate Finance And 

Assembly Ways and Means Committees. Retrieved July 21, 2006, from Greater New York Hospital 

Association Web site: http://www.gnyha.org/testimony/2006/pt20060207.pdf 

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“[a]fter deregulation in 1997, hospitals’ precariously balanced financial well-being collapsed 

because health insurers were able to establish negotiated rates by using the old NYPHRM 

payments as the ceiling. That is, plans negotiated down from a State-set, cost-based rate rather 

than from market-set, charge-based payments, as had been the case in other states. In addition, 

the State was no longer able to rescue ailing hospitals through special rate appeals or revenue 

enhancements because it no longer controlled most of hospital revenue.”2

 

Concomitant to the change in state regulation, the federal government reduced 

Medicare’s hospital reimbursement rates in 1997. The Balanced Budget Act of 1997 (BBA) 

resulted in major revenue losses for New York hospitals. Due to New York City’s heavy 

concentration of academic medical centers and its large medically indigent population, the 

BBA’s sharp reductions in general medical education (GME) and disproportionate share hospital 

(DSH) payments resulted in an especially considerable drop of New York City hospitals’ 

collective revenue.3

Hospital and Nursing Home Closures 

The turbulence associated with such changes is illustrated by widespread closures and 

bankruptcies of hospitals and nursing homes. Since 1983, 70 hospitals and over 63 nursing 

homes have closed in New York State, including 34 hospitals and 44 nursing homes since 1994. 

Additionally, numerous facilities have declared bankruptcy. Despite these closures, excess 

capacity remains and resistance to mergers and other consolidations persists. Understandably, 

facility boards, workers, and communities are committed to preserving institutions in which they 

have perceived investments. 

 

2

 Ibid 

3

 For a discussion of BBA’s impact on NYC hospitals, see, e.g., Salit, S., Fass, S., & Nowak, M. (2002). Out of the 

frying pan: New York City hospitals in an age of deregulation. Health Affairs. 21, 127-139. 

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Table 1. New York State Hospital Closures since 1983

Hospital Name County Year Closed 

Brunswick Hospital Center* Suffolk 2005 

New York United Hospital Westchester 2005 

St. Vincent’s Catholic Medical Center – St. Mary’s Kings 2005 

The Hospital Delaware 2005 

St. Vincent’s Catholic Medical Center – Bayley 

Seton 

Richmond 2005 

Our Lady of Mercy Medical Center – Florence 

D’Urso Pav 

Bronx 2004 

St. Vincent’s Catholic Medical Center – St. Joseph’s Queens 2004 

Beth Israel Medical Center – Singer Division New York 2004 

Staten Island University Hospital – Concord Div Richmond 2003 

Myers Community Hospital Wayne 2003 

Brooklyn Hospital Center – Caledonian Campus Kings 2003 

Interfaith Medical Center – Jewish Hospital of 

Brooklyn 

Kings 2003 

Mary McClellan Hospital Washington 2003 

Island Medical Center Nassau 2003 

St. Agnes Hospital Westchester 2003 

Amsterdam Memorial* Montgomery 2002 

Olean General Hospital* Cattaraugus 2001 

Genesee Hospital Monroe 2001 

Massapequa General Hospital Nassau 2000 

St. John’s Episcopal Hospital, Community Div Suffolk 1999 

New York Flushing Hospital Medical Center – North 

Div 

Queens 1999 

St. Mary’s Hospital Monroe 1999 

Lady of Victory – Lackawanna Erie 1999 

Union Hospital of the Bronx Bronx 1998 

Salamanca Cattaraugus 1998 

Columbus Community Healthcare Erie 1998 

Leonard Hospital Rensselaer 1997 

Samaritan Medical Center – Stone Street Div Jefferson 1997 

Mohawk Valley General Herkimer 1996 

Julia Butterfield Memorial Putnam 1996 

Wyckoff Heights Hospital – Jackson Heights Div Queens 1996 

Flushing Hospital – Little Neck Div Queens 1996 

Westchester Medical Center – Mental Retardation 

Institute 

Westchester 1995 

Medical Arts Center Hospital New York 1994 

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Table 1 (continued). New York State Hospital Closures since 1983

Hospital Name County Year Closed 

Mercy Hospital Jefferson 1993 

Greene Division – Columbia-Greene Medical Center Greene 1993 

St. Francis Erie 1992 

Waterloo Memorial – Taylor Brown Seneca 1991 

Adirondack Regional Saratoga 1991 

Salamanca Cattaraugus 1991 

Tioga General Tioga 1990 

Community Delaware 1989 

Holy Family Medical Center Kings 1989 

Arnold Gregory Orleans 1989 

Emma Laing Stevens Washington 1989 

Childrens Oneida 1988 

Jamestown General Chautauqua 1988 

Doctors Sunnyside Orange 1988 

Parsons Queens 1988 

Johnstown Fulton 1988 

Baptist Medical Center Kings 1987 

Long Island Jewish – Manhasset Division Nassau 1987 

Sheridan Park Erie 1987 

Deaconess Division – Buffalo General Erie 1987 

Seneca Falls Seneca 1986 

Flatbush General Kings 1986 

Lafayette General Erie 1986 

Bethesda Steuben 1986 

Cohoes Memorial Albany 1986 

Tuxedo Memorial Orange 1985 

Lydia E. Hall Nassau 1985 

Boulevard Queens 1985 

Prospect Bronx 1985 

Ideal-United Health Services Broome 1984 

Herkimer Memorial Herkimer 1984 

Terrace Heights Queens 1984 

Cumberland Kings 1983 

Jewish Memorial New York 1983 

Rose Oneida 1983 

* Brunswick Hospital – closed all medical-surgical beds, but maintain rehabilitation services, Amsterdam 

Memorial – closed emergency department, ICU and ceased using medical-surgical beds in 2002, in 2005 

received approval to reopen inpatient beds. The beds are used for sub-acute care in connection with their 

nursing home, Olean General – services consolidated at main Olean General site and still in operation. 

Source: New York State Department of Health 

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Table 2. New York State Nursing Home Closures since 1983

Nursing Home Name County Year Closed 

Childs Nursing Home Company Albany 2006 

Cedar Hedge Nursing Home Clinton 2006 

Episcopal Residential Health Care Facility Erie 2006 

The Hospital Skilled Nursing Facility Delaware 2005 

Sunrest Health Facilities Suffolk 2005 

New York United Hospital Medical Center Skilled 

Nursing Pavilion Westchester 2005 

Hebrew Home For The Aged At Riverdale Baptist 

Div Bronx 2005 

Rehab Institute Of New York At Florence 

Nightingale Health Center New York 2005 

Menorah Home & Hospital For Aged And 

Infirm Kings 2005 

Kresge Residence Erie 2004 

Hutton Nursing Home Ulster 2004 

Manor Oak Skilled Nursing Facilities Chautauqua 2004 

St Lukes Manor Of Batavia Genesee 2004 

Manor Oak Skilled Nursing Facilities Erie 2004 

Loeb Center Montefiore Medical Center Bronx 2004 

Norloch Manor Monroe 2004 

Bethel Methodist Home Westchester 2003 

Wesley-On-East Monroe 2003 

Mary McClellan Skilled Nursing Facility Washington 2003 

Mt St Mary’s Long Term Care Facility Niagara 2003 

Eden Park Health Care Center Columbia 2003 

Potsdam Nursing Home St Lawrence 2003 

St Mary’s Manor Niagara 2003 

Manor Oak Skilled Nursing Facilities Inc Wyoming 2003 

The Gardens At Manhattan Health And Rehabilitation 

Center Erie 2003 

Eden Park Health Care Center Albany 2003 

St Clare Manor Niagara 2003 

Williamsville View Manor Erie 2003 

Lyden Care Center Queens 2002 

Genesee Hospital ECF Monroe 2002 

Our Lady of Victory/Head Trauma Unit Erie 2002 

Chandler Care Center Westchester 2002 

The Waters of Syracuse Onondaga 2002 

Beechwood Sanitarium Monroe 2000 

Dover Nursing Home Kings 2000 

Niagara Lutheran Delaware Home Erie 1999 

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Table 2 (continued). New York State Nursing Home Closures since 1983

Nursing Home Name County Year Closed 

Oswego Hospital ECF Oswego 1999 

Dutchess County HCF Dutchess 1999 

Leisure Arms Rensselaer 1997 

Eden Park Nursing Rensselaer 1997 

Broadacres Oneida 1996 

Madonna Residences, Inc Kings 1995 

Franklin Plaza Nursing Home Nassau 1994 

Catherine McAuley Manor Erie 1993 

Swiss Home Health Related Facility Westchester 1993 

St. Mary’s Hospital Brain Injury Unit Monroe 1992 

Maryknoll Nursing Home Westchester 1991 

Gerrit Smith Memorial Infirmary Madison 1991 

Taylor-Brown Memorial Hospital Nursing Home Seneca 1990 

Good Samaritan Nursing Home Albany 1990 

Elcor’s Marriott Manor Health Related Facility Chemung 1990 

Arnold Gregory Memorial Hospital Skilled Nursing 

Facility Orleans 1989 

Strong Memorial Hospital Skilled Nursing Facility Monroe 1988 

Chenango Bridge Nursing Home Broome 1988 

Placid Memorial Hospital Essex 1988 

Surfside Nursing Home Queens 1988 

City Hospital at Elmhurst Public Home Queens 1988 

St. George Nursing Home Erie 1988 

Margaret-Anthony Nursing Home Chautauqua 1988 

House of the Holy Comforter Bronx 1986 

Flower City Nursing Home Monroe 1985 

Jewish Home & Infirmary of Rochester Monroe 1985 

Source: New York State Department of Health 

 Health care facilities close for a variety of reasons, and rarely close due to one isolated 

cause. Common factors that lead to closures include: 

• Poor financial health: First and foremost, facilities close due to lack of funds. As the 

adage indicates, “no margin, no mission.” Not surprisingly, hospitals and nursing homes 

that close tend to have been in severe financial distress for an extended period of time 

before closing.

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• Aging physical plant: Nationally, the average age of a hospital physical plant in 2004 

was 9.8 years.4 In New York, the Dormitory Authority for the State of New York 

(DASNY) estimates that the average age of a New York hospital in 2004 was 

approximately 12.5 years. Nationally, the biggest increases in capital expenditures have 

occurred in regular fixed equipment, meaning that hospitals have concentrated on repairs 

and renovations rather than design and construction of new facilities.5

 

• Aging physical plant for nursing homes: According to officials at the Department of 

Health, the majority of nursing homes in New York State were built before 1960. From 

the information available, the median year at which facilities began operating as nursing 

homes is 1971, but many facilities operate in buildings much older, built for purposes 

other than nursing homes and later converted. 

• Low occupancy rates: An empty bed does not generate revenue. Even when a bed is 

unoccupied, there are significant fixed costs associated with maintaining that bed, 

including staffing and capital costs. Unoccupied beds are significant money drains on 

hospitals and nursing homes. Low occupancy rates can also indicate that facilities are 

unnecessary or undesirable; empty beds can reflect choices by patients and physician to 

seek and provide care elsewhere. 

• Poor community reputation: All hospitals and nursing homes are community 

institutions, serving and served by people in the community. Those facilities with 

reputations as providers of high-quality care and as “good citizens” attract the area’s 

physicians and patients. A good reputation therefore generally sustains a higher 

occupancy rate and a poor one helps sink an institution. 

• Weak management/leadership: A critical factor to any successful hospital and nursing 

home is strong and efficient management and leadership. Management is responsible for 

 

4

 American Hospital Association, (2006). Chartbook: Trends Affecting Hospitals and Health Systems, April 2006. 

Retrieved July 24, 2006, from the American Hospital Association Web site: 

http://www.aha.org/aha/research-and-trends/health-and-hospital-trends/2006.html 5

 Runy, L. (2003).Penny wise? Financial pressures force a short-term mind-set in capital spending. Health Facilities 

Management. 16(2), 20-21. 

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establishing and implementing a strategic plan that is in keeping with an organization’s 

mission. Health care leaders should create a sense of organizational commitment, and 

provide a supportive work environment to help to prevent/protect against burnout, which 

will ultimately reduce employee turnover and save money.6

According to the Healthcare Financial Management Association, rating agencies such as 

Moody’s and Standard and Poor’s cite the following governance and management issues 

as critical to their rating decisions: 

o Governance: Is the board involved in a meaningful way in strategic decisionmaking for the hospital? Does the board have the necessary skills to make 

informed decisions? Do skills of board members complement those of the 

management team? 

o Management: Has management proven its ability to weather regulatory change 

and market threats? Do senior managers inform and educate their board? Do 

they have demonstrated relevant experience? Do they use effective methods to 

monitor and improve performance? Do they use systematic strategic and 

financial planning? Do they assess and serve community needs?7

• Weak markets/access to capital: Many facilities have deferred capital improvements 

and require significant upgrades to their physical plants. Yet, access to capital financing 

is weak for many New York State providers that struggle with high debt burdens and 

limited liquidity. Without adequate access to capital, hospitals and nursing homes cannot 

invest in the physical plant or equipment that will ensure high-quality health care. 

• Difficulty attracting and retaining staff: Hospitals and nursing homes in New York 

State, as with the rest of the nation, are finding it increasingly difficult to attract and 

 

6

 See: Organzo, A.J., et al, (2006). Are attributes or organizational performance in large health care organizations 

relevant in primary care practices? Health Care Management Review. 31 (1), 2-10. 

 Castle, N.G. (2006). Organizational commitment and turnover of nursing home administrators. Health Care 

Management Review. 31 (2), 156-165. 7

 HFMA, & Pricewaterhouse Coopers (2003). Financing the future report 1: How are hospitals financing the future? 

Access to capacity in health care today. Retrieved July 21, 2006, from Healthcare Financial Management 

Association Web site: http://www.hfma.org/NR/rdonlyres/2E95F3D0-B095-4F04-8AA1-

AAE264109806/0/FNF1_No1.pdf 

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27

retain quality health care workers. Experienced nurses are in especially short supply. In 

addition, the migration of young workers from upstate New York to New York City and 

other parts of the country has exacerbated the shortage of health care workers upstate.8

• Competition from other providers: Hospitals and nursing homes face increasing 

competition both within their industries and from alternative providers. 

o Within the Industry: Hospitals and nursing homes compete vigorously among 

themselves in multiple ways. First, hospitals must selectively contract with health 

plans to be placed on their preferred provider networks. This may induce 

hospitals to offer significant price reductions to the plan to receive this network 

designation and/or to provide services attractive to health plans.9

 Second, 

hospitals are engaged in a “medical arms race” for high-margin services where 

they make redundant investments in costly clinical technologies to provide 

services attractive to individual plan beneficiaries and physicians.10 In the face of 

declining occupancy rates, nursing homes also compete vigorously with one 

another to fill beds. Nursing homes are devoting increasing money and effort to 

marketing activities, targeting discharge planners with their information.

o Alternative sites of care: Hospitals face increasing competition from other 

providers of care, such as ambulatory surgery centers, that have lower overhead 

costs than hospitals. The services provided by these niche providers are often 

well-reimbursed and deprive hospitals of revenues that were historically used to 

cross subsidize less profitable services. Similarly, nursing homes face increasing 

competition as more long term services are provided in non-institutional settings. 

Patient preferences and technology advances are driving a shift to home and 

community-based settings. This is especially so for nursing homes which provide 

a great deal of custodial care and who thus compete for the same resident pool 

with home care agencies and assisted living residences. 

 

8

 See: Roberts, S. Flight of young adults is causing alarm upstate. (2006, June 13). New York Times, p. A1. 

Available online: http://www.nytimes.com/2006/06/13/nyregion/13census.html 9

 Devers, K.J., Brewster, L.R., & Casalino, L.P. (2003). Changes in hospital competitive strategy: A new medical 

arms race?. Health Services Research. 38 (1 Pt 2), 447-469. Available online: 

http://www.pubmedcentral.gov/articlerender.fcgi?tool=pubmed&pubmedid=12650375 10 Ibid 

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• Size of nursing home: Following national trends, those New York State nursing homes 

that have closed tend to be smaller institutions. Nationwide, the proportion of homes 

with fewer than 100 beds declined from 65.7% of total facilities to just over 50%11 It is 

important to note that studies have shown that poor quality is less of a contributing factor 

to closure than size12. 

• “Cashing out”: Unlike New York hospitals, a large proportion (48%) of New York 

nursing homes are proprietary (for-profit), so that the real estate on which a nursing home 

sits can be sold with few restrictions and the licensed beds are transferable to other 

nursing homes. Establishing a new nursing home has become increasingly difficult; 

therefore, each licensed nursing home bed has a high market value. Consequently, some 

providers prefer to “cash out” rather than to continue operations, often by selling their 

real estate assets. 

Table 3. Nursing Home Sponsorship 

Ownership Class 

Region Proprietary Public Voluntary 

Central 36% 8% 56% 

Hudson Valley 46% 10% 45% 

Long Island 76% 4% 21% 

New York City 53% 4% 43% 

Northern 32% 19% 49% 

Western 45% 12% 43% 

Statewide 48% 8% 44% 

Source: New York State Department of Health 

 

11 Centers for Disease Control and Prevention, (1995, 1997, 1999). National Nursing Home Survey. Retrieved July 

24, 2006, from National Center for Health Statistics Web site: http://www.cdc.gov/nchs/nnhs.htm#PublicUse%20Data%20Files 12 Castle, N.G. (2005).Nursing home closures and quality of care. Medical Care Research and Review. 62 (1), 111-

132. Available online: http://mcr.sagepub.com/cgi/reprint/62/1/111.pdf 

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29

II. Instability of the System

The Commission finds New York States’ health care providers to be in critically 

unstable condition. Providers cannot sustain chronic financial losses and continue to provide 

the world class health care and important public goods that New Yorkers expect and deserve. 

“[N]o ordinary enterprise can continue to operate indefinitely with losses. Hospitals with 

losses for several years should either close, merge, or make changes to become more 

profitable.”13 As hospitals and nursing homes struggle to remain solvent, they face possible 

closure due to market forces alone. Because such market driven closures can occur irrespective 

of or even contrary to public policy goals, access to and quality of care are at risk. The most 

important institutions to preserve may also be the most fragile. 

Hospital System Fiscal Instability 

The dire financial situation of New York’s hospitals can be seen across all categories of 

hospitals, from rural to inner-city, from large academic medical centers to small critical access 

hospitals. According to the Healthcare Association of New York State (HANYS), hospitals in 

New York State have lost an aggregate $2.4 billion over the past eight years.14 In 2005 alone, 

the statewide operating margin15, which is the traditional measure of hospitals’ financial health, 

was -0.2% (-$95.4 million).16 While some hospitals are on relatively solid financial ground, the 

majority are losing money, just breaking even, or operating with a 0-1% financial margin.17 18 

Margins in New York have never been generous. Year after year, New York hospitals’ 

operating margins fall far below national norms. Before 1997, those margins were artificially 

 

13 Duffy, S.O., & Friedman, B. (1993). Hospitals with chronic financial losses: What came next?. Health Affairs. 

12 (2), 151-163. Available online: http://content.healthaffairs.org/cgi/reprint/12/2/151 14 Healthcare Association of New York State. (2006, November 16). New York’s hospitals lose money for the 8th

straight year: Negative operating margin ranks New York 49th in the nation. Retrieved November 16, 

2006, from Healthcare Association of New York State Web site: 

http://www.hanys.org/communications/pr/2006/upload/11_15_06_EightYearsFinancial.pdf 15 Gain or loss from operating sources (operating income/total operating revenue). 

