Syracuse Health Care Market Works to Right-Size Hospital Capacity

Originally published by the Center for Studying Health System Change (HSC) as Community Report No. 9, August 2011.

Syracuse Grapples with Hospital Capacity Challenges

In October 2010, researchers from the Center for Studying Health System Change (HSC) visited the Syracuse metropolitan area as part of the Community Tracking Study (CTS) to examine the local health care market. The team conducted more than 40 interviews with health care leaders, including representatives of hospital systems, physician groups, insurers, employers, benefits consultants, community health centers, and state and local health agencies. The Syracuse metropolitan area encompasses Madison, Onondaga, and Oswego counties.

The Syracuse health care market had remained largely stable over the preceding three years but continued to face a persistent challenge: determining the right level and mix of hospital capacity for a relatively small population served by four general acute-care hospitals. One was a public academic medical center (Upstate University Hospital) and three were private nonprofit institutions, including Community General Hospital. Previous attempts to reduce inpatient capacity through mergers had failed repeatedly, as merging institutions could not reconcile differences in physician cultures, business philosophies, and management approaches.

The Upstate-Community General Merger

The most recent proposed merger, Upstate University Hospital's acquisition of Community General Hospital, did succeed in mid-2011, as most local observers had anticipated. The merger was broadly viewed as a positive development for the Syracuse community. Upstate needed to relieve acute capacity constraints at its main facility, while Community General required the resources and patient volume to reverse a recent exodus of physicians and patients and remain a viable institution.

Some payers expressed concern that the consolidation could lead to increased hospital prices, a common outcome when the number of competing hospitals in a market shrinks. Managing the longstanding tensions between academic physicians and community physicians within the merged entity was also identified as an ongoing challenge that would require careful attention.

Insurance Market Dynamics and Excellus Blue Cross Blue Shield

Excellus Blue Cross Blue Shield had increased its dominance in the small and mid-sized insurance market segments but lost some large, prominent self-insured accounts. Local employers questioned Excellus's data-reporting capabilities and its commitment to the Syracuse community, reflecting broader tensions about the role of a dominant insurer in a relatively small market. Relations between Excellus and local providers had improved somewhat, though the insurer's market power continued to be a source of friction.

Cost sharing for patients had increased at a moderate pace compared with national trends. Syracuse historically had lagged other communities in the adoption of consumer-driven health care products, and while high-deductible plans were gaining some traction, the shift was occurring more slowly than in many other markets.

Long-Term Economic Decline and the Safety Net

The Syracuse metropolitan area had been in long-term economic decline as it lost its manufacturing base over past decades, and with that decline came population loss. However, the area experienced a less severe recession than many other communities, partly because it had less exposure to the housing bubble and the financial sector. Despite serious budget challenges, New York state had not only expanded already generous eligibility standards for Medicaid and related public insurance programs but also streamlined enrollment and renewal processes, resulting in more Syracuse residents gaining public coverage.

Most safety net providers in the Syracuse area were faring reasonably well despite financial pressures, supported by strong Medicaid reimbursement rates relative to many other states. Community health centers continued to serve as an important source of primary care for low-income and uninsured residents, and the expansion of public coverage helped stabilize their patient mix and revenue base.

Gradual Market Changes and Health Reform Preparation

Syracuse historically had lagged other communities in many health-sector developments, and that pattern continued. Trends seen in other markets, such as hospital employment of physicians, consolidation of physician groups, and the growth of consumer-driven health care, were taking place in Syracuse but at a slower pace and with less intensity. The community's conservative approach to market changes reflected its economic circumstances, its relatively concentrated payer market, and a provider community that had historically been cautious about organizational change.

Sources and Further Reading

Tu, Ha T., Robert A. Berenson, Dori A. Cross, et al., "Syracuse Health Care Market Works to Right-Size Hospital Capacity," Community Report No. 9, Center for Studying Health System Change (August 2011).

Center for Studying Health System Change, Community Tracking Study site visit reports and data.