16 Healthcare Association of New York State. (2006, November 16). New York’s hospitals lose money for the 8th

straight year: Negative operating margin ranks New York 49th in the nation. Retrieved November 16, 

2006, from Healthcare Association of New York State Web site: 

http://www.hanys.org/communications/pr/2006/upload/11_15_06_EightYearsFinancial.pdf 17 Ibid 

18 The New York Health Plan Association (NYHPA) paints a different picture by using net income, finding that 

two-thirds in fact generated profits in 2004, and of the one-third of hospitals that had losses, 15 facilities 

comprised approximately 75% of total losses for New York State. See: 

http://www.empirenewswire.com/release/downloads/nyshpa.pdf 

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30

maintained in the zero to 1% range, and after a nominal improvement in 1997, they declined 

precipitously. In 2005, the national average operating margin for hospitals was 3.7%, four 

percentage points higher than New York State’s.19 Comparing 1996-2003 operating margins in 

the 50 states and the District of Columbia, New York State has the dubious distinction of 

ranking among the very worst in terms of operating margins.20

Figure 1: Hospital Operating Margins, New York State and United States, 1996-2004 

Source: Greater New York Health Association analysis of Medicare cost reports 

Certain regions in the State fare worse than others. Hospitals in the New York City 

region are the most financially vulnerable in the State. A July 2003 United Hospital Fund 

 

19 Healthcare Association of New York State. (2006, November 16). New York’s hospitals lose money for the 8th

straight year: Negative operating margin ranks New York 49th in the nation. Retrieved November 16, 

2006, from Healthcare Association of New York State Web site: 

http://www.hanys.org/communications/pr/2006/upload/11_15_06_EightYearsFinancial.pdf 20 Raske, K.E. (2006, February 7). Testimony Of Kenneth E. Raske, President of Greater New York Hospital 

Association on the Executive Budget Proposal for 2006–07 Before the New York State Senate Finance 

and Assembly Ways and Means Committees. Retrieved July 21, 2006, from Greater New York Hospital 

Association Web site: http://www.gnyha.org/testimony/2006/pt20060207.pdf 

-4%

-2%

0%

2%

4%

6%

8%

1996 1997 1998 1999 2000 2001 2002 2003 2004

Year

Operating Margin

National

New York State

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31

found that one-third of New York City hospitals’ viability was “in doubt,” and faced financial 

problems “severe enough to jeopardize their continuing viability.” 21 

Figure 2: Hospital Operating Margins by Region, 2004 

Source: HANYS 2004 Audited Financial Statements22

Weak operating margins are not the sole indicators of hospitals’ annual financial stress. 

New York State hospitals are also the most heavily indebted in the nation. The equity financing 

ratio (the percent of assets financed through cash savings as opposed to debt) in New York is 

the worst of the 50 states and the District of Columbia. While most hospitals in the nation 

finance capital investments by an approximately 50%-50% combination of savings and 

borrowings, New York State had an 18% equity financing contribution rate by 2003.23 In other 

 

21 Brooks, P. (2003, July). Losses continue at NYC hospitals; Viability of one-third in doubt. Hospital Watch, 14 

(3), 1-6. Available online: http://www.uhfnyc.org/usr_doc/hwv14n3.pdf 22 Healthcare Association of New York State. (2005, November 16). Hospitals in New York lose money for 

seventh year in a row. Retrieved September 21, 2006, from Healthcare Association of New York State 

Web site: http://www.hanys.org/communications/pr/111505_pr.cfm 23 Raske, K.E. (2006, February 7). Testimony Of Kenneth E. Raske, President of Greater New York Hospital 

Association on the Executive Budget Proposal for 2006–07 Before the New York State Senate Finance 

and Assembly Ways and Means Committees. Retrieved July 21, 2006, from Greater New York Hospital 

Association Web site: http://www.gnyha.org/testimony/2006/pt20060207.pdf 

-0.5%

-1.3%

2.1%

-1.2%

2.0%

0.7%

(2.0%)

(1.0%)

0.0%

1.0%

2.0%

3.0%

Central Hudson

Valley

Long

Island

New York

City

Northern Western

Region

Operating Margin

NYS Average

-0.3%

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32

words, New York State relies more on debt to cover necessary expenses than does any other 

state’s health care delivery system. This heavy dependence on debt will further destabilize 

New York’s health care delivery system, and may cripple the State’s health care structure in 

the long term. 

 The fiscal problems of NY’s hospitals are reflected in and exacerbated by their 

difficulties raising capital. US hospitals generally have a wide range of capital sources to tap, 

both external and internal.24 External sources of capital include proceeds generated from bond 

issuances, bank loans, sale of real estate, real estate investment trusts, public grants, and 

philanthropy. Internal sources include operating and non-operating cash flow and divested 

assets. 

 The Healthcare Financial Management Association identified two types of hospitals to 

discern which hospitals have the best access to capital. The first type, those with “broad 

access” to capital, has stellar financial profiles: high profitability, high liquidity, and limited 

debt burden. Those with “limited access” to capital are neither profitable nor have adequate 

liquid assets, and are significantly burdened with debt. According to this report, New York’s 

access to capital is bleak. Compared to the fifty states and DC, “New York ranks first in both 

proportion and number of hospitals designated as having limited access to capital.”25 

The State’s limited access to capital is also reflected in the bond ratings of the various New 

York hospitals. Due to many factors, including average age of plant, days cash on hand, as 

well as operating margin and debt to capitalization ratios, the hospitals’ bond ratings are 

dismal. In its February 2006 report, the Moody’s rating agency referred to New York State as 

“one of the most difficult, if not the most difficult, states to operate a hospital.”26

 

24 Healthcare Financial Management Association, & Pricewaterhouse Coopers. (2003). Financing the future 

project reports I and II. Retrieved July 21, 2006, from Healthcare Financial Management Association 

Web site: http://www.hfma.org/library/accounting/capitalfinance/FinancingtheFuture.htm 25 Ibid 

26 Moody’s Investor’s Service Global Credit Research. (2006). Not-for-profit hospitals: 2006 State of the States. 

Moody’s Investor’s Service 2006 Outlook. 

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Table 4. Statewide Ranking of Hospitals with Limited Access to Capital

Rank Wide Constrained 

1 Indiana New York 

2 Wisconsin Hawaii 

3 Nebraska Washington, DC 

4 New Hampshire Pennsylvania 

5 Vermont West Virginia 

6 Minnesota New Jersey 

7 Ohio North Dakota 

8 Virginia Massachusetts 

9 Arizona California 

10 Tennessee Connecticut 

Source: Solucient27

 

The low credit rating of the hospitals has two primary effects. First, the higher the debt 

service costs due to poor credit ratings, the less an institution can spend on other expenditures 

such as capital improvement, technology upgrades, and pension coverage. Second, because the 

bond ratings are bleak, the vast majority of not-for-profit hospitals and nursing homes in the 

DASNY portfolio require some sort of credit enhancement. Credit enhancement sources 

include letters of credit, bond insurance, local taxes, and the Federal Housing Administration’s 

(FHA) section 242 Hospital Mortgage Insurance Program.28 Notably, in 2000, the FHA 

program insured over 70% of hospital credits issued through DASNY, and over 60% of FHAinsured debt nationwide is in New York State.29

 

27 Healthcare Financial Management Association, & Pricewaterhouse Coopers. (2003). Financing the future II 

Report 6: The outlook for capital access and spending. Retrieved July 21, 2006, from Healthcare 

Financial Management Association Web site: http://www.hfma.org/NR/rdonlyres/ED7D0E8B-E896-

4B1C-8466-B33CA4B72095/0/FF2_No6_Outlook_w1.pdf 28 See: United States Government Accountability Office. (2006). Hospital mortgage insurance program: Program 

and risk management could be enhanced (1-66), showing that the geographic concentration of FHAinsured hospitals located in New York “makes the [FHA] program vulnerable to state policies and 

regional economic conditions.” Availabe online: http://www.gao.gov/new.items/d06316.pdf 

29 Health Care Reform Working Group. (2004). Health Care Reform Working Group – Final Report, November 

17, 2004, 1-32. Available online: 

http://www.health.state.ny.us/health_care/medicaid/related/health_care_reform/pdf/final_report.pdf 

Case 7:07-cv-03432-CS-MDF Document 28-3 Filed 04/15/2008 Page 42 of 120
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Table 5. New York State Hospital Medians Compared to Rating Agency Medians

 Hospital Medians 

S&P, All Health Care, 2004** 

Fitch Nonprofit Hospital and 

Health Care System, 2004*** 

Ratios 

New 

York 

State, 

2003* 

AA+ 

to 

AAA+ to ABBB+ 

to 

BBB- Spec AA A BBB 

Below 

BBB 

Average Age 

of Plant 12.5 8.9 9.1 9.8 12.6 9.4 9.9 9.3 13.1 

Days 

Operating 

Cash 

Available 

30.1 211 159 110 50 232.2 177.2 117.5 49.3 

Operating 

Margin 0.0% 3.1% 3.5% 1.2% (1.3%) 3.5% 2.5% 1.0% (1.8%)

Debt to 

Capitalization 50.9% 32.8% 37.3% 44.3% 65.3% 34.8% 39.0% 47.3% 75.1% 

Source: * DASNY, 2003 audited financial statements 

 ** Standard and Poor’s, “U.S. Not-For-Profit Health Care 2004 Median Ratios,” June 10, 2004 

 *** FitchRatings, Health Care Special Report, “2005 Median Ratios for Nonprofit Hospitals and 

Health Care Systems,” August 9, 2005 

 To help ameliorate the hospitals’ limited capital access, DASNY, the State agency that 

provides financing and construction services to not-for-profit healthcare facilities and the 

State’s largest issuer of health-related debt, issued secured hospital revenue bonds. These 

bonds “were issued to allow financially distressed New York not-for-profit- hospitals access to 

the capital markets. The establishment of the Secured Hospital Program became necessary 

because the physical plants of certain hospitals were deteriorating, but such hospitals’ financial 

conditions were too weak to enable them to borrow the monies necessary to modernize their 

facilities.”30 Authorization to issue bonds under this program, however, expired on March 1, 

1998. Approximately $837 million is outstanding, spread over ten institutions. Currently, 

DASNY offers multiple programs to provide financing for capital construction and 

rehabilitation projects for non-profit health care facilities in New York State which are secured 

by various credit structures. 

 

30 Dormitory Authority State of New York. Financial services: Health care. Retrieved July 24, 2006, from 

Dormitory Authority State of New York Web site: 

http://dasny.org/finance/finserv/index.php#anchor820988 

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Nursing Home System Fiscal Instability 

New York State’s nursing homes are in a similarly precarious situation. In 1997, less 

than a quarter of the State’s nursing homes were operating in the red. The majority - at least 

55% - now operate at a loss. 

Figure 3: Nursing Homes with Operating Losses, 1997-2003 

55%

22%

0%

10%

20%

30%

40%

50%

60%

1997 1998 1999 2000 2001 2002 2003

Year

% of Nursing Homes with Operating Losses

Source: Residential Health Care Facility-4 (RHCF-4) Cost Reports, 1997-2003 

The financial strain on NY nursing homes may be increasing. According to a survey 

conducted by the Joint Association Task Force on Nursing Home Reimbursement, New York’s 

median nursing home margin fell from +0.6% in 2001 to -0.1% in 2002, and again to -0.6% in 

2003. Rural nursing homes are in much worse financial health, with median margins declining 

from -5.2% to -7.4% in the same time period.31 As a result of these poor margins, nursing 

 

31 Joint Association Task Force on Nursing Home Reimbursement. (2006). Joint Association Task Force on 

Nursing Home Reimbursement: A briefing for member facilities. 6-7. 

The Task Force was comprised of the New York Association of Homes and Services for the Aging, the 

Healthcare Association of New York State, and the New York State Health Facilities Association. 

Case 7:07-cv-03432-CS-MDF Document 28-3 Filed 04/15/2008 Page 44 of 120
36

homes financial position is also deteriorating: the median number of days cash-on-hand in 

2003 was only 21.32

Pressures on the System 

Numerous pressures on the system contribute to the weak bottom lines of NY’s health 

care providers. Moody’s Investor Services attributes the bleak financial condition of New York 

hospitals to: the state’s “challenging” demographics, including a high Medicaid-dependent and 

large immigrant population; payer concentration (tightening of the insurance market); a high 

degree of competition between providers; high cost of operation; merger difficulties; large 

number of high-cost academic medical centers; and the legacy of a highly regulated system.33 

Additional major factors include: 

o Uninsured residents. The problem of the uninsured and underinsured is one of the 

most vexing problems facing health care delivery in both New York State and the United 

States as a whole. Over 45 million Americans below 65 years-old, 18% of the non-elderly US 

population, lacked health care coverage in 2004.34 An estimated 17% of New York State 

residents under age 65, almost 3 million New Yorkers, are uninsured.35 A large portion of the 

State’s uninsured population lives in New York City; 25% of City residents are uninsured, 

whereas 13% of State residents living outside of the City are uninsured.36 Most of the 

uninsured in New York are low-income, working adults. Members of racial/ethnic minorities 

are disproportionately uninsured.

 

32 Department of Health. (2003). Residential Health Care Facility Cost Reports (RHCF-4). 33 Moody’s Investor’s Service Global Credit Research. (2006). Not-for-profit hospitals: 2006 State of the States. 

Moody’s Investor’s Service 2006 Outlook. 34 Kaiser Commission on Medicaid and the Uninsured, (2006, January). The uninsured: a primer - Key facts about 

Americans without health insurance. Retrieved July 24, 2006, from Kaiser Family Foundation Web site 

http://kff.org/uninsured/upload/7451.pdf 35 Kaiser Family Foundation, New York: Health insurance coverage of nonelderly 0-64, states (2003-2004), U.S. 

(2004). Retrieved July 24, 2006, from statehealthfacts.org Web site: http://www.statehealthfacts.org/cgibin/healthfacts.cgi?action=profile&area=New+York&category=Health+Coverage+%26+Uninsured&sub

category=Health+Insurance+Status&topic=Nonelderly+%280%2d64%29 36 Holahan, D., Ely, A., Haslanger, K., Birnbaum, M., & Hubert, E. (2004). Health insurance coverage in New 

York, 2002. Retrieved July 24, 2006 from United Health Fund Web site: 

http://www.uhfnyc.org/usr_doc/chartbook2004.pdf 

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Table 6. Uninsured in New York City and New York State, Nonelderly, 2002-2003 

 Uninsured Nonelderly 

(Children and Adults under age 65)

 New York City New York State 

At or below 200% of the Federal Poverty Level 65% 62% 

Workers and their dependents 75% 78% 

Adults ages 18-64 83% 83% 

Source: March 2003 and March 2004 Current Population Survey, Annual Social and Economic Supplement

Figure 4. Distribution of Uninsured by Race/Ethnicity for New York State, Nonelderly, 

2002-2003 

60%

16% 16%

7%

41%

21%

28%

10%

0%

10%

20%

30%

40%

50%

60%

70%

White (nonhispanic)Black (nonhispanic)Hispanic Other

Total Population Uninsured Population

Source: March 2003 and March 2004 Current Population Survey, Annual Social and Economic Supplement

Lack of health coverage is a serious burden for the uninsured themselves and for the 

institutions that care for them. Those without health coverage are less likely to seek and 

receive preventive care, more likely to be hospitalized for avoidable health problems, and more 

likely to be diagnosed in the later (and more expensive) stages of disease.37 Even in New York 

 

37 Kaiser Commission on Medicaid and the Uninsured, (2006, January). The uninsured: a primer - Key facts about 

Americans without health insurance. Retrieved July 24, 2006, from Kaiser Family Foundation Web site 

http://kff.org/uninsured/upload/7451.pdf 

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City with its vast public hospital system, uninsured residents face larger obstacles to care than 

those with insurance.38

NY’s hospitals provide substantial amounts of uncompensated care to the uninsured 

and also receive some support for their care of the uninsured. New York is one of a few states 

that has a public funding pool to reimburse hospitals for free care they provide as well as for 

bad debt from patient care.39 In FY 2005-06, New York State provided $847 million per year 

in HCRA funding to subsidize care for the uninsured; $765 million from the general hospital 

indigent care pool, and $82 million from the high need indigent care pool. Pool funds are 

distributed through a complex formula based in part on the level of unreimbursed care each 

hospital provides in comparison to other hospitals and the proportion of unreimbursed care to each 

hospital’s total costs.40 The distribution formula relies on 1996 cost data and has not been 

updated.. The pool does not completely compensate hospitals for the cost of providing care to 

uninsured New Yorkers. According to GNYHA, HCRA covers a statewide average of 50% of the 

cost of providing care to the uninsured, ranging from 20% to 80% coverage for particular 

hospitals.41 In addition to HCRA, hospitals rely on other public monies to support their margins.

o Outmigration of services. The delivery of many acute care services has shifted from an 

inpatient to an outpatient setting. This shift has been driven by changing reimbursement incentives, 

clinical technology and pharmaceutical innovation, and consumer preferences. Cardiac 

catheterization, colonoscopy, and cancer treatment (radiation therapy and chemotherapy) 

services are now largely provided on an ambulatory basis. 

This shift in care has precipitated the growth in ambulatory surgery centers (ASCs), 

outpatient cancer centers, and outpatient diagnostic centers. These centers increase 

competition in health care, and may improve quality by specialization of services. 42 However, 

many outpatient centers practice “cream skimming,” choosing to provide the most profitable 

 

38 Louis Harris and Associates, Inc. (1998, February). 1997 survey of health care in New York City. Retrieved 

July 24, 2006, from The Commonwealth Fund Web site: 

http://www.cmwf.org/surveys/surveys_show.htm?doc_id=228066 

39 More information is available online: http://www.health.state.ny.us/nysdoh/hcra/hcrahome.htm 40 Greater New York Hospital Association. Questions and answers on the New York health care reform act. 

Retrieved July 24, 2006, from the Greater New York Hospital Association Web site: 

http://www.gnyha.org/pubinfo/HCRA_QA.pdf 41 Greater New York Hospital Association. Questions and answers on the New York health care reform act. 

Retrieved July 24, 2006, from the Greater New York Hospital Association Web site: 

http://www.gnyha.org/pubinfo/HCRA_QA.pdf 42 Shactman, D. (2005). Specialty hospitals, ambulatory surgery centers, and general hospitals: Charting a wise 

public policy course. Health Affairs. 24 (3), 868-873. Available online: 

http://content.healthaffairs.org/cgi/content/full/24/3/868? 

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39

medical services without bearing the burden of providing other less attractively reimbursed 

ones. They also do not bear the full overhead costs incurred by institutions in which the 

services were previously provided. Because these centers capture some of the lucrative services 

from hospitals by selecting certain profitable diagnostic related groups (DRGs), general 

hospitals may lose those profitable patients to the centers and will continue to disrupt the 

general hospitals’ cross-subsidization of unprofitable services that only Article 28 hospitals are 

required to provide. Second, the outpatient centers may avoid patients who are uninsured or 

underinsured, leaving the burden of uncompensated care solely on general hospitals.43 Finally, 

the shift of the locus of care could further reduce New York hospitals’ low occupancy rates and 

exacerbate the problem of excess capacity.44

Figure 5: Estimated Number of Assisted Living Facilities in the United States, 1995-2000

Source: National Center for Assisted Living

 

43 See, e.g., Guterman, S. (2006). Specialty hospitals: A problem or a symptom? Health Affairs. 25 (1), 95-105. 

Available online: http://content.healthaffairs.org/cgi/content/full/25/1/95 44 Shactman, D. (2005). Specialty hospitals, ambulatory surgery centers, and general hospitals: Charting a wise 

public policy course. Health Affairs. 24 (3), 868-873. Available online: 

http://content.healthaffairs.org/cgi/content/full/24/3/868? 

32,886

16,021

0k

5k

10k

15k

20k

25k

30k

35k

1995 1996 1997 1998 1999 2000

Year

Number of Assisted Living Facilities

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Within the long term care sector, nursing facilities in New York State are also facing 

some competition from home and community-based providers. The growth of attractive, 

supportive housing alternatives for seniors with the means to afford them helped drive these 

changes in nursing home occupancy rates and patient populations. These newer alternatives 

include a variety of residential senior housing and assisted living arrangements. In 2002, it was 

estimated that assisted living facilities in the United States housed 910,000 people.45 

Assisted living has grown rapidly as a supportive housing arrangement. However, 

because costs are high and public reimbursement scarce, older persons with modest means 

have had limited access to this option. This may be changing. While efforts are in their nascent 

stages, the AARP reports that there have been successful experiments in extending assisted 

living services to low income, frail elderly residents of subsidized housing.46 Many states have 

advanced the growth of residential care through assisted living by providing for such facility 

care in their Medicaid Waiver programs. As a result, some states have seen an increase in ALP 

residents and a concomitant decrease in nursing home clients. 

Table 7. Number of Medicaid Waiver Clients in Residential Settings

 Year 

State 2000 2002 2004 

Arizona 1,240 2,300 3,067 

Colorado 2,654 3,773 3,804 

Florida 1,458 2,681 4,167 

Georgia 2,262 2,759 2,851 

Minnesota 397 2,895 4,144 

New Jersey 699 1,500 2,195 

Oregon 2,573 3,600 3,731 

Washington 2,919 3,762 7,404 

Source: AARP, Wilden, R. & Redfoot, D.L., “In Brief: Adding Assisted Living Services to Subsidized Housing: 

Serving Frail Older Persons With Low Incomes,” Research Report of the AARP Public Policy Institute, January 

2002.

 

45 Mollica, R. (2002). State assisted living policy: 2002. Retrieved July 24, 2006, from National Academy for 

State Health Policy Web site: http://www.nashp.org/_docdisp_page.cfm?LID=24F0A0A1-2066-4E84-

B113F4B919FC006C 46 Wilden, R., & Redfoot, D.L. (2002, January). Adding assisted living services to subsidized housing: Serving 

frail older persons with low incomes. Retrieved July 24, 2006, from AARP Web site: 

http://assets.aarp.org/rgcenter/il/2002_01_living.pdf 

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In addition to assisted living, growth has also occurred in home and community-based 

alternatives to institutional care. There are now more than 3,500 adult day centers operating in 

the US providing care for 150,000 seniors each day.47 

The Program of All-Inclusive Care for the Elderly (PACE) model successfully shifts 

the focus of long-term care to non-institutional settings. PACE combines Medicare and 

Medicaid payments into one capitated payment (set fee per patient) to long-term care 

providers, who carefully plan and manage service delivery to keep nursing-home-eligible 

seniors out of hospitals and nursing homes. Program evaluations have shown a decrease in 

hospital and nursing home utilization among PACE participants, which is more powerful due 

to the fact that all participants have chronic conditions and disabilities. PACE expansion in 

New York has been slow, but there are some successful growing programs and the legislature 

recently approved the addition of four more “pre-PACE-like” (Medicaid capitation only) 

programs. 

o Declining Hospital Average Length of Stay (ALOS). Declines in ALOS exacerbate 

problems associated with excess inpatient capacity. While still higher than the national 

average, New York State’s inpatient hospital ALOS has fallen considerably. The ALOS for 

New York State in 2004 was 6.1 days, down from 8.4 days in 1994. Prior to 1994, ALOS was 

consistently in the range of 8.5 to 9.3 days).48 The national average LOS for hospital inpatient 

stays was 4.8 days in 2003, down from 5.7 days in 1994.49 The recent drop in LOS is primarily 

attributable to clinical and pharmaceutical innovations and an increase in ambulatory or sameday surgery. Treatment advances, including new drug therapies and less invasive surgical 

techniques, have made possible fewer and shorter hospital stays, as have cost-management 

controls and alternative forms of health care organization and payment.50

Though lower than in the past, the high ALOS in NY hospitals is not justified by 

patient severity and should be further reduced. A shorter length of stay can often benefit 

 

47 (2006, July 14). Aging services in America: The facts. Retrieved July 24, 2006, from American Association of 

Homes and Services for the Aging Web site: http://www.aahsa.org./aging_services/default.asp 48 Department of Health. (2004). Statewide Planning and Research Cooperative System, 243. Available online: 

http://www.nyhealthcarecommission.org/docs/sparcs_complete_november2005.pdf. Earlier information 

is available in the Statewide Planning and Research Cooperative System Annual Reports. 

49 Kozak, L.J., Owings, M.F., & Hall, M.J. (2004). National hospital discharge survey: 2001 annual summary with 

detailed diagnosis and procedure data. Vital Health Statistics. 13 (156). Available online: 

http://www.cdc.gov/nchs/data/series/sr_13/sr13_156.pdf 50 (2002, October 10). Length of hospital stays continues to decline. Retrieved July 24, 2006, from HealthLink: 

Medical College of Wisconsin Web site: http://healthlink.mcw.edu/article/1013703780.html 

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patients, allowing them to return to their daily lives soon after hospitalization. Patients can be 

exposed to infections often present in hospitals and to the possibility of medical errors. The 

benefits of getting people up and moving around are best realized by moving them to 

residential environments such as their homes or nursing homes.51 If ALOS were reduced to 

more appropriate levels, the excess capacity in New York State would be substantially greater 

than it is today. 

In addition, shorter ALOS can have significant cost benefits for hospitals. Most payers 

have abandoned per diem payment structures to correct the perverse incentive to extend a 

hospital’s ALOS as long as possible. The shift to a prospective payment system (PPS) means 

that hospitals receive a fixed payment per admission and a longer length of stay does not 

generate extra revenue. Instead, the costs associated with a longer LOS increase costs and cut 

into a hospital’s margins. 

Figure 6: New York State and National Hospital Length of Stay, 1994-2004

5.7

4.8

6.2

8.4

0

2

4

6

8

10

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Year

Average Length of Stay

National

New York State

Source: National Hospital Discharge Survey: National Center for Health Statistics and Statewide Planning and Research 

Cooperative System (SPARCS) data

 

51 Excellus Blue Cross/Blue Shield. (2002). Average length of stay in upstate New York hospitals: Opportunities 

for savings. Excellus Health Policy Reports. 4, 1-16. Available online: 

https://www.excellusbcbs.com/download/files/excellus_health_policy_report_4.pdf 

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Figure 7: New York State Hospital Length of Stay by Region, 2004

6.6 6.5

5.7 5.8

6.1

5.5

4.0

5.0

6.0

7.0

Central Hudson

Valley

Long Island New York

City

Northern Western

Region

Average Length of Stay

NYS Average

6.2

Source: 2004 Statewide Planning and Research Cooperative System (SPARCS) data 

As with hospitals, ALOS in New York’s nursing homes has declined dramatically over 

the last decade. Much of the decrease is attributable to changes in the service mix of nursing 

homes; many facilities have reduced their focus on traditional long-term services to expand 

their post-acute short-term rehabilitation services, which generally have a length-of-stay of less 

than 30 days. Between the growing short-stay services and the changing admission patterns for 

longer stay residents, the average length of stay in New York’s nursing homes has been cut in 

half in just under seven years. The statewide average was 217 days in 2003, down from 463 

days in 1996. 

This increased churning of nursing home residents has had an impact on facility 

operations and finances. Facilities must provide increased nursing ratios, increased 

housekeeping services, increased documentation and supervision, and specialized clinical and 

therapeutic services. While Medicare pays additionally for each resident requiring more 

nursing and therapy, Medicaid reimbursement had been capped according to the facility’s 1983 

cost structure and other ceilings. Therefore, while the industry’s costs have risen dramatically, 

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it is not clear that revenues have kept pace. Recent legislation to update the nursing home base 

year may address this imbalance. 

Figure 8: New York State Nursing Homes Average Length of Stay, 1996-2003 

217

463

0

100

200

300

400

500

1996 1997 1998 1999 2000 2001 2002 2003

Year

Number of Days

Source: Residential Health Care Facility-4 (RHCF-4) Cost Reports, 1996-2003 

o Drop in Severity of Illness (Hospitals). Contrary to the national trend, the severity of 

illness of New York City residents who require hospitalization as measured by the case mix 

index (CMI) has declined sharply in a majority of City hospitals.52 Due largely to fortunate 

developments related to major epidemics (e.g., AIDS, substance abuse, tuberculosis), highacuity admissions have fallen. This drop in CMI directly affects the financial viability of the 

State’s and City’s hospital system. “Under DRG payment systems, the CMI determines how 

much inpatient revenue a hospital will receive. In theory, since DRG payments are based on 

costs, the CMI should not affect hospital profitability. However, in practice, the CMI is often 

related to profits.”53 

 

52 United Hospital Fund, (2005).Drop in severity of illness further strains hospital finances. Hospital Watch. 16 

(1), 1-6. Available online: http://www.uhfnyc.org/usr_doc/hw16_1.pdf 53 United Hospital Fund, (2005).Drop in severity of illness further strains hospital finances. Hospital Watch. 16 

(1), 1-6. Available online: http://www.uhfnyc.org/usr_doc/hw16_1.pdf 

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o Increase in Severity of Illness and Disability (Nursing Homes): While the hospitals 

may be experiencing severity declines, nursing homes are dealing with more needy patients 

and residents—getting them “sicker and quicker.” Nationwide, nursing home residents are 

older and more frail, and this is certainly true in New York as well. 

Figure 9: Percentage of Nursing Home Residents able to Independently Perform 

Activities of Daily Living 

59%

27%

22%

9%

6%

53%

21%

33%

30%

13%13%

67%

0%

10%

20%

30%

40%

50%

60%

70%

80%

Percent Able to Perform Independently

1977 1985 1999

Activities of Daily Living

1977 1985 1999

Eating Walking Dressing Bathing

1977 1985 1999 1977 1985 1999

Source: National Nursing Home Survey

o Workforce Issues. New York is more expensive than most states to employ workers, 

including nurses and other health care workers. According to the Bureau of Labor Statistics, 

New York ranks sixth among all the States in salaries for registered nurses.54 Retention of 

experienced health care personnel, especially nurses, is also a challenge. A 2004 GNYHA 

study found an 8.5% turnover rate for registered nurses at GNYHA-member hospitals. More 

than one- third of the hospitals reported turnover rates of 10% or higher.55 To address these 

 

54 Bureau of Labor Statistics, (2005). Occupational employment and wages, May 2005: Registered Nurses. 

Retrieved July 24, 2006, from U.S. Department of Labor Web site: 

http://www.bls.gov/oes/current/oes291111.htm 55 Greater New York Hospital Association, (2004, April 23). New York-area hospitals continue to face shortage of 

nurses. Retrieved July 24, 2006, from Greater New York Hospital Association Web site: 

http://www.gnyha.org/press/2004/pr20040423.html 

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issues, more than $1.3 billion has been invested in workforce recruitment, retraining, and 

retention though various programs. 

Table 8. Employment and Wages of Registered Nurses by State, May 2005

Mean Wage 

State 

Estimated Total 

Employment Hourly Annual 

California 226,350 $33.86 $70,430 

Maryland 49,010 $32.37 $67,330 

Massachusetts 76,870 $31.85 $66,250 

Hawaii 9,240 $31.49 $65,490 

New Jersey 80,940 $30.32 $63,070 

New York 164,370 $30.29 $63,010 

Source: Bureau of Labor Statistics, May 2005 Occupation and Wage Estimates

For nursing homes, turnover for registered nurses, licensed practical nurses, and 

certified nursing aides categories is significant. While better than the national average, 

turnover rates for these categories are between 40 and 50%. These translate to vacancy rates of 

16-17% for RNs and LPNs. 

Table 9. Nursing Home Staff Turnover, 2002

Licensure New York State National 

C.N.A 41.7% 71.1% 

L.P.N 33.3% 48.9% 

Staff R.N 44.4% 48.9% 

Source: American Health Care, 2002 Survey of Nursing Staff Vacancy & Turnover Rates in Nursing Homes 

Often, these vacancies are “filled” with overtime and agency staffing, both of which 

contribute to a facility’s instability. Over-time and agency payments are a significant financial 

burden for many nursing homes, whose Medicaid rates do not recognize these increase costs. 

Moreover, both overtime use and agency staff use are correlated with lower quality measures, 

so that a facility’s reputation—and often its occupancy—are hurt by staff turnover and 

vacancies. 

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o Shifting Demographics and Consumer Preferences. Changes in demographics have 

a significant impact on the demand for hospital and nursing home beds.56 Trends in total 

population suggest that statewide need for inpatient capacity will remain flat for the 

foreseeable future, with some differences at the regional level. Aging of the population will 

occur slowly, affecting demand only gradually. Growth in the 75+ cohort, which generates the 

largest demand for nursing home care, will be relatively flat over the next 20 years. The 

average baby boomer will be 55 in 2010, so the full impact of this generation will not be felt 

until the 2020s, when the baby boom generation first reaches their mid-70s. Older people today 

are healthier than older people of decades ago. People live longer, retire later, have fewer 

disabilities, have less functional loss, and report themselves to be in better health. The National 

Academy of Sciences reports a statistically significant 3.6% decline in chronic disability 

prevalence rates in the elderly United States population, from 24.9% in 1982, to 21.3% in 

1994. These trends, together with continuing advances in medical care may have contributed 

to the nursing home utilization decline for the 65+ population between 1998 and 2003. 

Beyond demographics, consumer attitudes towards and preferences for health care 

services are changing. Patients are now more engaged in medical decision-making, participate 

as active partners in their care, value living independently, and shun institutional care 

arrangements. Technology advances increasingly allow patients to realize their preferences. 

The impact of these shifting preferences is likely to be felt most strongly in the long term care 

continuum of services. While the bulk of today’s frail elderly, who were shaped by the 

Depression and WWII, are fairly trusting and accepting of institutions, the generations behind 

them—including the “silent generation” and the “baby boomers” show strong preferences for 

non-institutional alternatives. 

 

56 Commission on Health Care Facilities in the 21st Century. (2006). Planning for the future: Capacity needs in a 

changing health care system, 1-41. New York: Commission on Health Care Facilities in the 21st Century. 

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III. Excess Capacity

 

Excess capacity in our state’s health care system locks us into a vicious cycle. The costs 

associated with maintaining unneeded beds and institutions are steep. Perpetuating inefficiencies 

at weak, unneeded facilities drives the costs of health care ever higher. As a result, access to care 

is diminished, quality of care suffers, safety net functions are threatened, and modern health care 

becomes increasingly unaffordable for individuals, businesses, and government. 

New York State Has Too Many Hospital Beds 

A fundamental driver of the crisis in New York’s health care delivery system is excess 

capacity. Simply stated, New York State is over-bedded and many beds lie empty. There are 

approximately 3.3 hospital beds per 1,000 New Yorkers, compared to the national figure of 2.8 

beds per 1,000 people.57 Were ALOS in NY hospitals closer to national norms, the excess 

capacity in the state would be substantially greater. Even a statewide reduction in ALOS to the 

levels in the Central and Northern regions of the state would result in significantly more excess 

capacity. 

Table 10. Beds Per 1,000 Population – Selected States 

Rank State 

Beds/1,000 

Population 

(2004) Rank State 

Beds/1,000 

Population 

(2004) 

1 District of 

Columbia 6.2 11 Iowa 3.7 

2 South Dakota 6.0 11 Kentucky 3.7 

3 North Dakota 5.6 13 Arkansas 3.5 

4 Montana 4.7 13 Tennessee 3.5 

5 Mississippi 4.5 15 Alabama 3.4 

6 Nebraska 4.2 16 Missouri 3.3 

7 West Virginia 4.1 16 New York 3.3 

8 Wyoming 4.0 18 Minnesota 3.2 

9 Kansas 3.8 18 Pennsylvania 3.2 

9 Louisiana 3.8 20 Oklahoma 3.1 

Source: Kaiser Family Foundation

 

57 Kaiser Family Foundation, New York: Beds per 1,000 Population, 1999-2004. Retrieved August 21, 2006, from 

statehealthfacts.org Web site: http://www.statehealthfacts.org/cgibin/healthfacts.cgi?action=profile&area=New+York&category=Providers+%26+Service+Use&subcategor

y=Hospital+Trends&topic=Beds%2c+1999%2d2004 

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Excess capacity is both a cause and an effect of low and steadily declining hospital 

occupancy rates. The statewide hospital occupancy rate has fallen from 82.8% in 1983 to 65.3% 

in 2004, a decrease of 17.5%, including a decline from 73.4% of certified beds in 1994, a 

decrease of 8.1%. On a given day, as many as one-third or more of the state’s hospital beds lie 

empty. This is far lower than what historically has been considered an ideal rate of 85%, which 

ensures efficient operations and allows some surge capacity for periods when the daily patient 

census increases. On a staffed bed basis, approximately 77% of beds statewide are occupied.58 

While statewide occupancy rates are low, there is some variation of occupancy both 

between and within regions. The average occupancy rate for many individual hospitals show 

them to be more than half empty, and some regions of the State, including the Western and 

Central regions, have especially low occupancy rates based on both certified and staffed bed 

count. 

Figure 10. Hospital Licensed and Available Bed Occupancy Rates, 1994 to 2004 

Source: 2004 Statewide Planning and Research Cooperative System (SPARCS) data 

.

 

58 New York State Department of Health. (2004). Institutional Cost Reports, 1-52. Available online: 

http://www.nyhealthcarecommission.org/docs/2004_icr_commission_data.pdf 

73.4%

65.3%

73.3%

77.6%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Year

Occupancy Rate

Available Beds

Licensed Beds

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Figure 11. Hospital Licensed Bed Occupancy Rates by Region, 2004 

57.7%

68.6%

55.7%

62.0%

73.3%

58.6%

0.0%

20.0%

40.0%

60.0%

80.0%

Central Hudson

Valley

Long

Island

New York

City

Northern Western

Region

Occupancy Rate, 2004

NYS Average

65.3%

Figure 12. Hospital Available Bed Occupancy Rates by Region, 2004 

68.0%

83.5%

68.8% 67.0%

83.9%

69.0%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

Central Hudson

Valley

Long

Island

New York

City

Northern Western

Region

Occupancy Rate, 2004

NYS Average

77.6%

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Regions of New York State Have Too Many Nursing Home Beds 

Nursing home occupancy in New York State has been steadily declining, from 97% in 

1997 to 93% in 2004. There are various definitions of the ideal nursing home occupancy rate. 

A 97% occupancy rate historically has been the goal for nursing homes in terms of viability and 

efficiency. The New York State Department of Health also uses 97% as a measure of whether 

new beds can be made available in region. From a financial perspective, maintaining at least a 

95% occupancy rate is crucially important to nursing homes because that is the rate required to 

qualify for “bed-hold payments,” which allows the State to compensate nursing homes in order 

for the nursing home to reserve an empty bed while waiting for its resident to return from a 

hospitalization. 

Figure 13. Nursing Home Licensed Bed Occupancy Rates, 1994 to 2004 

94.2%

97.1%

85%

90%

95%

100%

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Year

Occupancy Rate

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Figure 14. Nursing Home Licensed Bed Occupancy Rates by Region, 2003 (Adjusted for 

partial years) 

92.7%

94.7% 94.2%

91.5% 91.4%

94.6%

80.0%

90.0%

100.0%

Central Hudson

Valley

Long

Island

New York

City

Northern Western

Region

Occupancy Rate, 2003

NYS Average

93.6%

Although occupancy rates have been declining, New York’s nursing homes have 

increased the numbers of people they serve. Shorter-term stays for sub-acute care have become 

so prevalent that the number of total nursing home admissions has more than doubled since 

1997. The rapid growth of sub-acute services, together with rapid resident turnover rates (less 

than 30 days length-of-stay), reduces the occupancy of an efficient provider. The State’s nursing 

home average length of stay decreased from approximately one year in 1997 to 217 days in 

2003. Patient turnover leads to vacant beds due to admission/discharge timing issues, the need 

to match roommate gender and other factors. 

According to the 2007 New York State residential health care facility bed need 

methodology, the State has roughly the right number of beds. In the aggregate, the supply is 

roughly equivalent to need, with about 2,000 beds still needed statewide. However, this analysis 

is based on current utilization patterns. Many trends could only further strengthen the need to 

shift future resources. For example, progress in medical treatment and technology has enabled 

many older New Yorkers to live longer in less restricted settings. Though the population is 

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53

gradually aging, the shift to home and community-based care could keep pace with this trend, 

particularly as baby boomers turn away from institutional care settings. 

The bed need methodology also reveals that nursing home beds are unevenly distributed 

across the state. The methodology indicates that the Bronx, New York (Manhattan), 

Westchester, Schenectady, St. Lawrence, Oneida, Monroe, Chatauqua, and Albany counties have 

too many beds. Notably, the bed need methodology does not tell the whole picture; even in 

counties with a calculated deficit of beds, the county occupancy remains quite low, indicating 

over-bedding. These counties include Cayuga, Jefferson, Westchester, Putnam, and Columbia. 

The Commission also considered the relative availability of non-institutional long-term 

care alternatives, such as adult day health care, long-term home care, and supportive housing, in 

determining whether there was excess capacity in the nursing home sector. If a county has a 

high occupancy but few home- and community-based options, it is likely that the nursing home 

beds are utilized by individuals who may otherwise be cared for in an alternate setting, if it 

existed. After examining the State’s bed need methodology and figures, county nursing home 

occupancy, and availability of non-institutional care alternatives, several counties emerge as 

high-priorities for resource shifts: 

Figure 15. New York State Counties with LTC Resource Shift Opportunities

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New York State Has Too Few Home- and Community-Based Alternatives to Nursing 

Homes 

Regardless of nursing home bed availability, the state has an insufficient supply of noninstitutional alternatives. Many additional “slots” of adult day health care, long-term home health 

care, and supportive housing are needed. In the majority of counties, the existing supply of such 

alternative services meets less than half of the total calculated need. As a result, some residents 

who do not require institutional care are institutionalized because there are no available 

alternatives for them. The shortage of non-institutional slots is more severe in upstate and rural 

areas of the state. 

A combination of surplus nursing home beds together with a need for non-institutional 

services creates an opportunity to shift resources from facilities to alternatives. For example, 

New York State’s own rightsizing demonstration permitted nursing home beds to be permanently 

de-certified and exchanged for other certified capacity, including adult day health care, long-term 

home health care, and Medicaid-supported Assisted Living Program (ALP) beds. As many as 

2,500 nursing home beds were eligible for conversion under this demonstration. 

Shifting resources to non-institutional care requires certain factors to be in place. 

Limiting factors may be insufficient supplies of affordable and accessible senior housing, and 

limited workforce availability such as qualified home care attendants. Thus, it is consistent that 

many States with rightsizing initiatives have focused on creating more assisted living, supportive 

housing, and other congregate care options that can be more staff-efficient. Additionally, 

investment and support of technology and informal caregivers can make shifting resources out of 

nursing homes more viable. 

What’s Wrong With Excess Capacity? 

A surplus of beds threatens quality of care, promotes inefficiencies, increases costs, 

threatens the provision of public goods, and contributes to the fragile finances of health care 

providers. In many other industries, the cost of excess capacity is borne by the institution or 

corporation itself. In health care delivery, however, a large portion of excess capacity falls on 

the tax-paying public, due to the presence of Medicare, Medicaid, and other public health 

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payors.59 The heavy public cost of unneeded beds has prompted state and federal lawmakers to 

concentrate on elimination of excess capacity. For example, former Congressional 

Representative Pete Stark, stated “Low occupancy is a symptom of the indulgent spending spree 

the Country’s hospitals have been on,” and Gail Wilensky, former Administrator of the Health 

Care Financing Administration (now Centers for Medicare and Medicaid Services) suggested 

that four out of every ten empty staffed hospital beds should be reduced.60 “[P]ressure to fill 

empty beds puts hospitals at a disadvantage in negotiating rates with payers and the widespread 

availability of beds means that physicians have few incentives to shorten the length of stay of 

their patients. Most importantly, the oversupply means that the industry is not generating enough 

revenue to adequately cover its fixed costs.”61

Excess Capacity Jeopardizes Quality of Care 

In health care, there is a direct positive relationship between volume and outcomes. The 

more cases or procedures performed by a hospital or physician, the better the quality of care. A 

review of 135 studies found that 71% of studies of hospital volume and 69% of studies of 

physician volume reported statistically significant associations between higher volume and better 

outcomes.62 It is a public health imperative to concentrate higher volumes at fewer institutions to 

improve patient care. For this reason, New York and many other states establish minimum 

volume thresholds below which hospitals may not perform certain advanced procedures. Excess 

capacity in the hospital system disperses volume and expertise while potentially diminishing 

quality care. 

Excess capacity also subsidizes inferior care by blocking necessary investments. 

Facilities have less chance of attracting the best doctors, buying and maintaining the latest 

equipment, and maintaining adequate nurse staffing when they must devote inordinate resources 

to preserving old, underused physical plants. With fewer resources to spend on equipment, 

salaries, and new technologies, the quality of care suffers. 

 

59 Gaynor, M., & Anderson, G.F. (1995). Uncertain demand, the structure of hospital costs, and cost of empty 

hospital beds. Journal of Health Economics. 14 (3), 292. 60 Ibid, p. 293. 

61 Advisory Commission on Hospitals (1999). Report of the Advisory Commission on Hospitals. Retrieved 

September 22, 2006, from New Jersey Department of Health and Senior Services Web site: 

http://www.state.nj.us/health/hcsa/acoh/trends.htm 62 Halm, E.A., Lee, C., & Chassin, M.R. (2002). Is volume related to outcome in health care? A systemic review and 

methodologic critique of the literature. Annals of Internal Medicine. 137, 511-520. 

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Excess Capacity Promotes Unnecessary Utilization of Services 

It is well documented that hospitalizations expand in relation to number of beds available. 

Capacity generates utilization so that a bed built is a bed filled, a phenomenon often called 

Roemer’s law. Similarly, greater numbers of expensive tests and procedures are performed when 

resources like imaging machines, diagnostic labs, and surgical suites are available and need to be 

paid for. Areas with excess capacity repeatedly demonstrate higher rates of hospital admission, 

greater numbers of patient days, and surgeries; differences that cannot be explained by 

differences in rates of illness or age according to the Dartmouth Atlas of Health Care.63 “In 

situations where there is excess capacity, the body of evidence suggests that physicians tend to 

utilize more [medically unnecessary] procedures...Studies have found similar relationships in 

physician supply-to-utilization patterns (such as between supplies of cardiologists and invasive 

heart procedures) and high-tech equipment-to-utilization patterns. It appears that much of the 

unwanted variation in hospitalization rates, use of procedures, and intensity of care is directly 

attributable to the differences across geographic areas in physicians, technology and beds per 

capita.”64

Similar patterns occur among nursing homes that are struggling to fill excess beds and 

qualify for bed-hold payments. To maintain occupancy levels, nursing homes may admit lessintensive residents who do not require such round the clock skilled care. But doing so can not 

only negatively impact the facility’s Medicaid rate by lowering its case mix index; it can also 

institutionalize individuals that could have their needs met in a less-restrictive alternative. 

Excess Capacity Duplicates Services and Hinders Collaboration 

When capacity exceeds community need, health care providers must compete vigorously 

to maintain a viable market share. For instance, prior to the reduction of services at St. Mary’s 

Hospital in 1999 and the closure of the Genesee Hospital in 2001, Rochester area hospitals were 

operating at less than 70% occupancy, and perceived the need to engage in competitive but nonproductive activities such as advertising. Hospitals felt compelled to purchase physician 

 

63 Center for the Evaluative Clinical Sciences. (2005). Supply-Sensitive Care. Retrieved September 22, 2006, from 

Dartmouth Atlas Project Brief Web site: http://www.dartmouthatlas.org/topics/supply_sensitive.pdf 64 Finger Lakes Health Systems Agency. (2005). Capacity Matters. 1-16. Rochester: Finger Lakes Health Systems 

Agency. 

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practices, a financially draining strategy, in an effort to lock in or capture market share. Instead 

of joint services, hospitals instead concluded they must have enough capacity to satisfy their 

individual sought-after market share. For instance, hoping to gain market share, in the last half of 

the 1990s each hospital system in Monroe County developed new obstetric units for more births 

than they historically experienced; the result was an excess of obstetric capacity which lasted 

until the closure of the Genesee Hospital.65

 Today, New York’s providers continue to compete with another in a “medical arms 

race.” To attract both physicians and patients, they feel compelled to seek the most sophisticated 

technologies and specialties that generate higher reimbursement rates and financial margins. The 

result is unnecessary duplication of services, especially of costly high-end services like magnetic 

resonance imaging, cardiac catheterization, and transplant centers, and too little integration of 

regional service delivery. Elimination of systemic redundancies could save money without 

compromising access to care. 

Excess Capacity Threatens Safety Net Services 

Low occupancy rates and the associated financial pressures on hospitals can lessen 

hospitals’ commitments to provide care for vulnerable populations. Hospitals in financial trouble 

may be forced to retrench, resulting in potential loss of access to care. As fiscal pressures 

increase, facilities may be inclined to close or shrink their less financially viable services in inner 

city neighborhoods or in rural communities. 

Excess Capacity Increases Costs 

Excess capacity is expensive to maintain. Despite the dramatic shift to outpatient care, 

the costs of maintaining a “bricks and mortar” based health system hang like an albatross around 

the neck of New York’s providers and taxpayers. Even beds, wards, or buildings that are unused 

and unstaffed represent fixed costs that must still be paid and thus spread over a dwindling 

number of patients and other over all other services at that particular facility. Additionally, 

dollars spent in retiring capital debt of a given facility are not available for other productive uses. 

Finally, dollars spent on duplicative service capacity caused by excess capacity cannot be then 

captured and reinvested to fill community needs. 

 

65 Ibid 

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IV. Adapting to and Managing Change 

 New York’s health care system has multiple strengths on which to build. The state has 

some of the finest hospitals in the world, nursing homes that provide superb and concerned care 

to our most frail and elderly residents, a strong foundation of non-institutional care providers, a 

committed health care workforce, and a vast commitment of public dollars to health care. From 

crisis arises opportunity; the dire condition of the State’s health care system creates an 

opportunity to reshape the health care system of tomorrow. 

It is not too late to reconfigure NY’s health care delivery system. The time to act, 

however, is now. We can no longer deny reality or bury our heads in the sand. We cannot 

continue to bail out troubled and unneeded facilities simply because they exist or to satisfy 

powerful constituencies. We cannot rely solely on market-based incentives to eliminate excess 

capacity or promote public goods. We need a health care delivery system that is more flexible 

and provides better value than the one we have today. We need to look beyond the “bricks and 

mortar” of the hospital and nursing home and instead to the health care delivery system as a 

whole. 

Absent intervention, the Commission believes that the future of our state’s health care 

system is bleak. It is painfully obvious that health care providers cannot sustain chronic annual 

losses and continue to fulfill their missions; it is impossible to provide care for which we cannot 

pay. Closures and bankruptcies of health care institutions have become increasingly common. 

Given the financial predicament of New York’s hospitals and nursing homes, more are almost 

certain to close. Moreover, without state involvement, those facilities that are forced to close 

based on market forces alone may be those facilities that are most valued by various 

communities throughout the State. We are left with a stark choice; we can fail to act thereby 

allowing the system to drift in an unplanned direction, costs to keep rising, and access to care to 

remain in doubt. Alternatively, we can direct system systemic change, ensuring that New 

Yorkers continue to receive high-quality, accessible health care. We choose the latter path. 

 Transformation of our health care system, above all else, must benefit patients and 

taxpayers. Stabilization and modernization of our system will also benefit New York State’s 

economy and competitiveness. Health care is a major engine of the State’s economy. Hospitals 

and health systems in the state generate approximately $91.5 billion each year for local and state 

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economies and support more than 644,900 jobs. These figures represent nearly ten percent of the 

gross state product and over 7 percent of all non-farm jobs.66 To stabilize the employment 

marketplace, the State must work to stabilize the health care industry, including the restructuring 

and closing of hospitals. 

Framework for Solutions – Producing Maximum Efficiencies 

The Commission is charged with “rightsizing” institutions to stabilize the State’s health 

care system. Rightsizing includes the possible consolidation, closure, conversion, and 

restructuring of institutions, and reallocation of local and statewide resources. 

The strategy adopted to remove excess capacity from the hospital and nursing home systems will 

dictate the opportunities and scale of benefits realized. Strategies such as outright closure of a 

facility, a merger of multiple facilities or an across the board reduction in beds all meet the goal 

of reducing overall capacity. However, the closure of hospitals and nursing homes generally 

presents the greatest opportunity for savings by concentrating the benefits of lowered capacity. 

Benefits of Closure and Consolidation 

According to Manatt, Phelps, and Phillips, a leading health care law firm, “When a 

hospital is drowning in red ink with no hope of resurfacing, the logical step for trusteesconsistent with their fiduciary obligation to preserve and protect the charitable asset under their 

control-is to close the hospital.”67 The closure of a facility has many advantages including the 

removal of fixed operating costs, forgone capital expenses, elimination of duplicative services 

within the market, increased efficiency at remaining institutions and opportunities for lease, sale 

or conversion of the facility’s property. Operating costs such as utilities, cleaning, security and 

maintenance do not transfer to other facilities along with the patient base of a closed facility. 

Additional savings are realized by forgoing renovations on aged physical plants. Depending on 

the age of the physical plant, significant capital investments are required on an ongoing basis to 

keep a facility current with modern care and regulatory requirements. These capital expenditures 

include activities such as correcting fire safety deficiencies, improving air conditioning, 

 

66 Health Care Association of New York State. (2006, June). What’s at stake: The impact of New York’s hospitals 

on the economy and our communities. 67 Schwartz, J.R. (2001, January). Closing...Closing...Closed. Retrieved September 25, 2006, from Manatt, Phelps, 

and Phillips Web site: http://www.manatt.com/newsevents.aspx?id=225&folder=24 

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converting from semi-private to private rooms, renovating outpatient spaces, and improving 

parking facilities and elevators. Furthermore, the benefits of these eliminated costs accrue 

indefinitely. 

 To a lesser extent, some of these benefits may also be realized in the case of facility 

consolidations or mergers. In these instances, operating costs may be reduced, duplicative 

services may be removed from the market, facilities may operate more efficiently and 

opportunities for conversion may arise. However, a successful merger presents different 

challenges than outright closure of a facility. Consolidation of administrative services is an early 

and obvious benefit of merger agreements, but greater efficiencies are realized by integrating and 

rationalizing clinical services and removing excess capacity from the combined entity. 

Integrating clinical services requires addressing complex compromises among medical staffs and 

employee unions. Medical staff may be resistant to integration and make efforts to protect their 

territory within the remaining institution. These and other challenges have plagued merger 

attempts throughout the country and led to unsuccessful attempts to rightsize capacity.68 In New 

Jersey, a special commission formed to study its state’s hospital system concluded that 

“Reducing staffed beds, consolidating clinical services, and eliminating duplicative 

administrative functions appear to be necessary but insufficient to accomplish system-wide 

savings that the anticipated reductions in utilization will require.”69

Impact of Closures: What Does The Evidence Say? 

Health Care Providers Emerge Stronger: Peer-reviewed evidence from past hospital closures 

confirm that the closure of institutions may contribute to the vitality of remaining institutions. In 

urban markets, hospital closure may result in an “evolutionary increase” in efficiency among 

remaining institutions in the market. Evaluation research indicates that when an urban hospital 

closes, other hospitals within their markets experience increased inpatient and emergency room 

visits and became more efficient on a cost per adjusted admission basis. Frequently the hospital 

 

68 Meyer, J.A., Wicks, E.K., & Carlyn, M. (1998). A tale of two cities: Hospital mergers in St. Louis and 

Philadelphia not reducing excess capacity. Economic and Social Research Institute: Washington, DC. 69 Advisory Commission on Hospitals (1999). Report of the Advisory Commission on Hospitals. Retrieved 

September 22, 2006, from New Jersey Department of Health and Senior Services Web site: 

http://www.state.nj.us/health/hcsa/acoh/trends.htm 

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that closed was the least efficient in the market prior to closure.70 The remaining institutions 

become more efficient by absorbing the additional patient volume and filling previously 

established, but unused capacity. 

Access to Care and Health Status Are Preserved: Peer-reviewed studies indicate that the 

repercussions of hospital closures on public health are nonexistent or minimal. There is little 

evidence of changes in access to care, health status, or mortality rates following hospital 

closures. For example, Buchmueller, Jacobson and Wold found that hospital closures have a 

modest effect on access to care in urban areas. Moreover, they found that “...hospital closures 

may shift care to doctor’s offices, generally considered an appropriate and cost-effective source 

of regular care.”71 Additionally, studies of the impact of rural hospital closures in Saskatchewan, 

Canada found that despite fears to the contrary, residents in affected communities reported that 

hospital closures did not affect their own health.72 A study by the Office of Inspector General of 

the U.S. Department of Health and Human Services (OIG) found that of the hospitals closed 

nationwide in 2000, 50 percent of rural facilities and 52 percent of urban facilities were within 

three miles of another inpatient facility. An additional 18 percent of closed rural facilities were 

between four and 10 miles of another hospital, as were an additional 38 percent of the urban 

facilities that closed. In most cases when a hospital closed, health care was still available 

nearby.73

 Closures have far less impact than feared because facilities that close have been in trouble 

for extended periods of time. Almost always, they have experienced a cycle of declining patient 

census and revenues and gradually withered away until reaching the point of closure. In 

testimony before the New York City Council, GNYHA stated that “we note that most hospitals 

that close experience a significant drop in demand before they get to the point of closure. As 

indicated previously, troubled hospitals often curtail services in the interest of keeping the 

institution afloat. In addition, when possible, hospitals that are part of multi-hospital systems and 

 

70 Lindrooth R.C., LoSasso A., & Bazzoli G. (2003). The effect of hospital closure on markets. Journal of Health 

Economics. 22 (5). 691-712 71 Buchmueller T.C., Jacobson M., & Wold C. (2003). How far to the hospital? The effect of hospital closures on 

access to care. Journal of Health Economics. 25 (4). 740-761. 72 Liu L., Hader J., Broassart B., White R., & Lewis S. (2001). Impact of rural hospital closures in Saskatchewan, 

Canada. Social Science & Medicine. 52 (12). 1793-1804. 73 U.S. Department of Health and Human Services, Office of the Inspector General. (2002). Hospital Closure 2000

(OEI-04-02-00010). Available online: http://oig.hhs.gov/oei/reports/oei-04-02-00010.pdf 

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that are facing financial problems often transfer and consolidate services to other sites in order to 

enhance the efficiency of their operations. As word of a hospital’s financial troubles are made 

public, many of the hospital’s patients also begin to seek care elsewhere, and the medical staff 

begin to obtain privileges at other hospitals. Thus, by the time a hospital closes, its occupancy 

rate is typically already low, and many patients have already begun to seek care from other 

providers...In summary, the negative impact on access related to the closure of a hospital is 

typically a gradual process that tracks the pace of financial deterioration of the hospital rather 

than occurring suddenly as the institution physically closes its doors.”74

• Community Needs Are Met: Another benefit of facility closure is the opportunity to 

convert the facility to alternative uses which better align resources with community needs. 

Closed facilities may be used for non-acute medical services or developed for residential or 

commercial purposes. Numerous examples exist of such successful conversions, including: 

o Morrisania Hospital, an 11-story Bronx hospital which closed, reopened under the 

auspices of the Women’s Housing and Economic Development Corporation to 

provide apartments for low-income and formerly homeless families. In addition, the 

facility hosts a family health center and the Urban Horizons Center which offers an 

array of social services such as job training, a Head Start program, child care and 

counseling. The conversion was financed by a $23 million investment of state, federal 

and private funds. 

o St. Marys’ Hospital, in Rochester, closed its inpatient services in 1999. The facility 

now operates as a comprehensive community health center and urgent care center. 

o Amsterdam Memorial Hospital, in 2002, closed its inpatient acute care beds. It 

retains an inpatient rehabilitation unit, and provides urgent care services and 

ambulatory surgery. 

o In 1997, Germantown Hospital in Philadelphia, PA joined the Albert Einstein 

Healthcare Network. The inpatient beds were transferred to the nearby Albert 

Einstein Medical Center and the Germantown facility was converted to Germantown 

Community Health Services. The facility includes a 170-bed nursing home, a 24 

 

74 Greater New York Hospital Association. (2005, June 15). Testimony of Greater New York Hospital Association 

before the New York City Council Committee on Health at a Hearing on Hospital Closures, delivered by 

Susan C. Waltman. 

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hour emergency department, outpatient diagnostic and treatment services and 

physician offices.75

 On the long term care side, a combination of surplus nursing home beds together with a 

need for non-institutional services creates an opportunity to shift resources from nursing home 

facilities to alternatives. For example, New York State’s own “Rightsizing Demonstration” 

permitted nursing home beds to be permanently de-certified and exchanged for other certified 

capacity, including adult day health care, long-term home health care, and Medicaid-supported 

Assisted Living Program (aka “ALP”) beds. As many as 2,500 nursing home beds could be 

converted under this demonstration. 

 Other States have similar voluntary rightsizing initiatives that convert nursing home 

resources into non-institutional alternatives, including Wisconsin, Nebraska, Kentucky, Iowa, 

Washington, and Minnesota. Through Minnesota’s initiative, nursing home beds declined by 

nearly 4,000 or 8% in two years, falling in line with declining nursing home utilization rates. At 

the same time, they expanded their Elderly Waiver and Alternative Care programs, so that 

Minnesota spends nearly equally between nursing facilities and home care, serving more 

individuals than previously, according to the Minnesota Dept of Human Services. 

 

75 Baittinger, E., & Zuckerman, A. (2005). Hospital closures: Moving from failure to revitalized community 

resources. Strategies & Solutions, March 2005. Retrieved September 27, 2006, from http://www.hssinc.com/enewsletters/march2005.htm. 

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V. Commission Process and Methodology 

 The Commission on Health Care Facilities in the 21st Century was a broad-based, nonpartisan panel created by Governor Pataki and the New York State Legislature to undertake a 

rational, independent review of health care capacity and resources in New York State. It was 

created to ensure that the regional and local supply of hospital and nursing home facilities is best 

configured to appropriately respond to community needs for high-quality, affordable and 

accessible care, with meaningful efficiencies in delivery and financing that promote 

infrastructure stability. 

The Commission was statutorily charged with evaluating all nursing homes and general 

acute care hospitals using factors listed below: 

1. The need for capacity in the hospital and nursing home systems in each region; 

2. The capacity currently existing in such systems in each region; 

3. The economic impact of right-sizing actions on the state, regional and local economies, 

including the capacity of the health care system to provide employment or training to 

health care workers affected by such actions; 

4. The amount of capital debt being carried by general hospitals and nursing homes, and the 

nature of the bonding and credit enhancement, if any, supporting such debt, and the 

financial status of general hospitals and nursing homes, including revenues from 

Medicare, Medicaid, other government funds, and private third-party payors; 

5. The availability of alternative sources of funding with regard to the capital debt of 

affected facilities and a plan for paying or retiring any outstanding bonds in accordance 

with the contract with bondholders; 

6. The existence of other health care services in the affected region, including the 

availability of services for the uninsured and underinsured, and including services 

provided other than by general hospitals and nursing homes; 

7. The potential conversion of facilities or current facility capacity for uses other than as 

inpatient or residential health care facilities; 

8. The extent to which a facility serves the health care needs of the region, including serving 

Medicaid recipients, the uninsured, and underserved communities; and 

9. The potential for improved quality of care and the redirection of resources from 

supporting excess capacity toward reinvestment into productive health care purposes, and 

the extent to which the actions recommended by the Commission would result in greater 

stability and efficiency in the delivery of needed health care services for a community. 

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Commission Approach 

The Commission’s task required an approach that balanced “science” and “art.” Its 

deliberations were significantly informed and driven by extensive review of objective data and 

quantitative analysis. However, analysis of community needs and resources cannot be reduced to 

a mere “numbers game” and the Commission’s recommendations are not solely the product of 

mathematical algorithms. Significant public input, understandings of local market conditions, 

professional judgment, and factual information were combined to form the basis of the 

Commission’s deliberations. 

Commission Structure 

The Commission operated independently of any existing agency or entity. While the 

Commission relied on the data and expertise from various state agencies, including the 

Department of Health (DOH), the Dormitory Authority for the State of New York, and the 

Division of the Budget, the Commission was neither a part nor an initiative of these agencies. 

The Commission was staffed by seven full-time dedicated employees, including an executive 

director, a deputy director/lead counsel, policy analysts, and assistants. Its chairman was 

Stephen Berger. From July 2005 to December 2006, the Commission met 14 times. 

The Commission had eighteen statewide members, 12 of whom were appointed by the 

Governor, 2 by the Assembly Speaker, 1 by the Assembly’s Minority Leader, 2 by the President 

Pro Tem of the Senate, and 1 by the Senate’s Minority Leader. Statewide members voted on 

every issue pertaining to the Commission, including its final recommendations. 

Regional Definitions and Representation 

 Given the size and diversity of the State of New York, the structure of the Commission 

was designed to have a strong focus on regional concerns and issues. For the Commission’s 

purposes, the State was divided into six regions: 

• Central: Broome, Cayuga, Chemung, Chenango, Cortland, Herkimer, Jefferson, Lewis, 

Livingston, Madison, Monroe, Oneida, Onondaga, Ontario, Oswego, Schuyler, Seneca, 

St. Lawrence, Steuben, Tioga, Tompkins, Wayne, and Yates counties

• Hudson Valley: Delaware, Dutchess, Orange, Putnam, Rockland, Sullivan, Ulster, and 

Westchester counties 

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• Long Island: Nassau and Suffolk counties

• New York City: Bronx, Kings (Brooklyn), New York (Manhattan), Queens and 

Richmond (Staten Island) counties

• Northern: Albany, Clinton, Columbia, Essex, Franklin, Fulton, Greene, Hamilton, 

Montgomery, Otsego, Rensselaer, Saratoga, Schenectady, Schoharie, Warren, and 

Washington counties

• Western: Allegany, Cattaraugus, Chautauqua, Erie, Genesee, Niagara, Orleans, and 

Wyoming counties

Figure 16. Commission Regions 

In addition to the eighteen statewide voting members, there were up to six regional 

members for each of the six regions listed above, appointed in equal part by the Governor, 

Senate, and Assembly. These regional members voted and were counted for quorum purposes 

only when the Commission acted on recommendations relating solely to the regional member’s 

respective region. 

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Regional Advisory Committees

 In addition to the Commission body, the legislation established regional advisory 

committees (RACs). Each of the six regions listed above had an associated RAC. Each RAC 

was established with twelve potential members, appointed in equal parts by the Governor, 

Senate, and Assembly. 

 The RACs played an important role in the Commission’s process. They provided 

essential community knowledge and insights into local market conditions. They played vital 

information gathering roles by fostering discussions with and among local stakeholders. Each of 

the six RACs held extensive meetings with key stakeholders, including hospital CEOs, nursing 

home administrators, and representatives from trade groups, unions, patient advocates, insurers, 

and public health officials. 

 Each RAC was charged with developing non-binding recommendations “for 

reconfiguring its region’s general hospital and nursing home bed supply to align bed supply with 

regional and local needs.” In addition identifying specific facilities to be reconfigured or 

closed, the legislation required each RAC to address the following points in its submitted report: 

(i) Recommended dates by which such actions should occur; 

(ii) Necessary investments, if any, that should be made in each case to carry out 

the regional advisory committee’s recommendations, including any necessary 

workforce, training, or other investments to ensure that remaining facilities are 

able to adequately provide services within the context of a restructured 

institutional provider health care system in such region; and 

(iii) The regional advisory committee’s justification for its recommendations, 

including its use of the factors. 

Following the qualitative data-gathering phase of the public hearings and private 

meetings, each RAC developed its set of initial, non-binding recommendations. To facilitate an 

active engagement by the RACs with the entire Commission, each RAC met with full 

Commission before officially transmitting their reports to the Commission on November 15, 

2006. This ensured that the Commission would properly consider the local expertise of the 

RAC, and the interests and concerns of local and regional stakeholders. 

Local Input and Community Outreach

 The legislature charged the Commission and the RACs with holding formal public 

hearings with public notice to solicit local input from a wide array of interested parties including 

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patients and consumers, providers, payers, labor, elected officials, and the business community. 

In total, nineteen hearings were held throughout the regions. The Commission and RACs heard 

from hundreds of witnesses and reviewed thousands of pages of testimony submitted during the 

hearings. Additionally, numerous parties submitted written testimony to the RACs throughout 

the tenure of the Commission. 

Table 11. Public Hearings by Region

Region Date Location 

Central February 21, 2006 Binghamton 

February 24, 2006 Syracuse 

March 27, 2006 Rochester 

April 4, 2006 Watertown 

Hudson 

Valley 

February 15, 2006 Valhalla 

February 22, 2006 New Paltz 

March 1, 2006 Middletown 

Long Island March 22, 2006 Riverhead 

April 11, 2006 Hempstead 

New York 

City 

February 17, 2006 Staten Island 

February 24, 2006 Brooklyn 

March 7, 2006 Queens 

March 28, 2006 Bronx 

March 30, 2006 Manhattan 

Northern February 8, 2006 Albany 

March 1, 2006 Plattsburgh 

Western February 27, 2006 Sanborn 

March 3, 2006 Buffalo 

March 14, 2006 Jamestown 

Analytic Framework

 The Commission and staff performed detailed analysis of each hospital and nursing home 

throughout the State. In order to focus its efforts at rightsizing the health care delivery system, 

the Commission unanimously adopted an analytic framework to focus the Commission’s hardlook analysis on several hospitals and nursing homes. This framework was a starting point for 

focused and continual deliberations and discussions, and was not final determinations of which 

institutions to rightsize. 

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Derived from the nine legislated factors listed above, the Commission and staff designed a 

rational, independent, and equitable approach that categorically differentiated each hospital and 

nursing home using six key criteria. Once established, these criteria served as a basis by which 

all institutions were evaluated: 

1. Service to Vulnerable Populations 

2. Availability of Services 

3. Quality of Care 

4. Utilization 

5. Viability 

6. Economic Impact 

Within each criteria, the Commission examined numerous metrics, as shown below: 

Table 12. Commission Framework Criteria Metrics 

• FTEs/County 

Population

• Local 

Unemployment 

Rate

• Profitability

• Days of Cash 

on Hand

• Capital Debt

• Bonding and 

Credit 

Enhancements

• Linkages and 

Affiliations

• Inpatient 

Occupancy 

Rates

• Volume of 

Outpatient 

Visits

• Volume of ED 

Visits

• JCAHO 

accreditation

• Special 

Designations

• CMS Hospital 

Compare Data

• CMS Nursing 

Home Compare 

Data

• Provision of 

Comprehensive 

Services

• Provision of 

Essential 

Services/Sole 

Community 

Provider

• Distance/ 

Commute Time 

to Other 

Providers

• Rural Hospital 

Designation

• % Uninsured 

Discharges

• % Medicaid 

Discharges

• % Medicare 

Discharges

• ER payor mix

• % Medicaid 

Admissions 

(nursing 

homes)

• % High acuity

• DSH Hospital

• MUA

• % Non-white 

Discharges

Economic 

Impact Utilization Viability Quality of Care

Availability 

of Services

Vulnerable 

Populations

• FTEs/County 

Population

• Local 

Unemployment 

Rate

• Profitability

• Days of Cash 

on Hand

• Capital Debt

• Bonding and 

Credit 

Enhancements

• Linkages and 

Affiliations

• Inpatient 

Occupancy 

Rates

• Volume of 

Outpatient 

Visits

• Volume of ED 

Visits

• JCAHO 

accreditation

• Special 

Designations

• CMS Hospital 

Compare Data

• CMS Nursing 

Home Compare 

Data

• Provision of 

Comprehensive 

Services

• Provision of 

Essential 

Services/Sole 

Community 

Provider

• Distance/ 

Commute Time 

to Other 

Providers

• Rural Hospital 

Designation

• % Uninsured 

Discharges

• % Medicaid 

Discharges

• % Medicare 

Discharges

• ER payor mix

• % Medicaid 

Admissions 

(nursing 

homes)

• % High acuity

• DSH Hospital

• MUA

• % Non-white 

Discharges

Economic 

Impact Utilization Viability Quality of Care

Availability 

of Services

Vulnerable 

Populations

Because regions provide the best set of comparisons and respect differences across the 

state, each institution’s rating was assigned relative to institutions within the same region. Each 

institution received a rating of -1, 0, or +1 on each criterion, and each criterion carried equal 

weight. Therefore, each institution received a final rating of -6 to +6, and from this final score, 

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institutions were divided into three categories: high, medium, and low priority for rightsizing. 

Those institutions that were rated as high priority received a harder-look analysis than those with 

a low priority. However, these categories were not determinative. High priority institutions were 

not necessarily subject to Commission recommendations nor were low priority institutions 

necessarily immune. 

This analytic framework had some distinct advantages. It sufficiently accounted for real 

world complexities, while remaining understandable, explainable, and actionable; and while it 

was evidence-based, data-driven, and objective, it allowed for professional and practical 

judgment that accounted for nuances and subtleties that an overly-rigid algorithm could not. 

This analytic framework was the start of a multi-leveled analysis performed by the 

Commission and staff. To complement the framework, the Commission sought regional input by 

stakeholders, experts, and members of the community through multiple public hearings held 

throughout the State. 

Absorption and Access Analysis (AAA) 

The Commission developed a model for determining whether adequate alternative 

inpatient capacity exists within reasonable proximity to a hospital considered for closure. The 

model revealed whether inpatients at a particular hospital could be absorbed by neighboring 

hospitals and the travel time that would be required if patients were to disperse among those 

hospitals. The model drew on work by The Health Economics and Outcomes Research Institute 

(THEORI) at GNYHA. Neither THEORI nor GNYHA had any involvement or influence on the 

Commission’s analysis or deliberations regarding any individual facilities. 

 The model simulated the closure of individual hospital campuses (focal hospitals) 

throughout New York State based on 2004 SPARCS and ICR data. In preparation, each patient 

in the SPARCS database was assigned to a cohort. A cohort was a group of patients residing in 

the same ZIP code and admitted to the hospital for the same condition or procedure. Elective 

admissions were grouped into 35 clinically meaningful service lines (such as cardiac surgery, 

neurology, orthopedics, and psychiatry), while emergency admissions were grouped together as 

if they were a distinct service line. To simulate a closure, the focal hospital’s patients were 

randomly reassigned to other hospitals (coverage partners) based upon the real-world distribution 

of cases in the patient’s cohort. (For example, if patients in a particular cohort were admitted to 

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hospitals other than the focal hospital in the proportion of 30% to Hospital A and 70% to 

Hospital B, then the focal hospital’s patients were randomly reassigned to those hospitals in the 

same proportion.) The coverage partners were sorted based on their share of the focal hospital’s 

reassigned patients, and principal coverage partners were identified, usually as the hospitals to 

which the first two-thirds of the focal hospital’s patients were reassigned. 

 To determine whether the focal hospital’s coverage partners had sufficient capacity to absorb 

its patients, each reassigned patient’s inpatient days were added to the coverage partner’s daily 

census on approximately the same dates and times that the patient was in the focal hospital. Then 

a revised average daily census and peak daily census were computed for the coverage partner. 

The peak daily census was defined as the thirty days of the year in which the daily census—

measured at the peak hours of day—was highest. Finally, the revised average and peak daily 

census counts were compared with the coverage partner’s available beds. 

 To determine whether it was feasible for the focal hospital’s patients to travel to their 

reassigned hospitals, the weighted average driving time to the reassigned hospitals was computed 

for the focal hospital’s patients. The weighting of the average driving times to each reassigned 

hospital was based on each coverage partner’s share of the focal hospital’s reassigned patients. 

The average driving times were computed from the centroid of each patient’s Census tract to the 

reassigned hospital. 

The model is fundamentally conservative and does not rely on assumptions that we might 

realistically make regarding an altered health care delivery landscape. For example, it assumes 

no reduction in average length of stay (ALOS) although even a very modest ALOS reduction can 

dramatically increase capacity. Furthermore, it assumes no reduction in overall service utilization 

although the reduction of excess capacity can be assumed to reduce inappropriate utilization of 

services. 

 

Voluntary Rightsizing Efforts

 The Commission promulgated policies to encourage and protect facilities that wished to 

engage in voluntary rightsizing efforts. Philosophically, the Commission believed that “bottomup” solutions derived by health care providers can be superior to “top-down” imposed edicts. 

Practically, the Commission also believed that locally developed solutions with stakeholder buyin are easier to implement. 

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Because talks between facilities were for the purpose of developing potential 

Commission recommendations, the Commission was able to extend its umbrella of state action 

immunity to shield such facilities from potential antitrust violations. The Commission’s 

procedures were developed collaboratively with the State Department of Health and the Office of 

the State Attorney General. In addition, representatives of the Commission briefed the Federal 

Department of Justice and the Federal Trade Commission on these procedures, neither of which 

expressed objections. The formal procedures used to conduct such voluntary discussion between 

providers were described and disseminated to all health facilities in the State.76

 

76 Commission on Health Care Facilities in the 21st Century. (2006). Voluntary Rightsizing Procedure, 1-2. 

Available online: http://www.nyhealthcarecommission.org/docs/voluntary_rightsizing_procedure.pdf. 

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VI. Policy Recommendations 

The Commission’s direct mandate and authority to rightsize and reconfigure the states’ 

hospital and nursing home industries was a vast and complicated endeavor. Despite the breadth 

of its charge, the work of the Commission is only one element in a comprehensive reform 

agenda. In some respects, the Commission’s recommendations for specific facilities address the 

“symptoms” of a sick system. It is equally or more critical to also address the “root causes” so 

that comprehensive rightsizing and reconfiguration can occur. 

The Commission’s enabling statute provides for recommendations related to a 

streamlined regulatory process, reimbursement, and other topics. As part of its deliberations, the 

Commission frequently considered the ways in which the structure and financing of the health 

care delivery system affect its mandate to create a system that better meets community needs. 

Thus, the Commission makes the following recommendations for areas needing broader policy 

reform. It is hoped that these recommendations will provide a blueprint for further work toward 

improving our health care system. 

A. Reimbursement and Medicaid 

Financial incentives powerfully affect the supply, demand, and location of healthcare 

services. At times, they distort patterns of service delivery. Driven by the imperative of financial 

survival, providers may pursue high-margin services rather than services that best align with 

community needs. Fiscal pressures can also drive facilities to provide otherwise redundant or 

unneeded services solely to cross-subsidize other elements in their service mix that are crucial 

but unprofitable. 

Direct state action to change the amount and distribution of funding for Medicaid and 

public goods would be an important step in reforming the reimbursement system in New York. 

Furthermore, Medicaid policy has the potential to influence the actions of private and federal 

payors. The Commission recommends that the State of New York undertake a comprehensive 

review of reimbursement policy and develop new payment systems that support a realignment of 

health services delivery. Such review should recognize these principles: 

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• The current growth rate of Medicaid expenditures is an unsustainable burden on 

taxpayers. 

• Diversion of health care resources is unacceptable. Dollars that are freed up must be 

reinvested in the health care system. 

• Reimbursement reform should strengthen the long-term viability of institutions that 

disproportionately serve vulnerable populations including the uninsured and low 

income patients. 

• Reimbursement reform should encourage the provision of preventive, primary and 

other baseline services and discourage the medical arms race for duplicative provision 

of high-end services. 

• The relationship between private payers and the financial viability of the health care 

delivery system needs to be carefully examined. Reducing unnecessary hospital 

capacity and maintaining critical health services are as important to the insurance 

sector as they are to the public sector. As such, it is reasonable to expect these 

companies to participate in initiatives to promote financial alignment between payers 

and providers, and to participate in reinvestment strategies by reimbursing adequately 

while maintaining adequate reserves to meet current and future health care needs. 

• Future capital investments should reflect shifts in the venue of care from institutional 

to home and community based settings. 

Within the specific arena of long term care, New York State should: 

• Expand the availability of home and community-based alternatives to nursing home 

placement and educate physicians, paraprofessionals, and consumers about these 

alternatives. 

• Implement recently enacted reforms to the current method of facility-based 

reimbursement. 

• Explore alternate payment methods such as resident-based pricing and/or the 

expansion of managed care models on a demonstration basis. 

• Implement its single point-of-entry system. 

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• Develop programs and reimbursement mechanisms for high-quality, cost- effective 

chronic care management. 

• Address the disproportionate burden on particular institutions of uncompensated long 

term care patients. 

Comprehensive discussions of issues and options in acute and long term care reimbursement 

reform can be found in the appendices to this report. 

B. The Uninsured 

 The uninsured remains one of the most serious and persistent health care problems both 

in the nation and New York. The United States is the only wealthy industrialized nation that does 

not provide universal health insurance coverage. Nearly one in five non-elderly individuals in the 

US and NY State lack health care coverage. 

 The uninsured face problems accessing needed health care services. Many either do not 

receive or postpone seeking care due to financial barriers. When they do receive care, it is often 

episodic and fragmented. Preventable or treatable chronic conditions develop into more 

complicated and expensive conditions to treat. Compared to insured patients, uninsured patients 

have less favorable health outcomes and higher rates of complications and deaths. The Institute 

of Medicine estimates that lack of health insurance causes roughly 18,000 unnecessary deaths 

every year.77

Uninsured Americans often present to hospital emergency rooms where their care can be 

uncoordinated and more expensive to deliver. In addition, health care providers bear a substantial 

burden in providing care for this to the uninsured and indigent. According to the Urban Institute, 

New York State’s medical providers spent about $2.8 billion in 2005 on providing care for 

uninsured New Yorkers.78 Hospitals provided $1.8 billion of that care, and physicians accounted 

for $412 million. The balance came from health centers, Veterans facilities, and the federal 

Indian Health Service. 

 

77 Institute of Medicine. (2002). Care without coverage: Too little, too late (LCCN 2002105905, 1-212). 

Washington, DC: National Academies Press. 78 Bovbjerg, R.R., Dorn, S., Hadley, J., Holahan, J., & Miller, D.M. (2006). Caring for the Uninsured in New York. 

Urban Institute, Retrieved October 20, 2006, from http://www.urban.org/publications/311372.html. 

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 A comprehensive solution to the uninsured will require federal efforts. However, New 

York State has made major strides in expanding access to health insurance for its residents. 

Between 2000 and 2004, the percentage of the uninsured in NYS declined while the percentage 

nationally has increased. Although the numbers of uninsured clearly remain unacceptably and 

chronically high, the trend in New York State is moving in the right direction. 

The encouraging developments in NY are due in large part to expansion of our public 

coverage programs combined with relative stability in our base of employer-sponsored coverage. 

NY State has large and generous public insurance programs. New York Medicaid’s program now 

covers more than 4.5 million NYS residents. Of those, roughly 2 million are children and another 

2 million are adults. It also covers half a million elderly persons as well as 600,000 blind and 

disabled persons. New York’s Medicaid program has one of the broadest coverage eligibilities in 

the nation and offers a very comprehensive benefit package. In addition, New York’s Child 

Health Plus is one of the nation’s oldest and largest state children’s health insurance programs. It 

covers children up to age 19, at higher income eligibility levels than Medicaid, and has 

approximately 400,000 enrollees. One of the newer programs in the state is Family Health Plus, a 

public health insurance program for adults between the ages of 19 and 64 who do not have health 

insurance - either on their own or through their employers - but have income or resources too 

high to qualify for Medicaid. It is available to single adults, couples without children, and 

parents with limited incomes. Family Health Plus has more than half a million enrollees. 

Healthy New York was established to make insurance more affordable and more 

accessible to workers in small businesses with 50 or fewer employees. It is also available to 

eligible working uninsured individuals including sole proprietors. The program, which now has 

more than 100,000 enrollees, creates standardized health insurance benefit packages that are 

offered by health maintenance organizations (HMOs) in New York State.

The Commission recommends that New York State reaffirm its historic commitment to 

health care for the poor and other vulnerable populations. Consistent with the Institute of 

Medicine’s guiding principles,79 New York State should ensure that health coverage is universal, 

continuous, affordable to individuals and families, and affordable and sustainable for society at 

large. While guarding against fraud, New York should lower administrative barriers to 

 

79 Institute of Medicine. (2004). Insuring America’s health: Principles and recommendations (LCCN 2003114736, 

1-224). Washington, DC: National Academies Press. 

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enrollment to help ensure that all uninsured but eligible persons are placed in the appropriate 

program and make it easier for eligible persons to retain coverage. New York should build upon 

its impressive network of public programs to weave them into a seamless system of coverage 

that is more coordinated and easier to navigate. Furthermore, New York should study coverage 

expansion efforts in other states and adopt additional strategies to sustain its recent progress in 

reducing the number of uninsured New Yorkers. 

C. Developing Primary Care Infrastructure 

Primary care is an essential component of the health care delivery system. Patients and 

society as a whole derive substantial benefits when patients have regular and continuous access 

to care in the least intensive, least expensive venue appropriate to a patient’s condition. 

Effective reform and investment in primary care is essential to reversing long term trends 

affecting health care costs, access and quality, especially for underserved populations. Evidence 

shows that having a primary care physician promotes overall community health. In New York 

City, for example, minority populations without a primary care giver were 3.5 times more likely 

to be hypertensive,80 and patients receiving blood pressure checks in the emergency department 

were eight times more likely to be non-compliant with their treatment.81 Rural residents also face 

barriers to high quality primary and preventive care including longer distances to get to health 

care delivery sites, physician shortages, lack of transportation, and a scarcity of mental health 

professionals and programs.82 Compared with their urban counterparts, residents of rural areas 

are more likely to report fair or poor health status, to have chronic conditions, and to die from 

heart disease. They have fewer visits to health care providers and are less likely to receive 

recommended preventive services. Rural minorities appear to be particularly disadvantaged.83

 

80 Shea, S., Misra D., Ehrlich, M.H., Field, L., & Francis, C.K. (1992). Predisposing factors for severe, uncontrolled 

hypertension in an inner-city minority population. New England Journal of Medicine. 327. 776-781. 81 Shea, S., Misra D., Ehrlich, M.H., Field, L., & Francis, C.K. (1992). Correlates of nonadherence to hypertension 

treatment in an inner-city minority population. American Journal of Public Health. 82 (11). 1607-1612. 82 United States Department of Health & Human Services Agency for Health Care Policy and Research. (1996). 

Improving Health for Rural Populations Research in Action Fact Sheet (AHCPR Publication No. 96-P040). 

Rockville, MD: Agency for Health Care Policy and Research. Available online: 

http://www.ahrq.gov/research/rural.htm 83 United States Department of Health & Human Services Agency for Healthcare Research and Quality. (2005). 

Health care disparities in rural areas: Selected findings from the 2004 National Healthcare Disparities 

report (AHRQ Publication No. 05-P022). Rockville, MD: Agency for Healthcare Research and Quality. 

Available online: http://www.ahrq.gov/research/ruraldisp/ruraldispar.pdf 

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Some patients, especially those in low income communities, face difficulties accessing 

primary care other than in a hospital setting. Private physician’s offices may refuse or limit the 

care they provide to Medicaid patients. Further, there are not enough primary care providers in 

indigent neighborhoods. Of nine low-income minority communities in New York City, for 

example, only 28 primary care physicians had hospital privileges and were fully accessible to 1.7 

million residents.84 Government funded clinics may have unacceptably long waiting lists, or be 

inconveniently located. 

Given the scarcity of private physicians for low income patients, hospitals often fill a 

crucial need by providing primary care outpatient services. However, hospitals are not optimally 

suited to provide primary care. Emergency departments, in particular, are not the best venue for 

patients to receive primary care. Because contact with patients is episodic and because different 

physicians may be seen each time, emergency departments lack the ability to provide long-term 

continuity and the integration of care across multiple disciplines. Care provided in emergency 

departments is also very expensive. In contrast to the fragmented emergency department model 

of primary care, high quality primary care can help people lead healthy lives, improve health 

outcomes, provide coordination of care across a continuum of services, prevent unnecessary 

hospitalizations, and reduce costs. 85

The Commission recommends pursuit of a primary care reform agenda including the 

following elements: 

 ensuring that all New York residents have a primary care “home” 

 stemming the erosion of primary care capacity 

 investing in primary care infrastructure, including investment in facilities, equipment and 

information technology 

 ensuring adequate financial support to the primary health care safety net 

 gaining participation by all payors to support such investments, and 

 investing in the development of a primary care workforce. 

 

84 Brelloche, C., Carter, A.B. (1990). Building primary health care in NYC’s low-income communities. Community 

Service Society of New York working paper. iv:5. 85 Rosenbaum, S., Shin, P., Whittington R.P.T. (2006). Laying the foundation: Health system reform in New York 

State and the primary care imperative: Executive summary. Retrieved September 22, 2006, from the 

Community Health Care Association of New York State Web site: 

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D. Developing Hybrid Delivery Models 

 During its analysis and deliberations, the Commission repeatedly identified communities 

whose needs could be well served with less than a “full service” hospital but which require more 

than an ambulatory care center. In these areas, there tends to be a single hospital with low 

utilization, weak finances, and inferior quality. While such institutions may appear to be 

candidates for closure, they cannot be closed unless an alternative set of services remains 

available to community residents. To close a hospital without preserving certain services would 

irresponsibly leave parts of the state bereft of needed health care access. 

 Most often, the services that required preservation include a combination of emergency 

or urgent care, ambulatory care, and to a lesser extent, ambulatory surgery, and imaging. 

However, today’s reimbursement system makes this an unprofitable and unviable set of services. 

Hospitals are thus required to maintain unnecessary services for the sole purpose of crosssubsidizing the necessary but money-losing services. The lack of alternatives has led to a 

situation in which whole hospitals must be maintained in order to deliver the smaller subset of 

needed services that could be provided by more focused facilities. These hospitals face structural 

financial challenges, and in response, may pursue unnecessary capital investments in order to 

expand their revenue base. 

 At the moment, there is no financially viable model for this kind of hybrid institution, 

other than a Critical Access Hospital (CAH). CAHs receive higher Medicare reimbursement 

rates based on the costs of services rendered. The criteria for this federal designation are 

designed for rural settings and would not apply broadly enough to be useful in all instances 

To better align community needs and resources, the Commission recommends that the 

State and industry collaborate to test and develop new “hybrid” delivery models. Such hybrids 

would maintain features of a traditional hospital determined to be necessary while eliminating 

redundant and unneeded features. Creative and financially viable alternatives, such as free 

standing emergency rooms or community health centers with urgicare capabilities, could 

advance the achievement of a rightsized and restructured health care delivery system. The 

benefits could include enhanced access to services, less duplication, and amelioration of the 

economic impact of full hospital closures. 

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E. State University of New York (SUNY) Hospitals 

The State University of New York operates teaching hospitals at its Health Science 

Centers in Brooklyn, Syracuse and Stony Brook. The SUNY hospitals are important resources 

and recipients of public funds and subsidies. Their academic mission to train physicians and their 

mission to serve patients regardless of ability to pay must be preserved. Similarly, the SUNY 

hospitals must be able to compete within the marketplace, operate cost effectively, and establish 

stronger relationships with community hospitals. 

As state-controlled institutions, the SUNY teaching hospitals faced unique challenges 

adapting to new market conditions that arose in the 1990s. To address these constraints, New 

York State enacted “hospital flex legislation” in 1998 that granted the SUNY hospitals greater 

operational flexibility to participate in managed care networks and similar cooperative 

arrangements. This flexibility was not completely unfettered, however, and the SUNY hospitals 

continue to suffer competitive disadvantages. Additional legislation has since been proposed that 

would further expand operational flexibility, even going so far as to restructure the SUNY 

hospitals as private, not-for-profit corporations. Other states, including Massachusetts, Michigan, 

and Wisconsin, have take this approach and spun off their teaching hospitals to allow them to 

function more effectively in the market. 

Supporters of privatizing the SUNY hospitals cite numerous advantages to spinning-off 

the hospitals from the State University system. They contend that doing so will enable the 

hospitals to work cooperatively with other health care providers to develop high-quality, costeffective systems of care within their respective regions. Increased management autonomy will 

promote more effective long-term planning, expedite short-term decision-making and help 

ensure future competitiveness and financial stability. Non-public facilities will have more 

competitive salary and benefit obligations to employees. Privatization would also decrease or 

eliminate the need for ongoing State subsidies, which currently amount to over $147 million in 

annual operating costs and $350 million in capital costs. Proponents also point out that many 

leading academic medical centers operate their medical schools and principal teaching hospitals 

under separate ownership without deleterious effects on their research enterprise. Prominent 

examples include Harvard, Yale, Cornell, Columbia and Washington Universities, all of which 

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own no hospitals yet remain leaders in research funding according to the National Institutes of 

Health (NIH) rankings. 86 

There is also considerable opposition to potential privatization of the SUNY hospitals. 

Organized labor, especially the New York State Public Employees Federation (PEF) and New 

York State United Teachers (NYSUT), opposes privatization based on fears of lay-offs and 

benefit cuts. Opponents also argue that privatization would not improve efficiency or quality, 

would erode the educational mission, and potentially result in elimination of important but 

unprofitable services. 

The Commission recommends that the Commissioner of Health, in consultation with 

other relevant parties, conduct a comprehensive analysis of the feasibility of privatizing the 

teaching hospitals at Stony Brook, Syracuse and Brooklyn. This analysis should consider the 

clinical and economic impact of potential changes on the hospitals, their communities, their 

medical school affiliations, their research capabilities, their employees, and taxpayers. Based on 

the results of this analysis, the Commissioner should develop a concrete timetable for action. 

F. Healthcare Workforce Development 

Maintaining and developing the healthcare workforce should be a key public policy 

concern. The healthcare workforce is a large component of New York’s economy, accounting for 

1 in 9 jobs in the state. The success of the health care system across the entire continuum of care 

is dependent upon an adequate supply of qualified personnel at all levels. Shortages have led to 

recruitment and retention problems throughout the industry. Further, the ongoing implementation 

of health information technology has created gaps between the skill levels of the current 

healthcare workforce and the skills required to deliver care in a high-tech environment. 

Over the past several years, approximately $1.3 billion has been invested in workforce 

recruitment, retraining and retention through five programs: the Health Care Worker Retraining 

Initiative, Community Health Care Conversion Demonstration Project, TANF Health Worker 

Retraining Initiative, Supplemental General Hospital, Recruitment and Retention Rate 

Adjustment Program, and the Nursing Home Quality Improvement Demonstration Program. 

Today, additional strategies should be implemented to: 

 

86 National Institues of Health, (2006). Award Trends Ranking Information. Retrieved October 20, 2006, from 

National Institutes of Health Offices of Extramural Research Web site: 

http://grants.nih.gov/grants/award/awardtr.htm 

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 redress persistent shortages in a variety of occupations including registered nurses, 

pharmacists, radiology technicians, home care attendants and other paraprofessionals, 

and to 

 educate and retrain workers to prepare them for the increasing uses of advanced health 

technologies in their jobs 

 facilitate the timely transfer of personnel displaced by Commission recommendations to 

other employment within the health care sector. 

G. Information Technology 

The need for improved use of information technology throughout the health care system 

has been well publicized in recent years. Effective use of IT in hospitals, nursing homes, 

ambulatory care centers and physician’s offices can improve quality of care, reduce errors and 

control costs. Reconfiguration of the healthcare system places higher demands on information 

sharing as patients are moved into different settings based on their changing clinical needs. In 

addition, the ability of the State to monitor potential epidemics, bio-terrorism and general health 

trends can be significantly improved by the electronic availability of timely, standardized 

information. Similarly, those involved in regional health planning efforts across the state would 

benefit from access to electronic databases. 

The effectiveness of information technology is constrained if health care providers cannot 

share information with each other, within the context of HIPAA and privacy concerns. As the 

HIT infrastructure is developed in NY, the state must ensure that systems are able to 

communicate, using open architecture and embracing the principle of interoperability. It is not in 

the public interest for individual health information to become a commodity or for information 

systems to become balkanized. 

HIT systems are costly and require significant investment in hardware, software and 

training. Further, HIT is a high-risk endeavor. When implemented properly, it can yield 

incredible results. Failed implementation can be catastrophically expensive and time consuming. 

Given these barriers, the healthcare industry lags behind other industries in its investment 

and use of IT. Industries such as financial services have invested 10% or more of their revenues 

in information systems, while the health care industry is estimated to have invested less than 4% 

of its revenues. Part of the reason may be that currently, providers bear almost all of the costs of 

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IT investment, while the financial benefits accrue to those who pay for care. Accelerating 

forward momentum towards universal adoption of IT may require shared investment strategies 

between government, providers, payers and purchasers. The availability of Heal NY Grants for 

IT investment is a promising opportunity to further advances in this area. 

H. County Nursing Homes 

 Approximately 10% of the nursing home beds in NYS are in county owned and operated 

facilities. These homes are departments of county government and are ultimately governed by 

elected representatives. Many of these 44 county-owned facilities lose money each year and 

pressure from taxpayers to hold the line on property taxes is stronger than ever. Further, the face 

of long term care is changing with the growth of home and community based services. This shift 

calls into question the appropriateness of the county homes’ traditional institutional model. 

Increasingly, counties are asking whether they should remain in the nursing home business. 

 A report issued by the Center for Governmental Research, “What Should be Done With 

County Nursing Facilities in New York State?” outlines the challenges faced by county nursing 

homes and describes the range of options that counties have pursued or considered.87 County 

homes differ from proprietary and voluntary homes in a number of ways. County homes have a 

mission to care for poor and indigent elderly county residents regardless of ability to pay. They 

have difficulty competing with the voluntary and proprietary sectors for high-intensity, better 

reimbursed patients. County homes receive certain revenue and incur unique expenses because 

of their status as government entities. While they benefit from intergovernmental transfers and 

county subsidies, they also carry a burden of cost allocations that may bear little relationship to 

actual expense, and their employees often receive more generous wages, salaries and benefits 

than their counterparts in private homes. While each home has an administrator, policy and 

management decisions rest with the county legislature or board of supervisors who are subject to 

numerous pressures. 

 According to the Center for Governmental Research, counties will have an increasingly 

difficult time operating their nursing homes as if they were just another department of county 

government. Among the options that counties have pursued or considered are the following: 

 

87 Center for Governmental Research, Inc. (1997). What Should Be Done With County Nursing Facilities in New 

York State? Rochester, NY: CGR, Inc. Executive summary available online: 

http://government.cce.cornell.edu/doc/reports/options/summary.asp 

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 Contract for management services to operate the county home 

 Sell licensed beds 

 Convert the home to a public benefit corporation 

 Transfer the home to a not-for-profit corporation or sell to a proprietary corporation. 

Given the complexity of this issue, New York State should undertake a comprehensive 

review of the future role of county-owned and operated nursing homes. These facilities are 

essential providers of care for residents who are otherwise difficult to serve. However, many of 

these homes are in severe financial distress, lack operational flexibility, are burdened with 

excessive labor costs and struggle to maintain quality of care. A clear policy should be developed 

to guide decision making about county nursing homes in a changing environment and to protect 

poor and indigent residents who may have difficulty receiving care in other settings. 

I. Niche Providers 

A significant amount of health care services has migrated out of the hospital to other 

settings. Ambulatory, “niche” providers are unburdened by the large overhead costs borne by 

hospitals and so can be less costly for payors and users. Patients benefit from a wider choice of 

venues in which to receive care. 

The movement of services out of large institutions is likely to continue. This would not 

be problematic except for the fact that hospitals treat a disproportionate share of complex and 

difficult high-risk cases, while other providers effectively “cherry pick,” profiting more from 

specializing in lower-risk cases utilizing high value services. In today’s health care environment, 

hospitals rely on high value services to subsidize less profitable services that are critical to the 

community. Examples of these less profitable “public goods” are emergency departments, 

trauma centers, burn care services, and non-income generating services like disaster 

preparedness. In addition, payer surcharges on high value services are used to fund other public 

good functions such as indigent care. As a result, the out-migration of high value services from 

hospitals to niche providers has the potential for weakening these public good funding sources. 

Alternate funding mechanisms for these essential services are needed and niche providers must 

share in the burden of paying for public goods and charity care. In addition, there may be a need 

to enhance quality-of-care monitoring and reporting in non-regulated and private settings. 

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J. Roadmap for the Future: Continuation of the Commission’s Work 

The work of the Commission illustrates the many and diverse opportunities that exist to 

improve the delivery of health care services in New York State. The Commission’s work should 

be considered a beginning, rather than an end, of a broader reform effort. We need to build on 

this effort to address an ongoing need for structured decision-making regarding health care 

resource allocations. The speed of change in health care, driven by changing technology, 

populations and finance, makes it essential that the work of reforming the system and the 

regulatory framework be continuous. New York State should implement an ongoing process to 

sustain the efforts initiated by this Commission. 

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VII. Recommendations for Facility Rightsizing and Reconfiguration 

PREFACE TO RECOMMENDATIONS 

The following provisions apply to all the recommendations in this section: 

1. Unless otherwise specified, the term “add” means that the Commissioner of Health 

shall approve one or more applications for approval to provide the enumerated 

service(s) and/or establish or construct the approximate number of enumerated beds 

or slots to be operated by or in affiliation with the enumerated facility(ies). 

2. “ADHCP” means an adult day health care program described in Part 425 of Title 10 

of the New York Codes, Rules and Regulations. 

3. Unless otherwise specified, the term “affiliate” means that the Commissioner of 

Health shall approve an application providing for greater clinical or financial 

integration between the subject facilities, which may include the possible allocation 

of services between such facilities and/or the joining of such facilities under a single 

unified governance structure. Where a subject facility fails to execute a binding 

agreement to effect such affiliation by the date specified in the recommendation, the 

Commissioner of Health may revoke or annul the operating certificate of that facility. 

Where no date is specified, such date shall be deemed to be December 31, 2007. 

4. “ALP” means an assisted living program described in section 461-l of the Social 

Services Law. 

5. Unless otherwise specified, “beds” means inpatient acute care beds. 

6. Unless otherwise specified, the term “close” means that the Commissioner of Health 

shall revoke the operating certificate of the subject facility as expeditiously as 

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necessary and possible to preserve quality of care, and that the subject facility shall be 

converted to another use and/or sold or otherwise transferred. Unless otherwise 

specified, any beds associated with such operating certificate shall cease to exist, and 

shall not be transferred to another facility or otherwise allocated. 

7. Unless otherwise specified, the term “convert”, as applied to a facility, means that the 

Commissioner of Health shall revoke the operating certificate of the subject facility 

and approve an application for the establishment of the new facility identified in the 

recommendation. Unless otherwise specified, the term “convert”, as applied to beds 

means that the Commissioner of Health shall approve an application to change the 

designation of the approximate number of enumerated beds on the operating 

certificate of the subject facility from their current designation to the designation 

specified in the recommendation. 

8. Unless otherwise specified, the term “discontinue” means that the Commissioner of 

Health shall limit and/or modify the operating certificate of the subject facility and/or 

take any other action necessary to eliminate that facility’s authorization to provide 

the enumerated service(s), and shall eliminate any associated beds from the operating 

certificate of the subject facility. Such beds shall cease to exist, and shall not be 

transferred to another facility or otherwise allocated. 

9. Unless otherwise specified, the term “downsize” means that the Commissioner of 

Health shall eliminate the approximate number of enumerated beds from the 

operating certificate of the subject facility. Such beds shall cease to exist, and shall 

not be transferred to another facility or otherwise allocated. 

10. “DTC” means a diagnostic and treatment center described in Article 28 of the Public 

Health Law. 

11. Unless otherwise specified, the term “explore” shall mean that the Commissioner of 

Health shall supervise discussions including the subject facilities intended to evaluate 

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the enumerated goal(s), and, should the Commissioner determine such goal(s) to be 

consistent with the mandate and other recommendations of the Commission, 

implement such goals as described in this report. 

12. Unless otherwise specified, the term “facility” means a provider, building or campus. 

13. Unless otherwise specified, the term “joined under a single unified governance 

structure” means that the Commissioner of Health shall approve an application 

joining the subject facilities under a single unified governance structure that has full 

authority to engage in strategic planning, restructure clinical services, bed capacity, 

and facilities, and negotiate and contract on behalf of subject facilities, and the 

incentive to structure services to achieve maximum efficiency. The governing board 

of the new entity must have powers sufficient to compel actions by any of the 

individual institutions. Where a subject facility fails to execute a binding agreement 

to effect such joining by the date specified in the recommendation, the Commissioner 

of Health may revoke or annul the operating certificate of that facility. Where no date 

is specified, such date shall be deemed to be December 31, 2007. 

14. “LTHHCP” means a long term home health care program described in article 36 of 

the Public Health Law. 

15. “PACE” means a program of all-inclusive care for the elderly described in 

subdivision 11 of section 4403-f of the Public Health Law. 

16. Unless otherwise specified, the term “rebuild” means that the Commissioner of 

Health shall approve an application to construct a facility to replace the subject 

facility or facilities that is reasonably consistent with the terms of the 

recommendation, and that the subject facility shall be converted to another use and/or 

sold or otherwise transferred. 

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17. “RHCF” means a residential health care facility described in Article 28 of the Public 

Health Law. 

18. “TCU” means a transitional care unit described in Article 28 of the Public Health 

Law. 

19. Unless otherwise specified, the term “transfer” means that the Commissioner of 

Health shall approve an application to move the location of the enumerated beds that 

is reasonably consistent with the terms of the recommendation, but that such beds 

shall continue to be operated by the same subject facility. 

20. Where a recommendation requires action on the part of a subject facility in order to 

be implemented, the Commissioner of Health shall have the authority to take any 

action necessary to compel such action by the subject facility, including but not 

limited to refusal to act on any application from the subject facility, refusal to provide 

any other consent requested by the subject facility, or the suspension, limitation or 

modification of that facility’s operating certificate. 

21. Where a recommendation or the results thereof may have an adverse effect on 

competition, the Commissioner of Health shall take any steps necessary to actively 

supervise the implementation of such recommendation and/or the results of such 

recommendation, to ensure that such implementation or results remain consistent with 

the clearly articulated policy of the State in regard to such implementation or results. 

22. The Commissioner shall implement all recommendations pursuant to, and in a 

manner consistent with, (i) the police power of the State, (ii) the Commissioner’s 

specific authority and duty to take cognizance of the interests of health and life of the 

people of the State, and of all matters pertaining thereto, and (iii) the Commissioner’s 

duty to take all actions necessary to implement the recommendations in a reasonable, 

cost-efficient manner. 

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23. Unless otherwise specified, the Commissioner of Health shall implement each 

recommendation as expeditiously as possible, but in no event later than June 30, 

2008. 

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CENTRAL REGION 

ACUTE CARE RECOMMENDATIONS 

Recommendation 1 

Facility (ies) 

Crouse Hospital (Onondaga County) 

University Hospital, SUNY Upstate Health Science Center (Onondaga County) 

Recommended Action

It is recommended that Crouse Hospital and SUNY Upstate Medical Center be joined under a 

single unified governance structure under the control of an entity other than the State University 

of New York, and that the joined facility be licensed for approximately 500 to 600 inpatient 

beds. It is further recommended that the Commissioner refrain from either approving any 

applications that have been or will be filed by either facility or providing any other consent 

requested by either facility, prior to the execution by the facilities of a binding agreement to join 

under a single unified governance structure, except where such approval or consent is necessary 

to protect the life, health, safety and welfare of facility patients, residents or staff. 

Facility Description(s)

University Hospital is a 366-bed, tertiary referral center for the greater Syracuse region. It has 

the city’s only level 1 trauma center, and provides more than 80 hospital-based clinics and 

numerous specialty centers, including the area's only pediatric emergency center and intensive 

care unit, burn center, regional oncology center, and renal and pancreatic transplant program. 

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University Hospital is the teaching hospital of Central New York's only academic medical 

center, the State University of New York (SUNY) Upstate Medical Center at Syracuse. It is part 

of the SUNY Upstate Medical University, which also houses the colleges of medicine, nursing, 

graduate studies, and health professions. The SUNY Upstate Medical University is Onondaga 

County's leading employer, with approximately 3,300 full time equivalent employees. 

Crouse Hospital, a 576-bed facility, is the larger of the two institutions. It offers emergency, 

medical/surgical and intensive care, psychiatry, numerous outpatient services, and more than half 

of the area’s obstetrical and neonatal care. The hospital is a major teaching site for SUNY 

medical students and residents. Crouse has approximately 1,800 full-time equivalent employees. 

The campuses of Crouse Hospital and SUNY Upstate Medical University are adjacent, and at 

some locations they are physically interconnected. 

Assessment

University Hospital and Crouse have a combined total of 942 certified beds on two 

interconnected campuses, both of which require major modernization. Their combined average 

daily census was only 563 in 2004. Neither institution can be eliminated completely; portions of 

both are required to meet the community’s health care needs and to sustain SUNY Upstate’s 

medical education role. 

Summary Statistics 2004 SUNY Crouse 

 

Discharges 16,770 21,603 

Inpatient % Medicaid/Uninsured 24% 26% 

Uncompensated Care $65 million $23 million 

ED Visits 48,704 24,716 

Certified Beds 366 576 

Staffed Beds 366 463 

Average Daily Census 294 269 

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Collectively, SUNY and Crouse have excess inpatient capacity. SUNY operated all of its 366 

beds at an average occupancy rate of 80% from 2002 to 2004. Crouse had an average occupancy 

of certified beds of just 47% between 2002 and 2004. Crouse, however, reports operating only 

463 of its 576 beds for a staffed occupancy rate of 60% in 2004. A combined organization of 

approximately 500-600 beds will be sized sufficiently to meet patient needs, the education 

requirements of SUNY, and maintain the competitive hospital market within the Syracuse area. 

Excess capacity weakens the financial status of Crouse Hospital. Crouse filed for bankruptcy 

protection in 2001, with debts of $91 million. The hospital emerged from bankruptcy in 2003 by 

deferring payment of $62 million in principal for five years. Repayment of the $62 million 

begins in 2008. 

Each hospital plans to undertake independently very costly and duplicative modernization 

projects. The two hospitals’ plans cost approximately $190 million in total. University Hospital 

soon will construct a six-story addition to its east wing, which will house a children’s hospital as 

well as expanded cardiovascular, neuroscience and oncology programs. The $99 million 

expansion project will increase the amount of space dedicated to pediatric medicine from 18,000 

square feet to 87,000 square feet, and it is anticipated to open in the spring of 2009. Crouse 

Hospital also needs substantial capital investment in order to remain competitive. Many parts of 

Crouse are at least 30 years old. The hospital is in the early stages of an $88 million dollar capital 

campaign to upgrade its facilities. 

The strategy of continuing to invest in these two separate yet adjacent entities with duplicative 

services can no longer be justified. An integrated organization will reduce the duplication of 

services across the two facilities (e.g., emergency departments, medical/surgical beds, operating 

rooms), consolidate the patient base for medical education, reduce administrative inefficiencies, 

and minimize capital investment. Medical education will be enhanced, and the combined entity 

should help the physician shortage across upstate New York. 

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Recommendation 2 

Facility (ies)

Auburn Hospital (Cayuga County) 

Recommended Action

It is recommended that Auburn Hospital downsize by approximately 91 beds to approximately 

100 certified beds. It is further recommended that Auburn Hospital discontinue its obstetrical 

services and that these services be provided by other area hospitals. 

Facility Description(s)

Auburn Memorial Hospital is a suburban community hospital in Cayuga County with 191 

licensed beds. It offers emergency, medical/surgical and intensive care, psychiatry and obstetrics 

services. It has no outpatient services at the hospital site. It had approximately 6,508 discharges 

and 23,054 emergency visits in 2004. Approximately 40% of its admissions originated in the 

emergency department. The facility occupies a city block in a single building with wings dating 

from between 1920 and 1970. The hospital has an adjacent 80-bed nursing home, the Finger 

Lakes Center for Living, which is fully occupied. Its payor mix is comprised of 55% Medicare, 

20% commercial insurance, and 16% Medicaid. The hospital had approximately 794 FTEs in 

2003. 

Assessment

Auburn Hospital is underutilized. Only 40-45% of its certified beds have been occupied in recent 

years; in 2004, it had just 41% occupancy of its certified beds. One-hundred beds are currently 

staffed, and its average daily census is 68. The hospital suffered loss of key staff and significant 

revenues were lost when inpatient care transitioned to outpatient settings. 

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Auburn is struggling financially. The hospital had a near break-even operating margin prior to 

2003. In 2004, Auburn reported a loss of $3.1 million. In 2005, their operating loss increased to 

$5 million. The projected operating loss for 2006 is between $2 and $3 million. Its debt is 

approximately $50 million, including $19.5 million secured by Cayuga County, $5 million 

financing for the nursing home, $3.9 million line of credit from First Niagara Bank, a pension 

plan under-funded by approximately $20 million, and a $260,000 mortgage for an urgent care 

center. Auburn has no DASNY debt. 

Auburn is implementing a fiscal stabilization plan to ameliorate its financial difficulties. It has 

retained a consulting firm for turnaround assistance, and is aggressively cutting costs. 

Auburn should alter its current service mix. It has only 15 obstetrics beds and, according to the 

provider, performs approximately 300 births per year. These services are readily available at 

other area hospitals. The Commission recommends the elimination of obstetrics at Auburn 

because these services contribute to Auburn’s financial problems, and the elimination of 

obstetrics will not create community access problems. Additionally, Auburn has a small 

complement of 14 psychiatric beds, of which, according to the hospital, only half are filled. 

Given the full occupancy of psychiatric beds in neighboring Syracuse, it is worth exploring 

whether these services can be more effectively organized on a regional basis. 

Despite its small size and low utilization, Auburn should not be closed. The hospital is located 23 

miles from the nearest hospital, which is in Syracuse, and is bordered on the west by Seneca 

County, which does not have a single hospital. Closure of the hospital would result in an increase 

in estimated average travel time for patients from 9 to 52 minutes. Auburn Memorial Hospital is 

necessary to preserve access to care. 

Optimally, Auburn could close part of its physical plant to reduce fixed costs and reflect its 

actual staffing level. However, its physical configuration in a single, low-lying building makes 

this difficult to do. Auburn can enhance its physical plant by establishing more single bedded 

rooms that would be more attractive to patients, thereby helping increase its overall patient 

volume. 

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Recommendation 3 

Facility (ies) 

St. Joseph’s Hospital (Chemung County) 

Arnot Ogden Medical Center (Chemung County)

Recommended Action

It is recommended that Arnot Ogden Medical Center and St. Joseph’s Hospital participate in 

discussions supervised by the Commissioner of Health to explore the affiliation of such facilities 

to end the medical arms race in Elmira that is expending scarce resources on duplicative services 

and progressively weakening both institutions. St. Joseph’s pursuit of a relationship with the 

Guthrie Health System will not serve the best interests of the Elmira community. It is further 

recommended that the Commissioner refrain from either approving any applications that have 

been or will be filed by either facility or providing any other consent requested by either facility, 

prior to the conclusion of such discussions between Arnot Ogden Medical Center and St. 

Joseph’s Hospital, as determined by the Commissioner of Health, except where such approval or 

consent is necessary to protect the life, health, safety and welfare of facility patients, residents or 

staff. If either Arnot Ogden Medical Center or St. Joseph’s Hospital fail to participate in such 

discussions in good faith, as determined by the Commissioner of Health, it is recommended that 

the Commissioner of Health close that facility and expand the other to accommodate the patient 

volume of the closed facility. 

Facility Description(s)

Arnot Ogden Medical Center is a non-sectarian 216-bed, tertiary referral center in Elmira, which 

includes a heart institute, cancer center, diabetes center, health center for women, maternal and 

child health center, and an HIV primary care clinic. Arnot Ogden also provides level III neonatal 

care and level II trauma care. The next closest location for these services is approximately 70 

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miles away. The hospital has updated its facility, including an expanded emergency department 

that was completed in 2005. It has approximately 1,300 full-time equivalent employees. 

St. Joseph's is a 224-bed Catholic acute care facility in Elmira that provides medical/surgical and 

physical medicine and rehabilitation services. The facility also provides inpatient and outpatient 

mental health, drug and alcohol services. The emergency department is approved to receive 

involuntary psychiatric admissions. St. Joseph's is an aging facility and requires investments in 

facility upgrades, including an upgraded emergency department. St. Joseph’s has approximately 

800 full-time equivalent employees. 

Both hospitals are located in the city of Elmira, approximately two miles apart. 

Assessment

There is excess inpatient capacity in Elmira. The two hospitals each ran at an average daily 

census of approximately 137 patients in 2004. Respectively, they had occupancy rates of 63% at 

Arnot Ogden and 61% at St Joseph’s based on certified beds in that year. St Joseph’s operated 

183 of their 224 certified beds, while Arnot Ogden operated all 216 of their certified beds. St. 

Joseph’s occupancy based on available beds was 75% in 2004. 

St. Joseph’s is barely breaking even financially. From 2001 to 2003, St. Joseph’s reported 

negative profit margins with an average loss of -2%. It has invested between $1.5 and $1.8 

million annually on technology and facility upgrades. Profit margins at Arnot Ogden are 

somewhat stronger than at St. Joseph’s, with an average loss of 0.5% for the period 2001 through 

2003. Neither facility carries DASNY debt. 

Competition for medical services has been particularly fierce between these two hospitals. Arnot 

Ogden has traditionally provided a full scope of cardiac services, including cardiac 

catheterizations. St. Joseph's submitted a certificate of need application for cardiac 

catheterization services, which was denied. Arnot Ogden also provides outpatient dialysis 

services, which is approximately 70% occupied. St. Joseph's submitted a certificate of need 

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application for similar dialysis services, which was approved. The local planning agency, the 

Finger Lakes Health Systems Agency, however, did not support the establishment of dialysis 

services at St. Joseph’s. 

Arnot Ogden and St. Joseph’s attempted to merge approximately fifteen years ago. They 

resolved potential religious issues during the merger proceedings; however, the merger was 

ultimately unsuccessful due to their inability to resolve existing debt structure under a new 

entity. 

St. Joseph’s contacted Pennsylvania-based Guthrie Health three years ago about forming a 

partnership. Guthrie has secured a presence in New York’s southern tier. Guthrie operates 

Corning Hospital, which is west of Elmira in Corning, New York, and a base of Guthrie Clinic 

physicians in practice sites throughout the Southern Tier. This outreach has impacted physician 

referral patterns in Elmira. Historically, physicians in the community have tried to maintain a 

balance between the two hospitals. Recently, Guthrie Clinic based physicians are admitting to St. 

Joseph's and referring specialty care to Robert Packer Hospital, a Guthrie-affiliated facility in 

Sayre, Pennsylvania that provides tertiary care. Admissions at Arnot Ogden have declined 

approximately 800 per year. 

St. Joseph’s announced in June 2006 its intention to form a collaborative partnership with 

Guthrie. Further collaboration between Guthrie and St. Joseph’s will not fulfill the need for a 

single hospital in Elmira with common governance and management. The Commission believes 

that the Elmira community would be best served by an integrated provider with the capacity to 

rationalize services and ensure that health care needs are met within the community. Integration 

of Arnot Ogden and St. Joseph’s would reduce the duplication of services across the two 

facilities (e.g., emergency departments, medical/surgical beds, operating rooms), reduce 

administrative inefficiencies, limit the medical arms race between the facilities, and ensure the 

continuation of health care availability in the area. 

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Recommendation 4 

Facility (ies)

Albert Lindley Lee Hospital (Oswego County) 

 

Recommended Action 

It is recommended that Albert Lindley Lee Hospital close all of its 67 beds. It is further 

recommended that the hospital convert to an outpatient/urgent care center with Article 28 

diagnostic and treatment center licensure. 

Facility Description(s)

Albert Lindley Lee Memorial Hospital is a 67-bed acute care facility in the town of Fulton in 

Oswego County. The hospital offers medical/surgical and emergency care. A.L. Lee has 

approximately 321 full-time equivalent employees. Despite its small size, the facility is 

underutilized; roughly half its beds were empty in 2003. Certified and staffed occupancy at A.L. 

Lee was 56% in 2004. The hospital’s operating margin was -2% from 2000 through 2003. A.L. 

Lee has (non-DASNY) long-term debt of approximately $4 million. The recent renovation of its 

emergency room and outpatient facilities cost approximately $3.4 million. More substantial 

renovations are required in order for the facility to remain up-to-date and competitive. 

Assessment

A.L. Lee Hospital is in close proximity, approximately twelve miles, to Oswego Hospital. 

Oswego is larger and more modern and sophisticated than A.L. Lee. Oswego has 132 certified 

beds and provides a broad array of services, including inpatient obstetrics and a more 

comprehensive outpatient program. Oswego Hospital recently completed $35 million worth of 

capital renovations, including a new ambulatory surgery entrance, operating rooms, intensive 

care unit, maternity department and other upgrades. Oswego is also in reasonably strong 

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financial shape; it posted a positive 4.3% margin in 2003. A.L. Lee Hospital and Oswego 

Hospital had extensive merger talks, but these ended when A.L. Lee Hospital withdrew from the 

discussions. 

There is excess inpatient capacity in Oswego County and no demonstrated need for two hospitals 

in the Oswego County area. The two hospitals had a combined total average daily census of 106 

patients in 2004. The two hospitals have 199 certified beds, which, if were all located at one 

facility would be 72% occupied. A single facility will operate more efficiently and will have a 

larger patient volume which will allow it to offer more comprehensive services and improve 

quality of care. Oswego Hospital is the more appropriate location for this combined facility 

because it is larger and recently renovated, and because the population of Fulton, where A.L. Lee 

is located, continues to shrink. 

Other hospitals in A.L. Lee’s service area also could accommodate the patients when A.L. Lee 

closes. A.L. Lee’s closure will not have a major impact on local physicians’ ability to practice 

medicine because many have privileges at both A.L. Lee and Oswego Hospital 

A health care facility in Fulton must remain to meet the outpatient and urgent care needs of the 

community. A.L. Lee provided approximately 47,000 outpatient visits in 2004. Patients using the 

facility will continue to need access to community-based primary care. Oswego Hospital’s 

outpatient facility provided approximately 190,000 outpatient visits in 2004, and it is unclear if 

the existing facilities could accommodate the additional volume from A.L. Lee. 

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CENTRAL REGION 

LONG-TERM CARE RECOMMENDATIONS 

Recommendation 1 

Facility (ies)

Van Duyn Home and Hospital (Onondaga County) 

Community General Hospital’s Skilled Nursing Facility (Onondaga County) 

Recommended Action

It is recommended that Van Duyn Home and Hospital and Community General Hospital’s 

Skilled Nursing Facility be joined under a single unified governance structure under the control 

of Community General Hospital, and downsize their combined number of RHCF beds by 

approximately 75. 

Facility Description(s)

Van Duyn is a 526-bed residential health care facility located in Syracuse, owned and operated 

by Onondaga County. Van Duyn provides baseline services*

 and shorter-term care. It serves a 

key role in moving patients out of the hospital, including potential residents who are unlikely to 

be admitted to private facilities due to their Medicaid-pending status, which puts months of 

payment at risk for a provider. 

 

*

 Baseline services are designated by operating certificate. A facility that provides baseline services offers all 

services required by federal and state regulations: nursing and medical care, which includes podiatry and 

opthamology, physical and occupational therapy, social services, recreational activities, dietician services, 

nutritional support, and personal care. 

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While Van Duyn has fairly high occupancy rate, ranging from 95% to 97% over the 2002 to 

2004 period, the facility operates at a considerable operating loss. The projected deficit for Van 

Duyn in 2006-07 is $8 million, which is a significant burden on Onondaga tax-payers. 

Van Duyn has a very low case mix index (1.02 in 2003, compared to an adjusted statewide 

average of 1.19), and 22% of its residents in 2001-2003 were designated as “PA” or “PB,” which 

are the two lowest need levels by the resource utilization group (RUG) score. PA and PB 

residents have the greatest potential for placement in alternative community settings. Van Duyn 

may be filling some its beds with individuals who may be better-served in less-restrictive 

settings. 

Van Duyn is on the same campus as Community General Hospital (CGH), which, in addition to 

providing acute care services, also houses a 50-bed skilled nursing facility (SNF). The 

Community General SNF also has a fairly high occupancy rate, which ranged from 94% to 96% 

over the 2002 to 2004 period. CGH receives a hospital-based SNF Medicaid rate. The CGH 

SNF’s case mix index in 2003 was 1.02, which is relatively low, and between 2001 and 2003, 

19% of its residents fell in the PA/PB category. At the same time, CGH needs space for its acute 

care plans, including private rooms. 

Assessment

Both Van Duyn and the CGH SNF face constraints due to their physical plants. Van Duyn’s 

building includes a long, double-loaded corridor, which impairs the staff’s line-of-sight, and 

restricts social interactions and on-floor therapeutic activities. Some existing nursing home beds 

are unnecessary given Onondaga’s Program of All Inclusive Care for the Elderly (PACE) and the 

growth of home- and community-based services in the county that could delay or avoid nursing 

home placement. 

An integrated organization will reduce the duplication of services across the two facilities, 

reduce operating costs at Van Duyn, enable Van Duyn to receive a hospital-based reimbursement 

rate, and create an integrated continuum of care on the campus. Under Community General’s 

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control, Van Duyn must continue its role as a leading provider of care serving hard-to-place 

populations including those patients with Medicaid-pending status. The reconfiguration and 

change of ownership is being developed with a consultant, and will require capital support. 

Recommendation 2 

Facility (ies)

Mercy of Northern New York (Jefferson County) 

Recommended Action

It is recommended that Mercy of Northern New York downsize by 76 RHCF beds to 224 RHCF 

beds. It is further recommended that the facility add a 60-bed ALP, a 16-slot ADHCP and 

possibly other non-institutional services in the vacated Madonna building. 

Facility Description(s)

Mercy of Northern New York (MNNY) is a voluntary, 300-bed residential health care facility in 

Jefferson County. The facility provides baseline services and a broader spectrum of services, 

including certified home care, renal dialysis, and ambulatory physical and behavioral health 

services. The facility emerged from bankruptcy in January 2006, and is developing plans to put 

itself on solid financial footing. MNNY suffers from relatively low occupancy, which ranged 

from 92% to 94% over 2002 to 2004, and a 90% Medicaid payor mix, which has reduced bedhold revenue by several hundred thousand dollars each year. 

MNNY has a low case mix index (1.09), and approximately 25% of its residents in 2001-03 were 

low-acuity. MNNY has questionable quality of care. It has been at the top of the Consumer 

Reports nursing home watch list for the past four years. The combination of low occupancy and 

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low revenue resulted in the facility providing nursing hours per resident per day significantly that 

was below statewide average, which in turn could hurt its quality of care and reputation. 

Assessment

Jefferson County presents a compelling opportunity to shift long-term care resources from 

institutional to alternative settings. There is a small surplus of nursing home beds according to 

the need methodology. The county had an occupancy rate of less than 89% in 2004, and has a 

shortage of non-institutional alternatives. Jefferson has only 20 slots of non-institutional services 

per 1,000 seniors, which is significantly below the statewide average of 33 slots per 1,000 

seniors. In particular, Jefferson County has no Medicaid assisted living program (ALP) beds, 

which may explain why so many low-acuity residents are in nursing homes. 

MNNY has a viable plan for converting its Madonna Home into an ALP. It would house 15 

units per floor, designed as a Green House model. This model includes the construction of 

homes for 6 to 10 elders who require skilled nursing care, and is designed to create a warm, 

welcoming community. By reducing its bed complement by 76 beds, MNNY should vacate one 

existing building on its campus, which should be renovated to house an ALP and adult day 

health care program (ADHCP) for approximately $1 million, for which the provider will arrange 

financing. MNNY already warehouses its empty beds for this purpose, and the process to vacate 

should take fewer than six months. 

This recommendation will require the establishment of an adult home for the purposes of 

creating an ALP. We recommend that the Department expedite this unless quality and 

competence standards are not met. 

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Recommendation 3 

Facility (ies)

Willow Point (Broome County) 

Recommended Action

It is recommended that Willow Point downsize by between 83 and 103 RHCF beds to 

approximately 280 to 300 RHCF beds, rebuild its facility in a configuration that reflects today’s 

therapeutic milieu, and add a 30-slot ADHCP. 

Facility Description(s)

Willow Point is a 383-bed residential health care facility owned and operated by Broome 

County. It provides baseline services. While the facility enjoyed fairly high occupancy (96-98% 

in the 2002 to 2004 period), it is plagued by several problems. First, Willow Point is financially 

unstable and is a financial burden on the county. In 2000-02, it lost over $6.4 million. Second, 

the facility has quality problems. It had 12 survey deficiencies, which is significantly above the 

regional average of 5, and a few immediate jeopardy citations of life-threatening situations. 

Some of Willow Point’s Medicare quality indicators fall well below statewide averages, 

including the percentage of residents in pain and who lose continence. The size and age of the 

Willow Point facility is inappropriate for skilled nursing care. Its long, double-loaded corridors 

inhibit interactions and do not provide today’s therapeutic milieu. 

Assessment

There is opportunity for resource shifts in Broome County. While the bed need methodology 

shows few surplus beds, the 2004 occupancy across the county was only 92.8%. In addition, the 

county still needs over 650 slots for non-institutional services, especially for adult day health 

care, for which only 20 slots exists for the entire county. 

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Because of the age, size, and physical layout of the facility, the Commission recommends that 

the facility be replaced with a modern, high-quality facility that houses multiple levels of care. 

The new facility should accommodate an ADHCP on the first floor, perhaps with additional 

space to expand if future needs warrant. The new facility should be opened for residents in 

approximately two-and-a-half to three years. 

Recommendation 4 

Facility (ies)

Lakeside Nursing Home (Tompkins County) 

Recommended Action

It is recommended that Lakeside Nursing Home close, and that an 80-bed ALP, a 25-slot 

ADHCP and possibly other non-institutional services be added somewhere in Tompkins County 

by another sponsor, pending completion of an RFP process.

Facility Description(s)

Lakeside Nursing Home is a 260-bed propriety residential health care facility in Tompkins 

county. It provides baseline services. Lakeside does not offer a broad spectrum of services, and 

does not provide post-acute care or specialty services. Its case mix index was 1.05 in 2003. 

Due to severe quality issues several years ago, the Department of Health arranged a receivership 

of Lakeside Nursing Home by Peregrine Health Management Company in 2000. Quality of care 

has improved under Peregrine’s receivership, although the facility has appeared on the Consumer 

Reports watchlist for the past four years. 

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The facility operates under Chapter 11 bankruptcy protection, and maintains sizable debts, 

including to the State. It has had a large operating loss for a number of years. In 2004, the 

facility ran at less than 85% occupancy, and which has reached as low as 65%. 

Assessment

Tompkins County has a documented excess supply of nursing home beds according to the bed 

need methodology. The county’s nursing facilities as a whole operate at only 92.7% occupancy. 

Tompkins County has 28 non-institutional slots per 1,000 seniors compared to a statewide 

average of 33 slots per 1,000 seniors, and has no ALP beds or ADHCP slots within its borders. 

Due to severe quality concerns and financial distress, Lakeside Nursing Home should close. In 

its place, the Department of Health should seek development via an request for proposal process 

of an 80-bed ALP and 20-30-slot ADHCP. Upon selection of a developer and operator, 

Lakeside should proceed to close.

Recommendation 5 

Facility (ies)

United Helpers, Canton (St. Lawrence County) 

Recommended Action

It is recommended that United Helpers, Canton downsize by approximately 64 RHCF beds to 

approximately 96 RHCF beds, rebuild its facility, and add a 48-bed ALP and possibly other noninstitutional services. 

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Facility Description(s)

United Helpers Canton (UHC) is a 160-bed not-for-profit residential health care facility in St. 

Lawrence County. UHC has a sub-acute care program and provides outpatient physical therapy. 

United Helpers is part of a broader system that provides a full continuum of services, including 

independent living and adult home programs, and other skilled nursing facilities. UHC had a 

relatively high occupancy of 95% in 2004; however, nearly 30% of those beds in 2001-03 were 

occupied by low-acuity residents, some of whom could likely be served by an ALP if that were 

available. 

Assessment

St. Lawrence County is over-bedded. The bed need methodology indicates a surplus of 158 

nursing home beds. It has a dearth of non-institutional alternatives, including no ALP beds or 

ADHCP slots. 

UHC proposed downsizing by 16 beds in its plans for a replacement facility, and to build stateof-the-art “pods” of 12 and neighborhoods of 48. The Commission recommends that UHC 

further downsize its RHCF beds and convert them to lower levels of care, for which is a 

significant unmet need in that community. 

UHC should submit a certificate of need (CON) application for a replacement facility. UHC is 

working with a number of local organizations as it plans its replacement facility in Canton. This 

may include co-locating an on-site child day care center and hospice residence. The Commission 

recommends that this CON include a 48-bed ALP. No quality and competence issues are 

anticipated as the United Helpers system already owns and operates adult homes in New York. 

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HUDSON VALLEY REGION 

ACUTE CARE RECOMENDATIONS 

Recommendation 1 

Facility (ies)

Kingston Hospital (Ulster County) 

Benedictine Hospital (Ulster County) 

Recommended Action 

It is recommended that Kingston and Benedictine Hospitals be joined under a single unified 

governance structure, provided that Kingston Hospital continues to provide access to the 

reproductive services currently offered at such hospital at a location proximate to Kingston 

Hospital. It is recommended that the joined facility be licensed for approximately 250 to 300 

inpatient beds. It is further recommended that the Commissioner refrain from either approving 

any applications that have been or will be filed by either facility or providing any other consent 

requested by either facility, prior to the execution by the facilities of a binding agreement to join 

under a single unified governance structure, except where such approval or consent is necessary 

to protect the life, health, safety and welfare of facility patients, residents or staff. If Kingston 

and Benedictine Hospitals fail to execute such an agreement by December 31, 2007, it is 

recommended that the Commissioner of Health close one of the facilities and expand the other to 

accommodate the patient volume of the closed facility. 

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Facility Description(s)

Kingston Hospital and Benedictine Hospital are located in Kingston within blocks of one 

another. Benedictine, a community hospital sponsored by the Benedictine Sisters, is the larger 

facility of the two, and has 222 licensed beds. Kingston, a secular community hospital, has 145 

licensed beds. Both hospitals provide medical/surgical, emergency, and obstetrics care, and run 

level I perinatal centers. The two hospitals had a similar number of inpatient discharges and 

emergency visits, but Kingston had significantly more outpatient visits than Benedictine. 

Kingston is affiliated with Margaretville Hospital, a federally-designated critical access hospital 

in Delaware County. Each of the hospitals has approximately 750 full-time equivalent 

employees. 

Assessment

There are too many hospital beds in Kingston. Neither hospital is fully occupied; however, 

neither hospital can readily absorb all of the other hospital’s patients. Sixty-nine percent of 

Benedictine’s 176 available beds were occupied in 2004. Kingston operated all of its 145 

certified beds, and had a 73.7% occupancy rate in 2004. 

There is unnecessary and wasteful duplication of services in Kingston and in Ulster County. 

Both Kingston and Benedictine hospitals are designated stroke centers and level I perinatal 

centers. Both facilities operate emergency departments and provide medical/surgical and 

maternity care. Although Kingston Hospital has only 9 licensed maternity beds, they had 491 

obstetrics discharges; Benedictine Hospital has 16 maternity beds, which is almost twice the 

number as Kingston, but performed only 376 births. Neither maternity program is financially 

viable at this low volume, and neither can afford to offer access to the specialized services and 

amenities that a larger combined program might afford. 

Both institutions are financially precarious. In 2003, Kingston Hospital had a -10.4% operating 

margin; Benedictine’s operating margin was -2.1%. Each of the hospitals has (non DASNY) 

long-term debt of approximately $25 million. 

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The institutions have drafted an unsigned memorandum of agreement to establish a parent 

corporation with broad powers over the two hospitals. The new corporation will become the sole 

corporate member of both hospitals, which will continue as separate and distinct corporations. 

Kingston Hospital will retain its identity as a non-sectarian institution, and Benedictine will 

continue to function as a Catholic hospital sponsored by the Benedictine Sisters, conforming to 

the Ethical and Religious Directives for Catholic Health Care Services. The proposed structure 

will allow for continued access to a full range of reproductive health services in Kingston. 

Reconfiguration will improve the financial standing of both facilities, reduce duplication of 

services, allow for efficient future investments, and improve the organization’s ability to meet 

the community’s health care needs. This arrangement also offers a new model for merging 

sectarian and non-sectarian intuitions, which potentially could be replicated in other areas of the 

State. 

Recommendation 2 

Facility (ies)

Sound Shore Medical Center (Westchester County) 

Mt. Vernon Hospital (Westchester County) 

Recommended Action 

It is recommended that Mt. Vernon Hospital downsize approximately 32 medical/surgical beds, 

and convert approximately 20 additional medical/surgical beds into a 20 bed transitional care 

unit. It is further recommended that Mt. Vernon Hospital convert approximately 24 additional 

medical/surgical beds into a 24 bed mentally impaired chemical abusers (MICA) unit, provided 

that the Commissioner of Mental Health and the Commissioner of Alcoholism and Substance 

Abuse Services approve such conversions. It is recommended that Sound Shore Medical Center 

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